Bill Would Curb IRS Oversight of EO Donors, Political Activity

Bill Would Curb IRS Oversight of EO Donors, Political Activity

Legislation that House Republicans say will strengthen election integrity contains several provisions to restrict oversight of tax-exempt organizations by the IRS and other federal agencies in the areas of political activity and donor disclosure.

The American Confidence in Elections (ACE) Act, introduced July 10, “will permanently prohibit federal agencies, like the IRS, from asking for nonprofit organizations’ donor lists, creating ad hoc standards, and applying them to ideologically opposed groups,” the bill’s sponsor, House Administration Chair Bryan Steil, R-Wis., wrote in a Washington Examiner opinion piece.

“It is antithetical to the First Amendment that the IRS or any federal government agency would ever be used to target an organization because of its political beliefs, or who its donors might be,” according to the bill's legislative text.

“As such, these organizations need to be protected to prevent events like what transpired at the IRS between 2010 and 2013,” the text continues, referring to revelations that the IRS inappropriately held up exemption applications of Tea Party groups and other conservative organizations.

Supporters of the ACE Act’s political activity and donor disclosure provisions cite two Supreme Court decisions, NAACP v. Alabama ex rel. Patterson, 357 U.S. 449 (1958), and Americans for Prosperity Foundation v. Bonta, 141 S. Ct. 2332 (2021), that found the donor disclosure laws addressed in those cases unconstitutional.

The ACE Act includes almost 50 stand-alone bills previously introduced by House Republicans.

Protecting Donor Privacy

A section of the ACE Act titled the Speech Privacy Act of 2023 would, except for section 527 political groups, criminalize the disclosure of individuals who donate to EOs.

The provision would prevent the establishment of new agencies empowered to disclose donors and would permit only the IRS, the Federal Election Commission, the Secretary of the Senate, and the Clerk of the House to have donor disclosure power so that those agencies could administer the laws under their jurisdictions.

EO Reporting Requirements

Another section of the ACE Act incorporates the Don’t Weaponize the IRS Act, which seeks to limit the disclosure of EO donor information to the IRS.

This section would raise from $5,000 to $50,000 the gross receipts threshold for filing IRS Form 990, “Return of Organization Exempt From Income Tax,” and determine which EOs may be exempt from some disclosure and reporting requirements, according to a summary prepared by

The bill would exempt from disclosure the names and addresses of contributors in an organization’s annual return, and it would extend exemptions from reporting requirements to section 527 political organizations, according to the summary.

The legislation would expand the definition of an organization to include charitable organizations and entities that don’t conduct significant lobbying, political activity, or trade or business activities.

The proposal to raise the Form 990 filing requirement threshold drew criticism from Alexander L. Reid of Baker & Hostetler LLP, who said, “The Form 990 could certainly do with further revision, but it should not be eliminated for small organizations.”

Brakes on Social Welfare Guidance

Another provision would prohibit Treasury and the IRS from publishing new or revised guidance on whether a social welfare organization is operated exclusively to promote section 501(c)(4) purposes, including guidance on the permissible levels of political activities of section 501(c)(4) social welfare entities.

In recent years, a congressional appropriations rider has barred guidance on permissible amounts of political activity by section 501(c)(4) groups because of continuing Republican concerns about the IRS/Tea Party affair.

Reid said the IRS should be allowed to define how much activity social welfare organizations can undertake that is unrelated to their exempt purposes.

Stopping ‘Zuckerbucks’

The ACE Act also incorporates H.R. 4501, the End Zuckerbucks Act of 2023, a title that reflects Republican allegations that Meta Platforms Inc. CEO Mark Zuckerberg and his wife donated millions to a nonprofit purportedly for election integrity purposes, but that Republicans say actually was an effort to influence election outcomes in Democratic-leaning districts.

The provision would prohibit a section 501(c)(3) organization from directly funding a state or local government office that administers elections.

The sponsor of H.R. 4501, House Ways and Means Committee member Claudia Tenney, R-N.Y., said in a July 14 statement that her bill “would prohibit big tech billionaires from spending millions of dollars improperly influencing election administrators and the election process.”

Reid, however, remarked that “nonprofits should be allowed to fund election integrity programs.”

More Thoughts

Reid said that although the ACE Act offers some useful and important ideas, he thinks that overall, it misconstrues the Supreme Court’s holdings in NAACP and Americans for Prosperity.

“The freedom of association articulated in those cases protects associations — i.e., nonprofits — and their donors from government interference,” Reid said. “The central point being that associations deserve respect under the law and should not be abused. Abuse can come from within the association — by bad-faith actors, fraudsters, and criminals — just as much as it can come from without, by partisan or bad-faith regulators.”

“The ACE Act treats nonprofits instrumentally rather than with respect, as conduits for campaign money rather than as mission-driven enterprises,” Reid added. “Donor anonymity should be respected to prevent viewpoint discrimination, retaliation, and harassment, but it should not be used to hide waste, fraud, and abuse.”

But in a July 12 letter to House leaders, the Goldwater Institute and other nonprofit organizations said the provisions in the ACE Act offer “a critical counterbalance to the growing push for unconstitutional and harmful disclosures in Congress and at the state level that attack the rights to freely speak, publish, and support groups that advocate for causes supported by Americans across the country and ideological spectrum.”

The Don’t Weaponize the IRS provisions, the Speech Privacy Act provisions, the provision prohibiting new section 501(c)(4) guidance, and a provision prohibiting the SEC from requiring businesses to disclose their giving to nonprofits and membership in trade associations are “four vital privacy protections,” the letter said.

Copyright © 2023, Tax Analysts. Author: Fred Stokeld. All Rights Reserved. Content may not be shared, reproduced, modified, published, distributed, or otherwise recreated in any fashion without the express prior written consent of Tax Analysts and CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC and other Financial Services subsidiaries of CBIZ, Inc. (NYSE: CBZ) that provide tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies.

Bill Would Curb IRS Oversight of EO Donors, Political Activity that House Republicans say will strengthen election integrity contains several provisions to restrict oversight of tax-exempt organizations by the IRS and other federal agencies in the areas of political activity and donor disclosure.2023-07-20T17:00:00-05:00

Legislation that House Republicans say will strengthenelection integrity contains several provisions to restrict oversight oftax-exempt organizations by the IRS and other federal agencies in the areas ofpolitical activity and donor disclosure.

Regulatory, Compliance, & LegislativeNot-for-Profit & EducationFederal TaxTax ReformYes