Introduction. After more than a decade of litigation, the California Attorney General’s (“AG’s”) IRS Form 990, Schedule B disclosure requirement was struck down by the United States Supreme Court in Americans for Prosperity Foundation v. Bonta, Case No. 19-251 (July 1, 2021) (“Bonta”). The Bonta decision affects U.S. jurisdictions that require charities to disclose Schedule B to the state AG pursuant to the charitable solicitation laws of that U.S. state. Beginning in 2018, through guidance, the IRS had limited the applicability of federal Schedule B reporting requirements under the Internal Revenue Code of 1986, as amended, to certain tax-exempt organizations. Final IRS regulations on Schedule B disclosure were issued in May 2020.
Schedule B Overview. In Bonta, petitioners were tax-exempt charities that solicited contributions in California, and therefore, were subject to California charitable solicitation laws, including the AG registration and annual renewal requirements. California AG regulations required registrants to file copies of their IRS Forms 990 or equivalents, along with any attachments and schedules. IRS Form 990 includes Schedule B, on which charities report annually the names, addresses, total contributions and types of contributions of contributors who donate the greater of $5,000 or 2 percent of total contributions in a tax year.
Majority Opinion in Bonta. In Bonta, petitioner Americans for Prosperity Foundation was a charity devoted to education and training about free society and free market principles, civil liberties, immigration reform and limits on government. Thomas More Law Center, the other petitioner, was a public interest law firm with a mission of protecting religious freedom, free speech, family values and the sanctity of human life. Petitioners filed suit in the Central District of California against California AG office when the office began enforcing the Schedule B disclosure requirement in 2010 by threatening to revoke registration of charities to solicit funds in California. After appeals to the Ninth Circuit and remands back to District Court, the Supreme Court granted certiorari.
The Supreme Court in the majority opinion applied exacting scrutiny as the legal standard for balancing compelled disclosure of affiliation with charities against donors’ First Amendment right of freedom of association via donations to groups engaged in advocacy. The Supreme Court stated that exacting scrutiny “requires that there be ‘a substantial relation between the disclosure requirement and a sufficiently important governmental interest,.. and that the disclosure requirement be narrowly tailored to the interest it promotes”.
The Supreme Court found that the Ninth Circuit, in reversing the District Court, erroneously failed to apply a narrow tailoring requirement in Supreme Court jurisprudence. The Court held that “the up-front collection of Schedule Bs is facially unconstitutional, because it fails exacting scrutiny in a ‘substantial number of its applications… judged in relation to [its] plainly legitimate sweep. Accordingly
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Marina Vishnepolskaya’s practice focuses on domestic and cross-border tax and employee benefits matters. She counsels employers and executives on a wide range of employee benefits and executive compensation matters, including drafting and amending salary, bonus, cash and equity-based deferred compensation plans, fringe benefit plans and other compensation arrangements, employee policies and handbooks, employment and separation agreements, compliance with IRS voluntary plan correction requirements for nonqualified plans and related employment and tax laws.
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