Dark Money Darker? IRS Shutters Collection of Donor Data

Florida Tax Review, Vol. 25, Forthcoming, 2021

U. of Pittsburgh Legal Studies Research Paper No. 2021-19

46 Pages Posted: 1 Jun 2021

See all articles by Philip Hackney

Philip Hackney

University of Pittsburgh - School of Law

Date Written: May 28, 2021

Abstract

The IRS ended a long-time practice of requiring most nonprofits to disclose substantial donor names and addresses on the nonprofit annual tax return. It is largely seen as a battle over campaign finance rather than tax enforcement. Two of the nonprofits involved, social welfare organizations and business leagues, are referred to as “dark money” organizations because they allow individuals to influence elections while maintaining donor anonymity. Many in the campaign finance community are concerned that this change means wealthy donors can avoid campaign finance laws and have no reason to fear being discovered. In this Article, I focus on whether the information is needed for the enforcement of the tax law and/or to support ancillary legal goals. I contend the IRS ought to collect this substantial donor information as it did for over 79 years. Though the collection of donor information may not be essential for groups such as social clubs, fraternities and sororities, and mutual ditch companies, the collection of this information non-publicly by the IRS is important in both enforcing tax-exempt requirements and in enforcing the tax law generally. Tax law prohibits the distribution of earnings from a nonprofit to those who control the organization. Substantial donors are classic suspects for seeking such improper receipts through their control. Thus, the information is key to IRS auditors. Considering the deficient budget of the IRS to ensure a properly enforced Code, the failure to collect that information puts the IRS in a disadvantaged position. While as a democratic matter, there may be some modest benefit from alleviating donors from the worry that the government will know about their political contributions, the harm to those who are not able to make use of these structures, the harm to those who are deprived of information regarding the biases associated with particular political activity, and the harm to the belief that the tax, campaign finance, and nonprofit law will be enforced equally upon all, is more significant. With these considerations in mind, the IRS and Treasury ought to rescind its most recent guidance on this matter. If not, Congress ought to require this information be disclosed by law.

Keywords: 501(c)(4), 501(c)(6), tax exempt, nonprofit, democracy, tax policy, political justice, dark money, social welfare organization, business league, Form 990, Schedule B, Donor Disclosure, tax law, tax theory, internal revenue code, tax return, political campaign, campaign finance

JEL Classification: K34, L31, H20, H25, H26, H29

Suggested Citation

Hackney, Philip, Dark Money Darker? IRS Shutters Collection of Donor Data (May 28, 2021). Florida Tax Review, Vol. 25, Forthcoming, 2021, U. of Pittsburgh Legal Studies Research Paper No. 2021-19, Available at SSRN: https://ssrn.com/abstract=3855543

Philip Hackney (Contact Author)

University of Pittsburgh - School of Law ( email )

3900 Forbes Ave.
Pittsburgh, PA 15260
United States
412.643.0434 (Phone)
412.648.2649 (Fax)

HOME PAGE: http://www.law.pitt.edu/people/philip-hackney

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