A proposed Internal Revenue Service rule that would give nonprofits the option to report donors’ Social Security numbers to the agency was slammed by a key state nonprofit regulator Tuesday.
Currently, donors are required to obtain a “contemporaneous written acknowledgment” of their charitable donations of more than $250 when they claim a tax deduction. The proposed revision would provide a voluntary method for nonprofit organizations to substantiate gifts, by providing the agency with donor names, addresses, and Social Security numbers.
If the provision is finalized, identity thieves could prey upon donors by posing as charities, predicted Janet Kleinfelter, the deputy attorney general of Tennessee and president of the National Association of State Charity Officials. While the national organization has not taken a formal vote on the matter, Ms. Kleinfelter said the board opposes the proposed regulation.
“The only organizations who will use this method will be scam artists,” she said. “Everybody knows you don’t give out your Social Security number unless you absolutely have to.”
Ms. Kleinfelter made her remarks in an interview at a conference Tuesday on nonprofit data transparency hosted by the Urban Institute in Washington. She predicted that donors to legitimate charities would be scared off if asked for their Social Security numbers. To protect sensitive donor information, nonprofits would have to spend money on data protection that could otherwise go toward their charitable mission.
“As a regulator, I would look at that as a breach of fiduciary duty,” she said.
Small nonprofits don’t have the resources to effectively protect donor data, said Tim Delaney, president of the National Council of Nonprofits. He has urged his group’s members to share their feelings about the proposal with the IRS during a comment period that ends December 16.
Large government agencies are routinely hacked, he said.
“A small nonprofit isn’t going to put up a security system better than the CIA or the State Department,” he added. “That’s asking a lot.”
The IRS is considering the rule change largely because donors being audited by the IRS have pushed to allow charities to file amended Forms 990 — the publicly available informational forms nonprofits file with the agency each year — that show they have made a gift.
“That’s no help to anyone” because it isn’t timely, said Ruth Madrigal, an attorney-adviser for the U.S. Department of Treasury’s Office of Tax Policy.
Rather than allowing nonprofits to provide donor information on a public document, the agency proposal could pave the way for another form that nonprofits could use to substantiate gifts.
But that, Ms. Madrigal said, isn’t likely to happen anytime soon.
“This proposal is in its very nascent stages, “she said. “It doesn’t require organizations to do anything.”