Proposed IRS Rule Would Place Undue Burden on Nonprofits, Discourage Donations

The Galen Institute has submitted comments about a proposed Internal Revenue Service regulation that would give nonprofits the option of asking donors for their Social Security numbers to substantiate donations of more than $250.

We strongly oppose this rule that would provide a “voluntary” path to collect and report not only the Social Security numbers but also the names, addresses, and other information about donors. Here is the public comment we submitted explaining why we oppose this proposed rule. There is a link at the bottom of the post where others can submit comments as well.

While this proposed reporting would be voluntary at first, the next step surely would be to make it mandatory. A small 501c3 such as ours does not have the resources to develop a system to guarantee we could protect the Social Security numbers of our donors.  In addition, this proposed regulation would add yet more burdensome reporting requirements that would subtract time and resources from our core mission.  Further, it would discourage donors from contributing to our organization, further diminishing the resources available for our work.

The Treasury and the IRS make it clear that the current system of providing donors with written acknowledgement of donations “works effectively, with the minimal burden on donors and donees.” Adding this proposed “voluntary” IRS rule is confusing and would needlessly introduce the risks of fraud, identity theft, and decreased donations to the non-profit community.

I strongly recommend that you reject this proposed rule, which is a very expensive and threatening solution in search of a problem.

Tim Delaney, president and CEO of the National Council of Nonprofits, said this is a broad concern to the non-profit community: “…the IRS proposal would open the door for scam artists…Nonprofits have neither the financial resources nor sufficient staffing to combat hackers who will see an easy source for Social Security information. This also creates a liability nightmare for innocent nonprofits…To be asked to share their address, their credit card number and their Social Security number all in the same place would be enough to scare even the most committed donor to decline to give.”

We also agree with U.S. Sen. Pat Roberts, who said in a speech on the Senate floor: “This rule could dramatically reduce people’s willingness to make donations, and burden charities, many of which are small, volunteer-operated organizations with new costly administrative costs. The collection and safekeeping issues surrounding this proposal could very significantly stress the good works done by our charitable sector.”

Mr. Delaney made a similar point, stressing, “Every donation not given means another senior who won’t receive a meal, a child who won’t receive life-saving medical care, another animal without a home, and much more.”

We associate ourselves with a statement by the National Council of Nonprofits, a group representing 25,000 not-for-profits, which also is taking a stand against the proposed regulation. “The National Council of Nonprofits’ position is that the proposed voluntary reporting regime is inappropriate because the process could impose significant costs and burdens on nonprofit organizations, would create public confusion and disincentives for donors to support the work of nonprofits, and could lead fraudulent actors to increase targeting donors and reputable nonprofit organizations.”

The proposed IRS regulation would allow a charity to substantiate charitable contributions by filing a return with the IRS that includes detailed donor information. If the charity elects to file the return, it must provide the donor’s name and address, the donor’s Social Security number, the amount of cash and a description of any property other than cash contributed, whether the charity provided any goods or services in consideration for the contribution, and a description and good faith estimate of the value of any goods or services provided by the charity.  The existing system, in which we provide written substantiation to donors of their contributions, works well and should not be replaced with another burdensome reporting requirement.

Those wishing to post comments can do so here, by midnight of Tuesday, December 15, 2015.


Update: The Internal Revenue Service announced on January 7, 2016 that it is withdrawing the proposed rule to require non-profits to collect Social Security numbers. Read more from The Hill.