Judge Blocks IRS Rule Change on Nonprofit Donor Disclosure

The exterior of the IRS building in Washington. A federal judge blocked the Trump administration’s efforts to lift requirements for some tax-exempt groups to disclose the identities of their donors to federal tax authorities, announced in 2018. The change would have benefited groups that spend millions of dollars on political ads, such as the U.S. Chamber of Commerce and an organization tied to the billionaire Koch brothers. (AP Photo/Susan Walsh, File)

(CN) – A federal judge in Montana struck down an Internal Revenue Service rule dropping disclosure requirements for major donors to some nonprofit organizations, finding the agency did not offer the required notice and opportunity for public comment.

U.S. District Judge Brian Morris in Great Falls found the plaintiffs, Gov. Steve Bullock and the Montana Department of Revenue, had not asked for a ruling on the merits of the change in their 2018 lawsuit. Instead, Montana sued over the lack of notice and public comment.

Montana had asked for “the opportunity to submit written data and opposing views or arguments” that would allow the IRS to be fully informed by the public “when making potentially significant changes to federal tax law,” Morris wrote, and ordered the IRS to make that happen if it changes the rule in the future.

“This decision is a big victory for Montanans, for Americans and for our representative democracy,” Bullock said in a statement. “We’re holding the federal government accountable to following its own rules and making sure that people, not dark money groups, decide our elections.”

Bullock and his state claimed the rule change allowed organizations including the National Rifle Association, the American Civil Liberties Union and other nonprofits to stop reporting donor lists on tax forms. There would have been no easy way to discover if foreign nationals were influencing elections through their donations to certain 501(c) groups or if donations would be illegally used to benefit private shareholders or individuals, according to the lawsuit.

The state also complained the new rule would have cost it time and money. Montana would have been “forced to obtain this information from potentially thousands of organizations directly, rather than from the IRS,” the complaint said, increasing the chance that donors who contribute over $5,000 in money or property to certain tax-exempt dark money organizations could remain anonymous.

Bullock’s office noted the governor has a strong record of promoting transparency in government.

“I will continue fighting against the corrupting influence of dark money to ensure that Montana remains one of the most transparent states in the nation,” Bullock said.

The Internal Revenue Service did not immediately respond to a request for a comment.

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