A recent court rulingi upheld the California regulation that requires charities located or operating in California to provide a copy of their unredacted Form 990 Schedule B to the California Attorney General.ii California joins the list of states that now require charitable organizations to file an unredacted Form 990 Schedule B. In addition to California, that list includes Hawaii, Kentucky, Mississippi, and New York. While the California Attorney General has indicated that the Schedule B information will not be made publicly available, charities concerned about protecting donor identities will likely find this new requirement unsettling. Charities that are required to register with the California Attorney General should review their donor confidentiality policies and disclosures to ensure that their donors are aware of this new requirement.
All charitable organizations filing IRS Form 990, 990-EZ, or 990-PF are required to complete and attach Schedule B to such forms on which they must provide the names and addresses of significant donors (those who contribute more than $5,000) and the amount and description of assets contributed. Filed Forms 990 are required to be made available to the public and are published on websites such as GuideStar.org. While private foundations have always been subject to public disclosure of donor information, public charities – those organizations that file Form 990 or 990-EZ – are permitted to redact donor information from their tax filings before making those forms public. Under the regulations described above, California now requires public charities to include unredacted Schedule B information with the Forms 990 and 990-EZ that they file with the state Attorney General.
CALIFORNIA ATTORNEY GENERAL REGISTRATION
In order to solicit funds in California, an organization must maintain membership in the California Registry of Charitable Trusts and file an annual report with the California Attorney General's Office.iii Prior to 2014, many public charities had successfully submitted redacted copies of their Form 990 Schedule B with their California registration, but recently, the California Attorney General began requiring charities to submit unredacted copies of Schedule B.iv Specifically, the California Attorney General began treating annual reports submitted without Schedule B (or with a redacted Schedule B) as incomplete, and has taken the position that failure to submit a complete report could result in penalties, fees, and the loss of California income tax exemption. The California Attorney General reasons that having access to the Schedule B donor information is necessary to help the state assess whether a charity is conducting charitable activities as opposed to conducting fraudulent activities.
CHALLENGE TO THE FILING REQUIREMENT
The Center for Competitive Politics, a Virginia nonprofit registered with the California Attorney General, challenged the Attorney General's unredacted Schedule B filing requirement. On May 1, 2015, in Center for Competitive Politics v. Harris, the Ninth Circuit Court of Appeals upheld the California regulation allowing the California Attorney General to request such information.
But this might not be the end of the story. Another related case, Americans for Prosperity Foundation v. Harris,v is currently pending in the Ninth Circuit. Americans for Prosperity Foundation has also challenged the California Attorney General's request that it disclose an unredacted copy of its IRS Form 990 Schedule B. It is unlikely that the Ninth Circuit Court will reach a different conclusion in the Americans for Prosperity Foundation case given the recent decision in the Center for Comparative Politics case, but it is possible that the Court could carve out certain exceptions to the California Attorney General filing requirements. If that occurs, we will issue a client notification at that time.
Charities that are required to register in California should comply with the California Attorney General unredacted Schedule B filing requirement for now, rather than face penalties and potential loss of California income tax exemption.
i. Center for Competitive Politics v. Harris, No. 14-15978 (9th Cir. May 1, 2015).
ii. Cal Code Regs, Title 11, Section 301
iii. Cal. Gov. Code Section 12585
iv. Schedule B to the Form 990 is used to disclose to the IRS the reporting organization's significant donors (generally those who contribute over $5,000 in cash or property), including their names, addresses, and contribution amounts. Form 990 is subject to public inspection according to federal tax law, but Schedule B donor/contributor information may be redacted from public disclosure.
v. Americans for Prosperity Foundation v. Kamala Harris, No. 2:2014cv09448 – Document 33 (C.D. Cal. 2015)