Donor Data: A Complex Issue

Is donor information disclosure required?

It’s important to know if your organization might need to disclose donor information. Some organizations are required to file a Schedule B with their Form 990, 990 EZ, or 990PF, including:

In general, a tax-exempt organization is not required to publicly disclose on Form 990 Schedule B the names or address of its contributors. Key to note here is that “publicly” refers to anyone other than the IRS. All other information reported on Schedule B, including the amount of contributions, the description of noncash contributions, and any other required information, must be made available for public inspection unless it clearly identifies the contributor. Regulations specifically exclude the name and address of any contributor to the organization from disclosable documents. The exclusion does not apply to private foundations or 527 political organizations.

What does the regulation really mean? First, if a Schedule B is required when filing a 990, a complete filing for IRS purposes includes a Schedule B showing donor names, addresses, amounts given, and various other data. For many organizations, total annual donations from a single donor will be disclosed over $5,000. Larger organizations can elect to only disclose donors over a 2 percent threshold calculated each year. In the end—that is, the complete Form 990—donor information is provided only to the IRS and not to the general public or any other reporting entity, except for private foundations and 527 organizations.

The history and the debate

Anonymous giving has a long history. Philosophical thinking on anonymous giving goes back at least as far as the first century with the Roman philosopher Seneca, who wrote that anonymous gifts allow a person to avoid both praise and blame for the gift.

The freedom to keep philanthropic contributions anonymous is not just about the religious, cultural, or practical reasons that motivate many donors’ desires to keep their giving private. The rights to associate privately and contribute to organizations anonymously are also intrinsic to effective exercise of the First Amendment. Based on this premise, the U.S. Supreme Court has long recognized that compelled disclosure of the identities of people who give to charity as well as many other organizations and causes is unconstitutional.

The debate to disclose or not disclose donor information continues to this day. Various states have attempted to circumvent federal rules by passing state regulations. In 2023 alone, 24 states have donor disclosure and privacy bills under consideration.

Gather but do not disclose

Whether the organization is required to disclose or not and no matter what side of the political debate you take, organizations are required to gather and maintain donor data. An organization must keep its donors’ names and addresses in its records and make them available to the IRS in the event of an examination.

Beyond IRS examination, some reasons for maintaining donor data are driven by specific requirements:

Other reasons are more about relationship building:

One of the common failures by many organizations is that they do not correctly identify the actual donor. I often ask, “Where did the funds come from?” Historical data is often incomplete and incorrect. Here are a couple of examples.

Organization A is actively engaging a potential donor for a gift. Success: a check arrives! Mr. and Mrs. Y are happy to contribute but the check comes from their family foundation. Correct donor data should show the foundation name and address as the donor, not Mr and Mrs. Y.

Banker C is a board member and promises to contribute. Success: two checks arrive, one paid by the board member’s bank and one paid by Banker C. Correct donor data should show two unique donors.

Identifying the actual donor is vital, particularly for determining when Schedule B disclosure is required. In our second example, if the bank contributed $3,000 and the individual banker contributed $2,500, these amounts would not be combined—and neither meets the $5,000 disclosure threshold.

One challenge is that organizations need to maintain data over many years; best-practice document retention guidelines dictate at least seven years. For 501(c)(3) public charities, donor records must be kept for a minimum of five years in order to calculate the required public support test on IRS Form 990. There are many effective donor management systems available no matter the organization’s budget.

Managing donor expectations

Donors are more informed than ever about the organizations they support. One of the premier policies organizations should adopt concerns the collection, management, and use of confidential donor data. Best practices indicate policies should include:

The watchdog groups are watching! In order to meet CharityWatch’s informational Privacy Policy benchmark, a charity must have a privacy policy (or policies) that apply to the collection of donor information both online and offline, and the charity must post the policy on its public website. As part of a charity’s Governance & Transparency benchmarks on charitywatch.org, CharityWatch also reports on the type of donor privacy policy a charity maintains, either “no sharing,” “opt-in,” or “opt-out,” all of which are driven by the donor and not the organization. Charities whose privacy policies lack clear information about how donors can opt-in or opt-out of personal data sharing will not satisfy CharityWatch’s Privacy Policy benchmark.

Challenging Times

Nonprofits face many challenges around donor data management and donor privacy. Here are just a few:

Conclusion

Contributions are the primary source of funding for many exempt organizations. Gone are the days when all the organization had to do was say “thank you.” The management of donors and their data is a big responsibility for all organizations.