The IRS Targets Political Donors

The IRS regulatory assault on political nonprofits continues, albeit out of the media glare. In September the Internal Revenue Service and Treasury Department proposed a rule to give 501(c)(3) charities the “option” of filing detailed reports on every donor who contributes more than $250. These reports would include names, addresses and Social Security numbers. Oh, oh.

While the IRS says the rule is “voluntary,” in government that’s often a prelude to compulsory. The legitimate fear in the nonprofit world, on the right and left, is that this is a first step toward making such donor lists mandatory, and then applying the requirement to every nonprofit—including the conservative social-welfare organizations that the IRS helped to shut down in the 2012 presidential election.

Under current law, nonprofits must report only donors who give more than $5,000 a year, and then only names and addresses. Donors who give less than $5,000 to (c)(3) charities, and who want to claim a tax deduction, must obtain a “receipt” from the charity—to furnish to the IRS if they are audited or examined. This process has been in place for years, and even Treasury and the IRS acknowledge in their new rule that it “works effectively, with the minimal burden on donors and donees.”

So why change it? The IRS is claiming this will aid in more “timely reporting” of tax-deductible donations, and no doubt the agency’s auditors would love more information to harass taxpayers.

But the biggest impact will be to chill donations to politically active nonprofits. Many donors, conservatives in particular, won’t want their Social Security numbers on a list destined for a federal database. All the more so after the IRS targeted conservative groups and singled out conservative donors for audits and other government examinations.

Frank VanderSloot, a Mitt Romney donor, was audited by the IRS and Labor Department after the Obama campaign singled him out for criticism. Catherine Engelbrecht, the head of the 501(c)(3) True the Vote, was publicly attacked by Democrats and then hit with personal and business audits from the IRS, OSHA and the Bureau of Alcohol, Tobacco, Firearms and Explosives.

The National Council of Nonprofits, which opposes the proposed rule, notes that the IRS routinely warns taxpayers not to give out their Social Security numbers unless “absolutely necessary.” Donors will be suspicious of charities that now ask for them.

Many taxpayers will also lack confidence that nonprofits, which are often small operations staffed by volunteers, can safeguard their information. The proposed regulation is an invitation to fraud and identity theft by creating an opportunity for scam artists to claim to be charities and solicit Social Security numbers.

This year the IRS was forced by public outrage to shelve a different regulation that sought to limit the amount of political activity social-welfare organizations can engage in. The new rule looks like an attempt to achieve a similar result by drying up contributions. The rule’s public comment period ends Wednesday, but Democrats and Republicans in Congress should work together to put this one on ice.