TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, August 11, 2018

Grewal: Can Montana Force The IRS To Break the Law?

Andy Grewal (Iowa), Can Montana Force the IRS to Break the Law?:

The IRS recently changed the rules on how some tax-exempt organizations must report information related to their “substantial contributors” (that is, those who donate $5,000 or more in a year). This change has sparked a political controversy, fueled by concerns over “dark money” in politics and the Citizens United decision. One state (Montana) has already filed an APA-based challenge to the IRS’s action, and its lawsuit raises a novel question over whether the IRS must enforce regulations that may have been promulgated unlawfully. ...

[I]n Rev. Proc. 2018-38, a document issued without notice and comment procedures, the IRS waived contributor reporting requirements for most Section 501(a) organizations (but not those described in Section 501(c)(3)). ... Montana believes that this action violated the APA. The state argues that the contributor reporting regulation is a “binding legislative rule” and can be amended or repealed only through notice and comment procedures. ...

As Daniel Hemel has argued at the TakeCare blog, the D.C. Circuit, at least, has not allowed agencies to overturn regulations whenever they claim they were defectively issued. ... Though the issues in this area are hardly settled, and the regulations here, imposing substantial burdens on private parties, may be distinguishable from those addressed in the D.C. Circuit, the IRS cannot easily argue that the procedural infirmities related to the Section 1.6033-2 regulations allow the agency to modify those regulations through Rev. Proc. 2018-38.

Montana’s lawsuit thus implicates fundamental and unaddressed questions of administrative law. Those intrigued by issues related to defectively issued regulations would be well-advised to follow the case.

https://taxprof.typepad.com/taxprof_blog/2018/08/grewal-can-montana-force-the-irs-to-break-the-law.html

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Comments

"the regulations here, imposing substantial burdens on private parties,"

I'm not sure I understand why requiring charities to report the names of their big donors is a substantial burden. Does anyone seriously believe that charities don't maintain a list of their existing large donors so they know who to go back to? Even when I give small amounts to charities, I get inundated with marketing material asking for more.

Is the problem that people want to be able to give anonymously because it's embarrassing to admit that you give money to sleazy think tanks so they'll do your dirty work for you?

Posted by: Burden | Aug 12, 2018 2:56:32 PM

New policy will protect donors from inappropriate inquiries and political targeting; kind of important for free speech and association.

Posted by: Donna Witty | Aug 12, 2018 8:54:40 PM