House Ways and Means Committee Advances ‘More IRS Interference’ Acts

May 21, 2024 | Alex Baiocco

“Federal agencies should not be in the business of writing regulations demanding that tax-exempt organizations abide by disclosure requirements that Congress has not enacted into law,” House Ways and Means Committee Chairman Jason Smith (R-MO) declared in his opening statement during a recent full committee markup session. While Smith and his fellow Republicans’ efforts to prevent such regulations is laudable, the primary intent of the legislation advanced at the Committee’s May 15 markup is to enact more stringent disclosure requirements for tax-exempt organizations.

Indeed, as People United for Privacy’s (PUFP) letter to the Committee explains, the nonprofit disclosure requirements in H.R. 8293 are designed to bypass the privacy protections found in the same bill. In addition to this bill, dubbed the “American Donor Privacy and Foreign Funding Transparency Act,” PUFP also expressed concerns to the Committee about the “No Foreign Election Interference Act” (H.R. 8314) and “Foreign Grant Reporting Act” (H.R. 8290). Despite H.R. 8293’s protections, and the Committee’s repeatedly stated concerns about political abuse of taxpayer information, these three bills collectively increase the IRS’s power to regulate and restrict nonprofit speech and privacy rights.

This legislation is the result of Committee Republicans’ Request for Information (RFI) in August 2023 and a subsequent Oversight Subcommittee hearing last December, both of which lent support to many Democratic lawmakers’ relentless efforts to demonize nonprofits for engaging in First Amendment-protected activity. For years, Democrats in Congress have sought to undermine and undo U.S. Supreme Court rulings upholding nonprofit speech and privacy rights, whether by expanding the reach of campaign finance laws to curb nonprofit advocacy and expose their supporters or by pressuring the IRS (and other agencies) to impose speech restrictions and broaden donor disclosure requirements in lieu of legislation. The measures recently introduced by Ways and Means Committee Republicans expand campaign finance law to impose a new ban on nonprofit speech, impose new nonprofit disclosure requirements, and place this new enforcement power under the jurisdiction of the IRS.

Committee Democrats, as Ranking Member Richie Neal (D-MA) put it, were predictably “delighted” to discuss Republicans’ campaign finance concerns and how nonprofits “should accept the disclosure that we on our side are entirely in favor of.” Empathizing with Republicans’ growing frustration toward advocacy organizations that maintain the privacy of their supporters, Congressman Neal opined that “we all on this committee have felt victimized by dark money.” Later, Rep. Judy Chu (D-CA) suggested that passing Democrats’ so-called “For the People Act,” which includes a litany of nonprofit donor disclosure mandates, would address Republicans’ concerns with nonprofit advocacy.

Following up on his comments during the previous Oversight Subcommittee hearing, Subcommittee Ranking Member Bill Pascrell (D-NJ) took the opportunity to highlight the incongruence of Republicans’ current legislative priorities and previous opposition to his anti-Citizens United legislation banning speech by so-called “foreign-controlled corporations.” Pascrell also suggested that Republicans should join him in opposing a longstanding, bipartisan budget rider that prevents the IRS from writing new regulations to limit political speech by nonprofit groups, stating that there’s “clear common ground on tax-exempt oversight.”

Much like some Democrats’ quest to ban speech protected by Citizens United by classifying American businesses with any foreign investors as “foreign-controlled corporations” that are prohibited from certain speech, Republicans’ “No Foreign Election Interference Act” bans certain forms of civic engagement by American nonprofits that have received any support from a foreign individual in the past eight years. And contrary to the objective of the IRS budget rider, this bill would require the IRS to write new rules limiting political speech by nonprofits.

As stated in our letter, “Banning American nonprofits from giving to super PACs simply because the organization received a single donation from a foreign individual or entity in the past eight years advances the extreme theory that every donor to a nonprofit should be treated as a contributor to a super PAC that receives a contribution from that nonprofit. This same theory underlies many of the most significant threats to donor privacy that have been proposed in Congress, such as the so-called ‘DISCLOSE Act.’”

Interestingly, Committee Democrats voted in favor of an amendment to the “Foreign Grant Reporting Act” that contradicts the extreme theory underlying the “DISCLOSE Act.” Rep. Brad Schneider (D-IL) offered an amendment to address his concern that “donors might be considered to have provided indirect funding as a result of a subsequent donation [by the nonprofit the donors supported] to another charity.” His amendment, he explained, “would ensure that only grants explicitly or impliedly allocated…for the ultimate use of the foreign entity are treated as contributions made indirectly.”

In other words, Democrats were concerned about overbroad disclosure requirements producing “junk disclosure” and voted in favor of an earmarking-only reporting provision. The Federal Election Commission, as our letter explains, “in accordance with First Amendment precedent and the statutory requirements of the Federal Election Campaign Act (FECA), does not consider a nonprofit’s donors to be contributors to a super PAC simply because that nonprofit contributed to the super PAC.” The “DISCLOSE Act” explicitly aims to dismantle these properly narrow disclosure requirements and force nonprofits that give to super PACs or speak about candidates to disclose the names and addresses of all of their donors, instead of only donors who earmark their donations “for political purposes.”

Unfortunately, lawmakers’ views on the proper confines of donor disclosure requirements often shift according to partisan interests. This markup session put such conditional respect for nonprofit speech and privacy rights on full display.

Beyond mere political machinations, the policy impacts of these bills are concerning. Nonprofits routinely receive donations without the ability or resources to verify the citizenship status of the donor. In many cases, it is impossible to obtain such information without significant time and effort. The compliance burdens of the foreign donor tracking and reporting regime under these measures may be insurmountable for many volunteer-led or grassroots organizations and will certainly divert precious funds that would otherwise be used in furtherance of nonprofit missions. That’s to say nothing of the de facto ban on anonymous donations that would be wrought by H.R. 8293.

Many U.S.-based nonprofits do important work in countries around the globe. And many American nonprofits have deep ties to communities in other countries. Certain nonprofit missions lend themselves naturally to international work – organizations working on human rights, global healthcare, or immigration, for instance – or support by foreign donors. American nonprofits engaged in support of or opposition to Israeli policy and groups working on tourism or tax reform come to mind. Broad disclosure requirements could have a global impact that wreaks havoc on a sizable portion of the nonprofit sector.

Republicans’ inclusion of provisions – taken from the “Speech Privacy Act of 2023” (H.R. 4471) and also included in the “American Confidence in Elections (ACE) Act” (H.R. 4563) – restricting federal agencies’ collection and release of nonprofit donor information in H.R. 8293 demonstrates a commitment to the First Amendment and an appreciation for the vital role of nonprofits in the American experiment. At the same time, though aimed at foreign donors, the disclosure requirements in these bills nonetheless create new threats to American citizens’ privacy by empowering the IRS to collect, store, and publicize more information about American nonprofits’ supporters and activities. As history has shown, the IRS cannot be trusted to enforce such mandates in a properly narrow or unbiased manner.

While all of the bills considered at the markup session were favorably reported – some unanimously (or near unanimously) and others on party lines – PUFP’s letter encourages all Members of the U.S. House of Representatives to seriously consider whether IRS enforcement of novel speech restrictions and privacy violations is an appropriate or effective means of addressing allegations of foreign election interference.