Nonprofit Donor Disclosure Law Ruled Unconstitutional

By:  Fred Longwood, CPA, Senior Tax Manager

On September 30th, a federal judge struck down two provisions in a 2016 state ethics law in New York that required nonprofit organizations to disclose their donors in public filings with the state, citing first amendment violations.

The 2016 law required organizations exempt from federal income tax under Section 501(c)(3) to disclose donors of $2,500 or more, if that organization made an in-kind donation of more than $2,500 to a Section 501(c)(4) organization engaged in New York lobbying.

The law also required Section 501(c)(4) organizations to disclose all donors contributing $1,000 or more if that organization incurred more than $10,000 in advocacy expense in a calendar year on communications to at least 500 members of the public with regard to potential or pending legislation.

U.S. District Judge Denise L. Cote struck the two amendments to the state ethics law, citing the stricter disclosure requirements would unfairly obstruct free speech guaranteed by the first amendment. In granting summary judgment to the plaintiffs of the case, Citizens Union of New York et. Al. v. Attorney General of the State of New York, case number 1:16-cv-09592, Judge Cote wrote “…there is no substantial relation between the requirement that the identity of donors to Section 501(c)(3)s be publicly disclosed and any important government interest.” Other preexisting disclosure statutes do remain in effect, however.

In 2016, the Citizens Union of New York, the American Civil Liberties Union Foundation, and several other organizations filed suit to challenge the law soon after it was passed. Concern over free speech and privacy rights of donors was the basis for filing suit. A decision to appeal the District Court judgment has not yet been made by the Attorney General of New York State.

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Tips on Improving Your Nonprofit’s Charity Watchdog Ratings

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In this podcast, we discuss how charity watchdog organizations such as Charity Navigator, BBB Wise Giving Alliance, and GuideStar typically monitor and rate charitable organizations and what nonprofit leaders should be thinking about with respect to their organization’s ratings.

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