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Charitable Organizations Must Disclose Names of Large Contributors

Wed 12th Sep 2018, Blogs

by Ariana Seldman Hawbecker

On September 11, 2018, the Ninth Circuit reversed a district court’s decision barring the State of California from requiring Thomas More Society (the “Law Center”) and The Americans for Prosperity Foundation (the “Foundation”) to provide a list of their most significant donors to the state. 

Both organizations, registered as Internal Revenue Code 501(c)(3) tax-exempt charitable organizations, had successfully argued at the trial court level that California’s requirement that they file an annual form listing the names of donors who donated 2% or more of their organizations’ total receipts violated the First Amendment right to free association by deterring donors.

The Ninth Circuit found that California had a substantial government interest in collecting donor information for law enforcement purposes.  The AG claimed that “’such  information  is  necessary  to  determine   whether   a   charity   is   actually   engaged   in   a  charitable purpose, or is instead violating California law by engaging  in  self-dealing,  improper  loans,  or  other  unfair business  practice’…”   

Having found a substantial government interest, the Ninth Circuit weighed whether requiring the Law Center and the Foundation to disclose donor names presented a “substantial threat of harassment” to the disclosed persons.  The non-profits argued that requiring the disclosure of donor names to the state would both deter donors and subject contributors to “threats, harassment, and reprisals”. 

Both organizations offered evidence suggesting that their donors feared retaliation from both federal and state regulatory agencies, including the IRS.  The Foundation argued that California state regulators harbored negative views of its opinions and supporters Charles and David Koch and could take action against contributors.  It also showed that individuals associated with the Foundation, such as its CEO, had been harassed and targeted and that large contributors had received death threats.

The Ninth Circuit held that while there was evidence of reprisals, those claims were insufficient to abrogate California’s disclosure rule.  The Court noted that the Law Center failed to show that any of its contributors had been harassed.  The Court wrote that the co-founder of the Law Center testified that he had never had a conversation with a contributor who would not contribute due to fear of public disclosure and that the Law Center had disclosed more than what was required in previous filings. 

At most, the Ninth Circuit held that the evidence offered by the plaintiffs supported a “modest” impact on potential contributors. It wrote that the “mere possibility that some contributors may choose to  withhold  their  support  does  not  establish  a  substantial  burden  on  First  Amendment  rights.”

Ultimately, the Court concluded threats, harassment or reprisals due to the disclosure requirement were not reasonably likely because the disclosure filings are confidential, and may not be disclosed except in a court or administrative proceeding brought by the AG or in response to a search warrant.

Americans for Prosperity Foundation v. Xavier Beccera, Ninth Circuit, September 11, 2018.

Ms. Hawbecker represents taxpayers under investigation by the IRS and Department of Justice for tax fraud, evasion, and obstruction.