IRS Scraps Rule to Collect Donors’ Personal Data

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After an outpouring of opposition, the IRS is backing off on a proposal requiring nonprofits to collect and report donors' Social Security numbers. The agency will publish a withdrawal of the proposed rule in the Federal Register on Jan. 8.

Donors who claim a charitable deduction for any contribution of $250 or more to a nonprofit organization are required to obtain a “contemporaneous written acknowledgment” of the donation from the nonprofit. Under the IRS rule, which was proposed last September, a voluntary system would have been created for charities to collect and maintain the personal information of those donors, including Social Security numbers.

According to a PDF version of the unpublished withdrawal, the IRS's proposal “was intended to minimize the reporting burden on donee organizations by making it voluntary, and to protect donor privacy by not using the Form 990 series.”

Still, the US Treasury Department and the IRS indicated concern about potential identity theft with a reporting system based on “specific-use information return” because organizations would collect Social Security numbers of donors and keep those numbers “for some period of time.”

So the agencies' requested comments and got a deluge of 37,977 before the submission period closed on Dec. 16, 2015.

“Many of these public comments questioned the need for donee reporting, and many comments expressed significant concerns about donee organizations collecting and maintaining taxpayer identification numbers for purposes of the specific-use information return,” the withdrawal document states.

A day before the comment period closed, 215 nonprofit organizations in a joint letter called on the IRS to withdraw the proposed regulation.

“We have serious concerns that the proposed voluntary reporting regime is inappropriate because it would expose the public to increased risk from identity theft, impose significant costs and burdens on nonprofit organizations, and create public confusion and disincentives for donors to support the work of nonprofits,” the letter states.

Noting that the IRS warns people not to give out their Social Security numbers unless it's absolutely necessary, the letter states that a charitable organization never should ask for Social Security numbers and, if one does, it should be considered a sign of a scam or fraud and reported to law-enforcement officials.

“This conflicting message from the IRS is certain to confuse the public and result in fraud,” the letter states.

At the National Council of Nonprofits, President and CEO Tim Delaney said in a statement on Jan. 7 that the Treasury Department and the IRS should work with the nonprofit community in developing “sound solutions before they issue proposals that will harm the public.”

“If Treasury and the IRS had listened first instead of proposed first, they could have learned immediately how harmful their proposed rules were and avoided confusing the public,” Delaney stated. “Even though it was withdrawn, this rulemaking wrongfully suggested that giving out Social Security numbers may be appropriate in some circumstances, thus opening the public up to scam artists who could hurt individuals through identity theft and sully the good name of charitable nonprofits.”

The agencies also could have avoided problems they've created for themselves, which include pending legislation to limit their power, he said.

About Terry Sheridan

Terry Sheridan

Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.


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