NY, NJ sue IRS for info on non-profit-donor disclosure shift

New York and New Jersey want to know how the Internal Revenue Service decided to stop requiring donor information from certain non-profit organizations — among them big political spenders.

Monday’s lawsuit against the tax agency, from New York Attorney General Letitia James and New Jersey Attorney General Gurbir Grewal, comes as Montana and New Jersey are challenging the policy change itself in a separate case.

The new lawsuit seeks public records that could shed light on the reasons behind the change, which the states worry will hamper their own work as non-profit watchdogs.

“My office depends on these critical donor disclosure forms to be able to adequately oversee non-profit organizations in New York,” James said in a statement Monday.

She and Grewal, both Democrats, submitted public-records requests in October for information about how the new policy was developed. They say the IRS has answered only a fraction of the requests.

The IRS declined to comment. A request for comment also was sent to the Treasury Department, which is the IRS’ parent agency and is named in the suit.

The agencies announced in July that the IRS would cease collecting donor information from business associations, labour unions and what are classified as “social welfare” organizations, which include groups as disparate as the NAACP and the National Rifle Association.

“Americans shouldn’t be required to send the IRS information that it doesn’t need to effectively enforce our tax laws, and the IRS simply does not need tax returns with donor names and addresses to do its job in this area,” Treasury Secretary Steven Mnuchin said at the time.

Previously, the organizations had to give the IRS a list of everyone who contributed over $5,000. The new policy still requires the groups to keep the information in case the IRS requests it for an audit.

Soon after the change, Montana Gov. Steve Bullock, a Democrat, sued the IRS and Treasury Department over the policy.

New Jersey later joined the Montana suit, which argues that the new donor-disclosure policy was developed without public input and hampers states’ abilities to administer their laws about tax-exempt nonprofits, as states rely on donor and other information from the IRS.

U.S. government attorneys have responded that states shouldn’t be allowed to dictate what information the IRS collects.