Nonprofit executives are breathing a sigh of relief after the Internal Revenue Service Thursday dropped a controversial proposed rule that would have pressured nonprofits to collect the Social Security numbers of their donors.
Nonprofits across the political spectrum argued the new regulation proposed in September would have a “chilling effect” on donations, and argued they could also make the groups targets for hackers.
The IRS had sought to form a voluntary system for nonprofits to gather Social Security numbers from their donors and send them to the agency in their yearly reports. The IRS said it was simply trying to streamline the reporting process for nonprofits, which include charities, churches and liberal and conservative groups, as well as their donors.
But the IRS backed down from the rule after receiving nearly 38,000 comments, including a letter signed by 215 nonprofit organizations objecting to the proposed regulation.
“Many of these public comments questioned the need for donee reporting, and many comments expressed significant concerns about donee organizations collecting and maintaining taxpayer identification numbers for purposes of the specific-use information return,” the Treasury Department and IRS said in a statement in the Federal Register Thursday.
“In response to those comments, the Treasury Department and the IRS have decided against implementing [the proposed rule] … accordingly, the notice of proposed rulemaking is being withdrawn,” they concluded.
Americans for Limited Government President Rick Manning said the new rule would have created “glaring security and privacy issues” for nonprofits, and accused the IRS of trying to target and harass conservative groups with the rule.
“This is the second time the IRS has ham-handedly tried to increase their capacity to target and harass conservative nonprofits in the last three years,” Manning said. “The last time it was a regulation severely restricting the political activity of 501(c)(4) organizations, that similarly had to be withdrawn.”
“Hopefully this latest dropping of a politically motivated regulation signals an end to Obama’s weaponization of the IRS,” he added.
The IRS said the rationale behind the rule was to help verify donation records, particularly for taxpayers being audited who claimed to have lost their donation records. The IRS stressed that the system would be voluntary and would impose no mandatory changes to existing rules.
Current rules require nonprofits to send a donor of $250 or more a written acknowledgement of their contribution to use when claiming deductions from income taxes. The new rule would have allowed nonprofits to send all that information, along with donor Social Security numbers, directly to the IRS.
