TRENTON – Attorney General Gurbir S. Grewal today announced that New Jersey has joined a lawsuit against the Internal Revenue Service (IRS) and the U.S. Treasury Department over their elimination of a decades-old requirement that tax-exempt organizations report information about their major donors to the IRS. The lawsuit was filed last July by Montana Governor Stephen C. Bullock and the Montana Department of Revenue.

The IRS’s policy change specifically affects “social welfare organizations,” which are exempt from taxation under Section 501(c)(4) of the Internal Revenue Code and permitted to engage in political activity.

Section 501(c)(4) social welfare organizations generally are not required to disclose their donors to the general public under federal law, but historically have reported the names and addresses of their substantial contributors – those donating more than $5,000 – to the IRS as part of their annual filings. This “significant contributor” reporting rule had been in effect since 1971, but in July 2018 the IRS and Treasury abruptly abandoned the rule without prior public notice.

The complaint filed by Governor Bullock and the Montana Department of Revenue in July asserts that the federal agencies acted illegally by changing their long-standing reporting policy without first seeking public input. New Jersey joined the lawsuit in an amended complaint filed yesterday.

“Not only has the IRS made it easier for organizations to hide the sources of their money, it has done so behind closed doors, without seeking public input,” said Attorney General Grewal. “This is yet another instance of the federal government damaging states’ enforcement authority without even asking us first.”

New Jersey asserts in today’s amended complaint that the IRS’s action will impede the mission of the Charities Registration Section of the New Jersey’s Division of Consumer Affairs (DCA). More than 32,000 entities are registered as charitable organizations with DCA, including hundreds of 501(c)(4) social welfare organizations.

DCA requires certain social welfare organizations and other charitable organizations to submit to the agency’s Charities Registration Section copies of their IRS filings—including the forms for donor names and addresses. This information facilitates the New Jersey Attorney General’s enforcement of laws pertaining to charitable fundraising and non-profit corporations.

In addition to New Jersey challenging the IRS’s action in court, DCA in December proposed rules to ensure that charitable organizations filing registration statements will continue to report to DCA the substantial contributor information they were previously required to report to the federal government. The proposed rules have not yet been adopted, however, and DCA anticipates that the IRS’s action will cause the State to incur additional costs to implement its rules.

In 2018, Attorney General Grewal formally requested that the IRS and Treasury disclose records relating to creation of IRS’s new policy on significant contributor reporting in a pair of Freedom of Information Act requests. Specifically, Attorney General Grewal asked the federal government to turn over internal records about the development of the policy, records of communications with the White House and external groups, as well as other information. To date there has been no substantive response.

Deputy Attorney General Katherine A. Gregory and Assistant Attorney General Glenn J. Moramarco are representing the State of New Jersey in this matter.

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