Nonprofits and Donor Disclosure: Legal Requirements and Practices

The topic of donor disclosure for nonprofits is a complex and nuanced issue, with different laws and practices in different regions. This article delves into the legal and practical requirements, as well as the impact of disclosure on donor trust and engagement.

Legal Requirements for Nonprofit Donor Disclosure

Under U.S. law, nonprofit organizations (NPOs) are required to disclose donor information, particularly in the form of Schedule B of the Form 990. This tax-exempt form includes a schedule that lists donors who give over a certain amount, though the specific names are not typically disclosed in the version made public by the IRS. However, many NPOs voluntarily disclose giving categories and ranges of amounts, which can serve to enhance transparency and donor engagement.

According to the IRS, nonprofits that receive tax benefits through the 80G program must share donor names and details. In the case of 501(c)(3) organizations, including churches, this requirement has become more stringent in recent years. Other charitable organizations have seen changes in disclosure requirements, with the IRS revoking the lengthy and intrusive Form 990 for most organizations.

International Perspectives on Donor Disclosure

In the United Kingdom, not-for-profit organizations, including limited companies, partnerships, co-operative organizations, and registered charities, are legally required to disclose and categorize their income. They are also required to report personal financial interests of directors, trustees, and managers. However, these requirements do not mandate the disclosure of personal donor information, except in cases involving political parties.

Practical Implications of Donor Disclosure

While legal requirements for donor disclosure exist, the practical implications can vary. Many nonprofits opt to disclose donor information, especially for giving categories and ranges of amounts, in order to foster transparency and prove their authenticity to potential donors.

For example, the Detroit Symphony Orchestra discloses giving categories in their venue, allowing potential donors to see who has given. Similarly, large charities often keep detailed records of donations, including mailing addresses and amounts, which can be used for targeted fundraising campaigns.

Some nonprofits believe that public disclosure of donor lists serves to demonstrate the authenticity and value of their organization. However, research suggests that potential donors may not pay as much attention to these lists as organizations hope. Nonetheless, using giving categories and ranges can be an effective way to encourage engagement and enhance donor trust.

Case Study: Litigation over Donor Disclosure

The issue of donor disclosure has become a subject of litigation in certain regions. In California, for instance, the case of NRA vs. LA Law exemplifies this. In this case, Los Angeles (LA) required all contractors to reveal donations to the NRA. The NRA sued, arguing that this requirement violated privacy laws.

Such lawsuits highlight the ongoing tension between transparency and privacy in the context of donor disclosure. While transparency can bolster trust and support, it also raises concerns about donor privacy and the potential for misuse of information.

Conclusion

Donor disclosure for nonprofits is a multifaceted issue, influenced by legal requirements and organizational practices. While certain legal obligations exist, the decision to disclose donor information ultimately depends on the organization's goals and strategies. Understanding these requirements and practices is essential for any nonprofit seeking to build trust and ensure long-term support.