Senators Question IRS Authority to Request Confidential Donor Information

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Full Text:

SENATORS TO IRS: CONGRESS HAS MADE PRIVACY THE RULE,
NOT THE EXCEPTION

In letter, Lawmakers Call on IRS Commissioner Shulman to
Preserve Privacy Protections for Non-Profit Organizations

WASHINGTON -- Citing concerns over privacy protections, 11 Senators today pressed the Internal Revenue Service (IRS) for additional answers on the agency's decision to request confidential donor information from organizations applying for tax exempt status. In a letter led by U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, the lawmakers said such action circumvented current statutory privacy protections and questioned the targeting of groups specifically seeking the approval or renewal of a tax-exempt designation under section 501(c)(4).

"Congress has made privacy the rule, and not the exception," wrote the Senators. "A list of donors who have given money to specific charitable organizations is something that carries great value to certain interested parties, as trading of personal information about private citizens has become common practice. Unfortunately, the public release of private donor information exposes citizens to possible harassment and intimidation by those who oppose the goals of the charitable organization."

Joining Hatch on the letter are Senators Mitch McConnell (R-Ky.), Mike Enzi (R-Wyo.), Lamar Alexander (R-Tenn.), John Cornyn (Texas), Kay Bailey Hutchison (R-Texas), Jon Kyl (R-Ariz.), Bob Corker (R-Tenn.), Pat Roberts (R-Kan.), John Thune (R-S.D.), and Rand Paul (R-Ky.)

Earlier this year, a dozen Republican Senators called on the IRS to prevent politics from playing a role in any action taken on non-profit 501(c)(4) organizations after several groups applying for the status received excessive follow-up inquiries from the agency. The IRS responded giving assurances their actions were not for political gain, however the issue of privacy protections was not addressed.

Hon. Douglas H. Shulman
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20230

Dear Commissioner Shulman:

On March 14, 2012, we wrote to you with a number of questions regarding the procedures the Internal Revenue Service ("IRS") uses when evaluating organizations that apply for tax-exempt status. We appreciate the thoroughness of your response to our inquiries. However, we remain concerned that the IRS is requesting the names of donors and contributors to organizations that apply for tax exempt status. In doing so, the IRS appears to be circumventing the statutory privacy protections that Congress has long provided donors.

Prior Congresses have passed legislation with bipartisan support to ensure the privacy of donors who give to charitable organizations. While the annual tax returns of certain charitable organizations have long been required to be made available for public review, the 91^st Congress denied the Secretary of the Treasury the authority to disclose the names and addresses of financial contributors from these returns.¹ In addition, the 100^th Congress created a specific statutory exception for disclosure of names and addresses of financial contributors, when they expanded public inspection of certain annual returns, reports, and applications for exemption of certain tax exempt organizations.² In using nearly identical legislative language to create these exceptions from disclosure, both Congresses made strong legislative pronouncements that their goal was to protect the privacy of donor information. In addition, the same commitment to privacy is evident in the requirement that taxpayers be given the opportunity to obtain redaction of identifying information before related IRS private letter rulings, technical advice memoranda, and Chief Counsel Advice memoranda are made public.³ Through these various expressions, Congress has made privacy the rule, and not the exception.

It is important to note the value that is placed on protecting the privacy of individuals and organizations that choose to donate funds to charitable organizations. The privacy interests of donors is widely recognized and valued. Various public policy initiatives have rightly encouraged donations to social welfare organizations, and these efforts are threatened when private information about donors is not adequately protected. A list of donors who have given money to specific charitable organizations is something that carries great value to certain interested parties, as trading of personal information about private citizens has become common practice. Unfortunately, the public release of private donor information exposes citizens to possible harassment and intimidation by those who oppose the goals of the charitable organization.

As we mentioned in our March 14 letter, it is our understanding that the IRS asked several organizations who applied for tax-exempt status to provide the names of individuals who had made donations (regardless of dollar amount) to those organizations, as well as the names of individuals who are expected to make donations in the future. The Form 1024 exemption application asks applicants for sources of financing but does not ask for names and addresses. It is our understanding that specific donor information -- names and addresses -- are not provided on Form 1024.

Yet, by requesting through correspondence, after the filing of a Form 1024, that organizations applying for tax exempt status provide names of donors, the IRS sets in motion an outcome wherein donor information that would be protected and redacted by one provision of the Internal Revenue Code ("Code") which provides an exception from disclosure, would be made available for public inspection by a separate provision of the Code relating to inspection of applications for tax exemption. Such an outcome is clearly at odds with the express intent of Congress to maintain the privacy of donors. Even if not prohibited by law, the actions of IRS are an inappropriate circumvention of the policy of donor privacy embedded in the Code.

When the IRS requests specific donor information through a follow up letter as part of the exemption application process, it ensures that this highly sensitive donor information will be included in the administrative record. This presents a serious privacy problem: if the IRS approves the organization's application for tax-exempt status, then section 6104 of the Code requires the associated administrative record -- including the identity of donors if included therein -- to be made available for public review at the national office of the Internal Revenue Service.⁴ This is completely at odds with the treatment of the same donor information when it is viewed at the principal office of the tax-exempt organization. The Code specifically states that the names and addresses of donors are not required to be available for public inspection when viewed at this physical location.⁵ Given that donor information is redacted on annual tax returns of tax-exempt organizations, redacted on denied tax-exempt applications, redacted on successful tax-exempt applications (when viewed at the organization's principal office), and not required to be provided on the Form 1024, it is disconcerting that donor information would be reviewable, or at the very least not be redacted, on successful tax-exempt applications viewed at the national office of the IRS.

In order to better understand the background on these recent requests for confidential donor information and the authority of the Internal Revenue Service to make these requests, we respectfully request that you provide answers to the following questions:

1. What is the specific statutory authority giving the IRS authority to request actual donor names during reviews of applications for recognition of exemption under Section 501(c)(4)? 

2. Is it customary for IRS revenue agents to request donor and contributor identifying information during review of applications for tax-exempt status under Section 501(c)(4)? Please provide the number of requests by the IRS for such information for each year from 2002 to 2011.

3. Is the Exempt Organizations technical office involved in all such information requests of exemption applicants?

4. Section 7.21.5 of the Internal Revenue Manual states that Letter 1313 should be used as a first request for additional information for cases received on Form 1024, and that Letter 2382 should be used for second and subsequent requests for information. We have attached redacted copies of an IRS 1313 Letter and 2382 Letter which were reportedly sent to applicant organizations earlier this year. Each of these letters contains passages which specifically request names of donors.⁶

a) Which IRS employees and officials were involved in the drafting of the questions requesting donor names?

b) Which IRS officials provided authority and approval for the questions requesting donor names?

c) Did any IRS personnel definitively review and determine whether there would be any privacy impact by the requests for names of donors which could ultimately be made part of a publically available administrative record? Was the IRS Office of Privacy consulted, and did it play a role in any such determination?

5. What is the total number of IRS 1313 and 2382 letters sent in 2011 and 2012 (to date) which specifically request names of donors?

6. Does the IRS intend to utilize IRS 1313 and 2382 letters in the future to specifically request names of donors?

7. Does the IRS view donor identifying information as being necessary information when reviewing applications for tax-exempt status under Section 501(c)(4)? If so, how was this finding made and what written standards are utilized by the IRS in evaluating this information? Have any IRS personnel ever recommended that IRS Form 1024 be amended to specifically require that this information be furnished?

8. Section 7.20.2.7 of the Internal Revenue Manual (relating to evaluation of organizations applying for tax-exempt status) states that requests for additional information in processing a determination should be thorough and relevant. Would a request (to an organization applying for tax-exempt status under Section 501(c)(4)) for a list of donor names, some who may have given as little as $1, meet the relevancy standard?

Thank you for your prompt attention to this matter.

• • • • • • Sincerely,
            
            [signatures]
            

¹ See H.R. 13270, The Tax Reform Act of 1969, which became Public Law Number 91-172

² See H.R. 3545, Omnibus Budget Reconciliation Act of 1987, which became Public Law Number 100-203

³ 26 USC § 6110

⁴ 26 USC § 6104(a)(1)(A)

⁵ 26 USC § 6104(d)(3)(A)

⁶ Letter 1313 asks for donor names in question 3(a) on page 4. Letter 2382 asks for donor names in question 11(a) on page 6.