Montana Sues IRS Over Rules Change to Nonprofit Donor Lists

(CN) – Montana’s governor claimed in federal court Tuesday that an Internal Revenue Service decision to abandon disclosure requirements for major donors to dark money groups could result in corporate and foreign donors influencing future elections, and presents a financial and administrative burden on the state.

Gov. Stephen Bullock and the Montana Department of Revenue filed a lawsuit Tuesday in U.S. District Court in Montana against the IRS, acting Commissioner David Kautter and the Department of the Treasury to set aside a procedure that went in effect July 16, 2018, claiming the decision violates the Administrative Procedure Act.

The complaint states Revenue Procedure 2018-38 allows nonprofit groups to stop listing names and addresses of donors who contribute more than $5,000 on their tax returns. This means groups such as the National Rifle Association will no longer have to provide donor lists.

The lawsuit claims funds from anonymous donors could be illegally used to benefit a private shareholder or individual and there would be no way to discover if donations from foreign nationals were used to fund political advertising and influence elections.

According to Ronja Abel, spokeswoman for the governor’s office, this decision changes rules that “have been in place for almost 50 years that require 501(c) dark money groups to disclose their major donors to the IRS.”

In a statement, Gov. Bullock said, “We’re coming up on the most momentous midterm election in a generation. The IRS, and the administration, are sending absolutely the wrong message at the wrong time: spend money to get corporate interests elected, and we’ll work to cover your tracks.”

The complaint says that campaign spending by dark money organizations, those that are tax-exempt under sections 501(c)(4), 501(c)(5) and 501(c)(6), “increased more than fifty-fold between 2004 and 2016.”

The governor’s office said Montana and other states would be adversely affected by this decision.

According to the lawsuit, the IRS donor lists allow states to access donor information when making a tax-exempt determination of an organization, uncovering donor money that might wrongly benefit any private shareholder or individual.

The complaint states the elimination of donor reporting requirements has significant downstream effects. It puts an undue burden on Montana, which will be “forced to obtain this information from potentially thousands of organizations directly, rather than from the IRS” taking more time and costing the state additional money, according to the governor’s office.

The complaint states that defendants violated the procedure for rulemaking according to the APA as they did not provide notice, an opportunity for comment or supply a “reasoned analysis of their decision to amend a legislative rule.”

The complaint asks the court to set aside the decision.

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

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