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Law Requiring Nonprofit Disclosures Gets Chilly Reception in Supreme Court

April 27, 2021 by Tom Ramstack
Law Requiring Nonprofit Disclosures Gets Chilly Reception in Supreme Court
The U.S. Supreme Court building. (Photo by Dan McCue)

WASHINGTON — A California law that requires nonprofit organizations to disclose their donors met with skepticism among most of the U.S. Supreme Court’s justices during a hearing Monday.

The law is opposed by coalitions of nonprofit organizations that say the disclosures could dry up their contributions and trample the privacy of donors.

The law’s supporters say it is a hedge against “dark money” that can sway elections and allow corporations to evade responsibility for influence-peddling.

The law requires nonprofits that solicit donations to identify their substantial donors to the California attorney general. A failure to comply could make them lose their legal status as nonprofits.

The law is opposed by a coalition of nonprofit organizations represented by Americans for Prosperity Foundation and the Thomas More Law Center.

Their attorney, Derek L. Shaffer, told the Supreme Court the law is a “a totally gratuitous First Amendment violation.”

The First Amendment to the U.S. Constitution bans government laws or actions that interfere with freedom of religion, speech, the press, assembly and the right to petition the government for redress of grievances.

Justice Samuel Alito largely agreed the law infringes on First Amendment rights of the organizations.

He said nonprofits that take “unpopular” positions might have “reasons to fear reprisal” against their contributors, even when they are truthfully expressing their opinions. 

He also cast doubt on the California attorney general’s argument the state would keep the list of donors confidential.

Recent history demonstrated “massive breaches” of confidentiality by state regulators of the data, Alito said.

Justice Clarence Thomas suggested that donors of large amounts of money that help keep nonprofits afloat might be dissuaded from contributing “because they have reduced or no confidence that their contribution will be kept confidential.”

The Supreme Court’s liberal justices admitted to misgivings about the breadth of the law but said they understood the reasoning behind it, namely concern over dark money.

Dark money normally refers to political spending by nonprofit organizations that are not bound by the donation limits imposed on political candidates. They can receive unlimited donations from corporations, individuals and unions without needing to report it to state governments.

As a result, donors can spend money to influence elections without voters knowing the source of it.

Justice Stephen Breyer expressed concern that the Americans for Prosperity Foundation case “is really a stalking case” for campaign finance laws.

A group of Democratic U.S. senators filed an amicus brief in the case that also warned about how a ruling striking down the California law might negatively affect campaign financing. 

“Political spending by opaque entities with hidden funders has come to dominate the public sphere, unchecked by the scrutiny that transparency once provided,” the brief says.

An unusual assortment of liberal and conservative groups filed briefs that agreed with the nonprofits. They included the American Civil Liberties Union, the NAACP, the Cato Institute and the Institution for Justice.

A tax-exempt organization is generally not required to disclose publicly the names or addresses of its contributors set forth on its federal annual return, including Schedule B (Form 990, 990-EZ, or 990-PF).

The regulations specifically exclude the name and address of any contributor to the organization from the definition of disclosable documents. Contributor names and addresses listed on an exempt organization’s exemption application are subject to disclosure, however.

This general exclusion for contributor information on annual returns does not apply to private foundations, or to political organizations described in section 527 of the Internal Revenue Code.

Certain tax-exempt political organizations must report the name and address, and the occupation and employer (if an individual), of any person that contributes in the aggregate $200 or more in a calendar year. Tax-exempt political organizations may also be required to file Form 990, including Schedule B. Political organizations must make both of these forms available to the public, including the contributor information.

A U.S. District Court in California already struck down the law but the 9th U.S. Circuit Court of Appeals revived it, saying the law “is substantially related to an important state interest in policing charitable fraud.”

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