Two recent court cases have upheld an attorney general's ability to annually require donor lists from exempt organizations.
First, a California court recently upheld the California Attorney General's requirement that exempt organizations organized or soliciting in California submit unredacted versions of their Schedule B to their Form 990 Returns. As you may know, Schedule B requires certain exempt organizations to list the names and addresses of their donors. Generally, only the IRS is privy to this information, and such information is redacted before an exempt organization's Form 990 and accompanying Schedules are disclosed to the public.
The California Attorney General's disclosure requirement was challenged, in part, as a violation of the First Amendment right to freedom of association. The court did not agree with the challenge, stating that there were genuine law enforcement considerations behind the Attorney General's disclosure requirement. While the court's ruling does not mean that the donor information will be disclosed to the public, it does mean that the California Attorney General is now allowed access to a greater amount of information with which it can ensure that exempt organizations are, in fact, operating for exempt purposes.
Meanwhile, in New York, a court upheld the New York Attorney General's requirement that exempt organizations submit their unredacted Schedule Bs to their Form 990 Returns to the Attorney General's office. The exempt organization in this case also relied on the First Amendment as grounds for challenging the disclosure requirement and claimed that the disclosure requirement could enable the Attorney General to retaliate against the exempt organization by disseminating the exempt organization's donor list to the public.
In upholding the New York Attorney General's disclosure requirement, the court noted that the disclosure requirement enables the Attorney General to enforce the state's charitable solicitation laws and protect the general public by more easily overseeing exempt organizations. The court also stated there was no evidence that exempt organizations should fear retaliation by the Attorney General in the form of dissemination of donor lists.
These cases are likely a growing trend in the exempt organizations world. Thus, exempt organizations should be mindful of which states require unredacted Schedule B's to be submitted annually and should keep a watchful eye on what each state intends to do with the information.
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