IRS withdraws controversial rule after charity backlash

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The Internal Revenue Service (IRS) is backing down from a controversial rule that would have pressured nonprofits to collect the Social Security numbers of their donors.

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Nonprofits warned the rule would have a “chilling effect” on donations and make charitable organizations a target for hackers, discouraging people from giving.

The backlash persuaded the IRS to withdraw the proposed rule Thursday after it received nearly 38,000 comments, including a letter signed by 215 charitable organizations that warns they cannot possibly safeguard the Social Security numbers of their donors.

“The Treasury Department and the IRS received a substantial number of public comments in response to the notice of proposed rulemaking,” the agency wrote Thursday morning in the Federal Register. “Many of these public comments questioned the need for donee reporting, and many comments expressed significant concerns about donee organizations collecting and maintaining taxpayer identification numbers for purposes of the specific-use information return.

“Accordingly, the notice of proposed rulemaking is being withdrawn,” it added.

The IRS proposed the changes in September, but was caught off guard by the reaction from charitable organizations. Though the rules would have been voluntary, nonprofits feared that collecting Social Security numbers would make them a target for hackers.

Currently, nonprofits send donors a written acknowledgement verifying contributions of $250 or more, which they use when filing their tax returns. The IRS was encouraging these charitable organizations to collect the Social Security numbers of their donors and provide it directly to the agency.

This would have provided an additional means of verifying their contributions, but it also raised security concerns.

Charitable organizations would have been pressured to invest in expensive cyber security defenses, but any breaches would have opened them up to legal action.

Even if nonprofits could protect the Social Security numbers or decide to collect it at all, scammers could call the unwitting donors, pretending to represent a charitable organization they donated to and demand this sensitive information.

This would have raised concerns of identity theft across the nonprofit community that would have discouraged donors from giving, critics warned.

“That means a child will go without a meal, or a family will go without shelter, or a senior citizen will go without life-saving medical care,” Tim Delaney, president and CEO of the National Council of Nonprofits, told The Hill.

This story was updated at 12:36 p.m.