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Mandatory Donor Disclosures: Less Than Appealing

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What do the California Attorney General, charitable donors, and the First Amendment have in common? They have been tangled up in litigation over California’s new mandatory disclosures of confidential donor identification information. On November 9, 2015, the U.S. Supreme Court declined to address whether compelled disclosure of donor information – by itself – constitutes a First Amendment injury compelling enough to foreclose such governmental intrusion, in Center for Competitive Politics v. Harris. The case of Americans for Prosperity Foundation v. Harris now waits in the wings, on the related question of whether such compelled disclosure violates the First Amendment, if shown to actually chill speech and result in harassment of donors. These cases are important for both nonprofits engaged in charitable solicitations and our country more broadly, given the serious free speech and freedom of association constitutional rights at stake. 

From AG Annual Reports to the Courtroom

Both cases began when the organizations challenged the California Attorney General (AG)’s demand to submit their IRS Form 990 Schedule B as part of their annual AG reports, in connection with their charitable solicitation activity in California. The AG’s demand resulted from a 2013 change in its policy; consistent with most other states, the California AG’s office had never before required such disclosures. Form 990’s Schedule B requires nonprofits to list major donors’ names, addresses, and amounts given. The IRS collects this information but is legally required to keep it confidential. Both civil and criminal sanctions are available for improper disclosure of such information, and nonprofits may legally redact such information in their publicly available Form 990s. 

In contrast, California law provides no such protections against donor disclosure. Instead, under California law, nonprofits that fail to comply with such disclosure requirements face serious consequences: their state income tax exemption is invalidated; late fees are imposed, for which directors and officers are personally liable; and the noncompliant organizations may not engage in fundraising within California. The incentive for nonprofits to disclose otherwise confidential donor information is thus quite compelling.

The Center for Competitive Politics’ Unsuccessful Journey to the USSC

The Center for Competitive Politics (“CCP”) objected to such mandatory disclosure out of concern for its donors’ privacy rights, First Amendment freedom of association rights, and the potential chilling effect that disclosure could have on their donors’ First Amendment speech rights. CCP thus sought injunctive court relief – first from a federal trial court, then from the federal Ninth Circuit Court of Appeals – to avoid this disclosure requirement. 

Both lower courts rejected CCP’s First Amendment arguments. Siding with the trial court and the AG, the Ninth Circuit ruled instead that the AG’s general interest in law enforcement, alone, was sufficient to trump what the appellate court viewed as only a subjective, speculative First Amendment concern. 

On petition for writ of certiorari to the U.S. Supreme Court, CCP argued, “private association is a fundamental liberty, the invasion of which can only be permitted where the state carries its burden and specifically justifies the intrusion.” CCP further argued that the AG had not met the applicable “exacting scrutiny” standard, and that the lower courts had impermissibly relaxed such standard into little more than a balancing test. Indeed, as CCP asserted, “Having found that there was no First Amendment injury in compelled disclosure, [the Ninth Circuit] required the Attorney General to place only a featherweight, if that, on her side of the scales.”

In its petition, CCP argued that freedom of association is inevitably chilled by unjustified governmental intrusion. With respect to the IRS, CCP recognized that it may have justifiable reasons for the Schedule B disclosure requirements, such as to catch fraudulent attempts on personal tax returns to claim deductions for donations never actually made. Not so for the AG, CCP contended, particularly given the AG’s assortment of enforcement tools that guard against charitable abuse such as audits, subpoenas for donor information, and the Form 990 itself. 

CCP’s argument contrasts sharply with the Ninth Circuit, which ruled that CCP must demonstrate an actual First Amendment injury; any potential chilling effect was insufficient. CCP argued the opposite – namely, that our country values our First Amendment freedoms enough that such compulsion, by itself, is enough of an injury under the First Amendment. Consequently, the AG should have to do more than simply invoke a generalized interest in law enforcement to justify such serious governmental intrusion.  

Next Up: Americans for Prosperity Foundation

The Americans for Prosperity Foundation likewise sought injunctive court relief from the federal trial court, but won. The difference? AFP Foundation could point to specific evidence of donors actually being intimidated and seriously harassed, even with repeated death threats, thereby resulting in “chilled” speech. The AFP Foundation case is now on appeal to the federal Ninth Circuit, on this “as applied” challenge to the California AG’s mandatory disclosure requirements, and it may well reach the US Supreme Court. 

Will government intrusion into donor privacy, through AG charitable solicitation filings, trump long-valued freedom of association and related privacy interests? As CCP argued to the Supreme Court, the answer must be a resounding “No!”: 

To say as the court of appeals did, that compelled disclosure imposes no First Amendment harm constitutes an expansive grant of power, allowing governments to rustle through the private workings of private organizations. It also, inherently, diminishes the value of privacy of association as a First Amendment right. The First Amendment’s protection of free association “need[s] breathing space to survive,” and is accordingly “protected not only against heavy-handed frontal attack, but also from being stifled by more subtle governmental interference.” NAACP v. Button, 371 U.S. 415, 433 (1963). 

Our law firm will continue to monitor and report on this important constitutional controversy, as played out through state charitable solicitation filing requirements.

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