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Nonprofit Disclosure Rule Struck Down by Supreme Court

  • California’s nonprofit disclosure rule deemed unconstitutional by Supreme Court last week
  • Why donor disclosure may be unconstitutional and why it might prevent “dark money”
  • What are NYS’s disclosure laws?

Last week the Supreme Court ruled against a California law requiring nonprofits to file to the state a list of their large donors (those contributing $5K or more). The majority opinion, written by Chief Justice John Roberts, stated that disclosure regulations have a chilling effect on donors’ First Amendment freedom of association rights.

What Rules Were Outlawed?

  • 501(c)(4) Rules: The law required 501(c)(4) organizations to disclose all of their donors in public filings with the state when spending over $10,000 in a calendar year towards communications to at least 500 members of the public concerning the position of any elected official on potential or pending legislation.
  • 501(c)(3) Rules: The law also required 501(c)(3) charitable organizations to disclose donors of $2,500 or more if the charitable organization made an in-kind donation of more than $2,500 to a Section 501(c)(4) organization engaged in lobbying in New York.

Nonprofits are still required to disclose large donor names to the IRS while filing a form 990; however, donor names and addresses are not to be made public information. Those opposed to disclosure argue that this still violates the First Amendment right to freedom of association because it does not fully eliminate the concern from potential donors that their names may become public in the future.

To Disclose or Not to Disclose?

  • Disclosure: Those in favor of donor name disclosure believe it will prevent those with financial power from using charitable contributions in an influential way. These high-influence groups, also known as “Dark Money Groups,” are estimated to have spent over $1 billion on the 2020 election alone, according to one report.
  • No Disclosure: Those opposed to donor disclosure are leveraging their First Amendment right as a means of protection. This can best be summarized by Emily Seidel, Chief Executive of AFPF, in a statement, “Today’s decision protects Americans from being forced to choose between staying safe or speaking up, the ability to maintain one’s privacy makes it possible for people to join together in causes and movements.”

Disclosure Rules in NYS

NYS experienced a similar chain of events, concluding in 2019 with the state declaring disclosure unconstitutional. NYS attempted to revive certain features from previous donor disclosure rules, enacting a semi-annual reporting provision.

There is a growing concern among disclosure proponents that California’s updated legislation will be a catalyst for other states to follow suit.

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