Nonprofits assail IRS for charitable-giving rules

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Nonprofit organizations and charities are sounding the alarm about a new regulatory proposal from the IRS that would encourage them to collect the Social Security numbers of their donors. 

They warn the proposed rules could have a “chilling effect” on donations and depress funding for programs that help the nation’s most vulnerable people.

“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,” said Tim Delaney, president and CEO of the National Council of Nonprofits.

While the new rules proposed in September would be strictly voluntary, charitable groups fear encouraging the collection of 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 can use when filing their tax returns. But the IRS is proposing changes that would encourage these charitable organizations to collect the Social Security numbers of their donors and provide the information directly to the agency. 

Some wealthy philanthropists requested the change for tax purposes, sources say, so they would have an additional way of verifying their contributions. But many more have raised security concerns

The IRS in a statement stressed that collecting Social Security numbers would be an “optional, alternative way of substantiating donations.”

“The IRS emphasizes there have been some major misimpression’s and inaccuracies about the purpose of these proposed regulations,” the agency said in a statement. “It’s important to keep in mind this proposal would impose no mandatory changes to existing rules on how charities substantiate donations for donors. Charities could continue doing things as they do now."

The proposal has nonetheless drawn a backlash from the nonprofit community and many of their donors.

The IRS received nearly 38,000 comments on the rule, including a letter signed by 215 charitable organizations that warns they cannot possibly safeguard the Social Security numbers of their donors.  

Nonprofits say they will be forced to invest in expensive cyber security defenses to ward off hackers, but any breaches would open them up to lawsuits.

“As we’ve seen, the White House and the CIA have been hacked, and they have the best cyber security in the world,” Delaney said. “If they can get hacked, so can we.”

The rules could create problems even for nonprofits that decline to participate. Scammers could call unwitting donors, pretending to represent a charitable organization, and demand their Social Security numbers.

This would “slander” the good name of nonprofits, said Pearl Wright, interim director of the Utah Nonprofits Association.

These concerns could make donors uneasy about giving — or drive them away altogether.

“What that would do to donor confidence, it could have a chilling effect on charitable giving,” said Geoffrey Plague, vice president of public policy at Independent Sector.

Steve Taylor, head of government relations at United Way Worldwide, said the IRS’s proposal could “disrupt the entire giving process."

“This will alienate large numbers of donors,” Taylor said. “The charity is already asking for their hard-earned money, and on top of that they say, ‘Oh, by the way, we need your Social Security number, too.’ "

“You’re just going to turn away a ton of potential donors,” he added.

This isn’t the first time such concerns have been raised. In 2009, the Government Accountability Office predicted that donations would take a hit if charitable organizations were required to collect Social Security numbers.  

The Social Security requirement was shelved for the time being, but years later the IRS has revived it, albeit on a voluntary basis.

Republicans are pushing legislation in both chambers that would prohibit the IRS from moving forward with the rule. But the bills have gained little traction so far.

“Donors want to give back to their communities, but you really have to make it easy for them,” Taylor said. “And this is something that makes it much, much harder."