August 20, 2020
Charitable organizations can now provide their donors with additional privacy and protection, thanks to a recent Supreme Court ruling. Effective July 1, 2021, state charitable regulators can no longer force charitable organizations to disclose their donor names and addresses, after the Supreme Court held in Americans for Prosperity Foundation v. Bonta that such disclosure requirements violate citizens’ right to freedom of association and have a chilling effect on the exercise of First Amendment freedoms.
As a result of the decision, California and New York have already updated their charitable organization registration and reporting requirements. This means that if your organization is registered in either of these states, the standard form annual report you submit will no longer require that you submit your IRS Form 990 Schedule B as an addendum to the report.
Hawaii and New Jersey are expected to implement similar updates shortly. If your organization is registered in these states and your renewal deadline is not imminent, you may wish to wait to submit your annual renewal until the states have officially updated their requirements. If your renewal deadline is imminent, you should contact the state charities regulator to confirm the state is not requiring donor information in violation of the Supreme Court’s ruling.
The Court’s holding is a significant step towards solving a problem that people of faith and faith-based organizations have grappled with for many years: due to “cancel culture,” people’s safety and livelihoods can be put at risk if their sincerely-held religious beliefs contradict secular orthodoxy.
In Americans for Prosperity Foundation, two charities fundraising in California, including the faith-based nonprofit Thomas More Law Center, challenged the California Attorney General’s requirement that the charities turn over a list of their donors’ names and addresses. The charities argued that their donors’ freedoms of association and speech were repressed by the requirement. The charities provided specific examples of how their safety and their donors’ safety was put at risk because of the disclosure of such sensitive information. The charities pointed out that the attorney general did not actually need the donors’ identifying information to fulfill the purpose of preventing fraud.
The Supreme Court agreed with the charities, holding that the disclosure requirement was an impermissible burden on donors’ First Amendment rights. The Court quoted from an earlier opinion in NAACP v. Alabama, affirming that “compelled disclosure of affiliation with groups engaged in advocacy may constitute as effective a restraint on freedom of association as [other] forms of governmental action.”
The Court’s ruling made clear that freedom of association, like freedom of expression, receives significant protection under the First Amendment.
What does this mean for faith-based organizations? The ruling will help nonprofits advocate for their sincerely-held religious beliefs while protecting their volunteers, members, and donors.
One of the ruling’s benefits is that state agencies will be deterred from experimenting with similar requirements asking for disclosure of parties who are involved with charitable organizations. For example, compelled disclosure of members or volunteers of a pro-life group would likely be considered unconstitutional under Americans for Prosperity Foundation.
Another benefit of the ruling is that it sets a clear, high standard for state agencies that do attempt to proceed with compelled disclosure. The Court held that any time the government requires a charitable organization to hand over the names of people involved in its activities, the requirement must meet a very high bar (referred to as “exacting scrutiny”). The standard requires that: (1) the government’s goal in collecting the information must be important; (2) collection of the information must have a substantial relation to the government’s objective; and (3) the collection of the information must be narrowly tailored to achieving the government’s goal. These requirements apply to local, state, and federal government authorities, and protect the privacy of donors, volunteers, and members.
Organizations should be aware that some donor disclosure requirements remain even after Americans for Prosperity Foundation.
For example, Internal Revenue Code Sec. 6033(b)(5) requires the Internal Revenue Service to collect a list of the names and addresses of substantial contributors from IRS Form 501(c)(3) tax-exempt organizations that file an IRS Form 990.
Similarly, California law still requires the California Franchise Tax Board to collect a schedule of contributors from tax-exempt organizations required to file a CA Form 199.
In both these cases, the regulators are required to keep the information private, and, historically, the regulators have done so.
Donor privacy will likely be of continued importance, as society wrestles with the rise of cancel culture, through which people’s professional lives are derailed as punishment for unorthodox beliefs or associations.
Because this issue threatens First Amendment-protected freedoms, several state legislatures are acting. For example, many state legislatures are considering or have passed laws limiting state agencies’ power to require donor information. Adding this restriction will make sure that these requirements are not implemented unless the agency can convince the legislature such measures are absolutely necessary.
Napa Legal will continue to provide updates regarding donor privacy and other issues impacting faith-based organizations.
 California Office of the Attorney General: Charities; New York Charities Homepage. Note: Florida requires the Schedule B but permits organizations to redact the names and addresses of contributors.