U.S. Supreme Court to Hear California Donor Disclosure Case

On July 1, 2021, the Supreme Court ruled in favor of the challengers, striking California’s requirement that organizations file Form 990 Schedule B with their annual solicitation registrations. Visit this post for more information.

In April 2021, the Supreme Court of the United States (SCOTUS) heard two similar challenges to California’s requirement that charitable organizations must disclose confidential donor information when registering to solicit. The challenges, brought by two nonprofit organizations, Americans for Prosperity and the Thomas More Law Center, argued that the requirement “infringe[s] upon their freedom of speech and association under the U.S. Constitution’s First Amendment.” (source).

Oral arguments in the case were brought on April 26, 2021. While the Court “seemed poised to side with two conservative groups challenging the constitutionality of California’s requirement,” (source), an actual decision in the case is not expected until the end of June.

More broadly, while most states require organizations to submit a copy of Form 990 when submitting charitable solicitation materials, only California, New Jersey, and New York specifically require that an unredacted copy of Schedule B (Schedule of Contributors) accompany the 990. The Schedule B requirement causes concern among registering nonprofits who seek to protect the confidentiality of their major donors.

In this blog post, we’ll summarize where submission of Schedule B is required and how government agencies handle the information. We’ll also provide resources from which you can learn about state charitable registration requirements.

We’ll draw from our extensive experience providing state charitable registration compliance services to nonprofits across the U.S. Our work in this area is aimed at reducing the workload and uncertainty involved with fundraising registration, while keeping clients’ information secure.

What is Schedule B and How Does It Relate to Charitable Solicitation Registration?

501(c)(3) organizations that receive substantial support from individuals, foundations, and corporations are required to file Schedule B with their annual IRS Form 990 or 990-EZ return. To the IRS, “substantial” is generally defined as any single contribution exceeding $5,000 or 2% of the organization’s total annual contributions, though special circumstances may apply.

Schedule B requires organizations to list the names, addresses, and amounts given by major contributors. Unlike most of the 990 return, Schedule B has not traditionally been subject to public disclosure after it is filed with the IRS.

Most tax preparers will give organizations two versions of the completed 990 return:

A “Client Copy” containing all schedules
A “Public Disclosure Copy” with confidential schedules and information removed

When registering to solicit, organizations must file a copy of IRS Form 990 with nearly every state. Annually, organizations submit their most recent 990 in order to renew those registrations. And, Form 990 is so integral to the registration process that many states base their individual deadlines on the federal deadline.

Currently, most states accept the public disclosure version of Form 990, that is, the copy not containing Schedule B. In these states, as long as the return is signed by an officer and otherwise complete, registration can generally occur without interruption. This is for good reason: most states simply do not require a copy of the confidential information already submitted to the IRS.

What States Require Schedule B When Registering to Solicit?

While most states accept the public disclosure version of Form 990, three states currently require Schedule B:

California, with Form RRF-1 renewal filings only
New Jersey, with both CRI-150i (initial) and CRI-300r (renewal) filings
New York, with Form CHAR500 renewal filings only*

*New York has recently introduced a second CHAR500 filing requirement with the Department of State (DOS). Organizations must file Schedule B with both the Attorney General and the DOS.

How Do States Handle Confidential Donor Information?

While the IRS requires information on substantial contributors, many organizations are understandably hesitant to share it with other agencies and third parties. However, registering charitable organizations should take reassurance that, while Schedule B is required to complete registration, reporting agencies keep the information confidential.

In California, Registry of Charitable Trusts Form RRF-1 provides clear instructions when confidential information may be disclosed, which is generally in the event of an official investigation and not for routine public viewing.

In New Jersey, while Schedule B is required due to the 2019 updates to N.J.A.C. § 13:48-4.3 and N.J.A.C. § 13:48-5.3, the state examiners routinely inform applicants that this information does not become part of the public record.

In New York, Attorney General Form CHAR500 reassures filers that this information is not subject to public disclosure. The Department of State has similarly provided reassurance that all confidential information will be redacted.

Again, while in these three states, donor information is not subject to public disclosure, California’s Schedule B requirement is at the heart of the case being heard by SCOTUS.

What Does the SCOTUS Case Mean for Your Organization?

Despite the legal challenges to California’s requirements, Schedule B is still currently needed to register successfully. Without it, the charity officials of California, New Jersey, and New York will reject applications.

Interested parties can track the progress of the case on SCOTUSblog. You are also encouraged to bookmark this post, as we will be updating as developments occur.

While organizations may feel unsure about providing Schedule B, they should know state agencies do not make confidential information a matter of public record. As a result, Schedule B simply becomes part of the “checklist” of any other necessary information, records, or financial statements when registering to solicit charitable contributions in those three states.

Harbor Compliance tracks legislative changes and maintains regular contact with state agencies. We help client organizations achieve registration and navigate a changing landscape of at times complex requirements.

Want to see how our fundraising compliance solutions can benefit your organization’s mission? Start the conversation by clicking the following link:

Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.