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Government and Regulation
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Supreme Court Poised to Hear Landmark Case Involving Donor Privacy

By  Dan Parks
April 22, 2021
Opinion: Foundations, Don’t Wait for a Supreme Court Vacancy to Act on Judicial Partisanship 1
iStock

The Supreme Court will hear arguments Monday in a potentially landmark case involving donor disclosure requirements that could have far-reaching implications for nonprofits nationwide.

The case is focused on a California law that requires charities raising money in that state to disclose the names of major donors to state regulatory officials. The names of donors would not be publicly disclosed.

The Americans for Prosperity Foundation, which was funded by billionaire and conservative activists Charles Koch and his now-deceased brother David Koch, is leading the charge to overturn the California law.

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The Supreme Court will hear arguments Monday in a potentially landmark case involving donor disclosure requirements that could have far-reaching implications for nonprofits nationwide.

The case is focused on a California law that requires charities raising money in that state to disclose the names of major donors to state regulatory officials. The names of donors would not be publicly disclosed.

The Americans for Prosperity Foundation, which was funded by billionaire and conservative activists Charles Koch and his now-deceased brother David Koch, is leading the charge to overturn the California law.

California officials say the disclosure law will help ensure that tax-exempt organizations are serving a charitable purpose. Opponents say it violates the First Amendment and that it could endanger donors who give to controversial but legitimate charitable causes.

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California is one of at least three states, along with New York and New Jersey, that have sought to require donor disclosure to state officials. If the California law stands, “more states, perhaps many more, can be expected to follow suit,” says the Nonprofit Alliance, an advocacy group that opposes disclosure.

Powerhouse coalitions have lined up on both sides of the case. Opponents of the California law include the Association of Fundraising Professionals, the Council for Advancement and Support of Education, Defenders of Wildlife, Disabled American Veterans, Doctors Without Borders, the National Wildlife Federation, and the Southern Poverty Law Center.

Supporters of the California law include the National Council of Nonprofits, CharityWatch, the California Association of Nonprofits, and Public Citizen.

Currently, most nonprofits must disclose to the IRS all donors who gave more than $5,000 in any one year, although that threshold can be even higher for some larger organizations. The California law requires that information to be shared with state regulators as well.

A federal district court sided with opponents of the law, but a federal appeals court reversed that ruling and upheld the California law, which is now before the Supreme Court as Americans for Prosperity Foundation v. Rodriquez.

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Opponents of the California law cite a 1958 Supreme Court case, NAACP v. Alabama, in which the court ruled unanimously that the NAACP did not have to disclose the names of its rank and file members to the state of Alabama. Civil rights groups argued that the state sought the names to harass and intimidate the NAACP, and the Supreme Court ruled that the Alabama law violated the NAACP’s constitutional rights of association and assembly.

Regulators Want to Ferret Out Fraud

Even though the California law limits disclosure of the information to state regulators, opponents of the law say it opens the door to accidental disclosure of the information or misuse by state officials.

The ACLU, which wants the California law overturned, argues that because there is a history of inadvertent data disclosure by some state agencies, that amounts to de facto public disclosure.

In a court filing, the Americans for Prosperity Foundation argued that history offers many examples of once-controversial causes that have moved into the mainstream, such as civil rights and LGBTQ rights. “Historic strides have often been achieved by private groups espousing ideas that others may (at a particular time and place) violently oppose. Our country would be far less just — and the public square less diverse — if Americans could not support causes anonymously,” the briefing states.

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Michael Nilsen, vice president of marketing, communications and public policy for the Association of Fundraising Professionals, said nonprofits are already required by the IRS to publicly disclose plenty of information to ensure public trust.

Nilsen said California hasn’t demonstrated a compelling reason it routinely needs donor information. If there is a concern about fraud in a specific circumstance, there are other ways regulators can get that information that are narrowly targeted, Nilsen said.

Nilsen said the fact that the law is targeted at only the biggest donors doesn’t make it any less objectionable. “I don’t know why that matters. A donor is a donor,” he said. Nilsen add that the biggest donors are often those who are most at risk of harassment over the causes they support.

Organizations that represent donors are also opposed to the California law. Elizabeth McGuigan, director of policy for the Philanthropy Roundtable, says the California law opens the door to harassment of donors and “chilling charitable giving across the country.”

She added, “Those that would be hurt by mandatory disclosure would be charities and the communities that they help.”

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People choose to remain anonymous for many legitimate reasons, McGuigan says, including modesty, keeping the focus on charity, and avoiding a flood of solicitations.

“Others are genuinely worried about their safety given how polarized the country is today,” she says.

Opposition a ‘Smokescreen’?

Many academics and tax experts say the concerns cited by opponents of the California law are unfounded.

Paul Streckfus, a former IRS lawyer and editor of the EO Tax Journal, which covers tax policy affecting nonprofits, is among the many tax experts and academics who dismiss the concerns raised by opponents of the California law, such as the claim that the law infringes on free association guaranteed by the First Amendment to the Constitution.

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“Constitutional arguments about the First Amendment are mostly a smokescreen,” Streckfus said. “The Supreme Court’s decision in the NAACP case was written of necessity to address a unique situation and should be left as such.”

Streckfus noted that other case law supports the idea that a tax subsidy may come with conditions. If the Americans for Prosperity Foundation is worried about donor disclosure, Streckfus says, there is a simple solution: surrender its tax-exempt status “and start paying taxes like the rest of us.”

Cindy Lott, a Columbia University nonprofit scholar who specializes in state nonprofit regulation, also dismisses First Amendment complaints and arguments about inadvertent state disclosure of donors’ identity.

Lott, who along with other academics filed a friend of the court brief in support of the California law, said there is a wide range of possible outcomes. For example, the court could narrowly rule on the California case in a way that sheds little light on the court’s view of whether charity donors have a constitutional right to privacy, or it could reach a sweeping conclusion on that point.

The justices also may be using the California law as an opportunity to clarify its decision in Citizens United v. Federal Election Commission, Lott says.

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That ruling is best known for overturning limits on corporate spending in elections. It also established that the government has some authority to require advocacy groups to disclose donors who support political activity, but generic references to “nonprofits” in the ruling created confusion about the extent to which disclosure may be required of donors to 501(c)(3) charities.

Jan Masaoka, chief executive of the California Association of Nonprofits, said the California law and others like it would increase the public’s trust in charities. She said that deterrence of fraud is sufficient reason for states to request the information. Masaoka also dismissed the argument that such laws would inevitably lead to public disclosure of donor names.

“There’s a lot of yakety-yak that this would disclose donor names and donor information,” she said. “That is simply 100 percent not true.”

We welcome your thoughts and questions about this article. Please email the editors or submit a letter for publication.
Finance and RevenueFundraising from IndividualsGovernment and RegulationMass FundraisingPhilanthropists
Dan Parks
Dan joined the Chronicle of Philanthropy in 2014. He previously was managing editor of Bloomberg Government. He also worked as a reporter and editor at Congressional Quarterly.
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