IRS Withdraws Proposal That Would Collect Donors’ Social Security Numbers

Nonprofits can breathe a sigh of relief today.

The IRS and the Treasury Department withdrew the proposal of a new substantiation rule that would allow charities to self-report donations of more than $250 from the Federal Register today.

In December, we reported on the "dangerous" proposition, explaining this rule would require the charity to collect donors’ names, addresses and Social Security numbers. Not only would it be an exceptionally difficult task for many organizations to collect and protect that information, but it could lead to a huge decline in donations if donors are uncomfortable sharing such sensitive information and would put donors at greater risk of identity theft. While the proposed new rule would be voluntary, many feared it would lead to mandatory measures.

Criticism of the proposal boomed. The National Council of Nonprofits spoke out against the rule; 38,000 comments were submitted to the IRS by the comment deadline of Dec. 16; a group of 215 charities, including the American Red Cross, United Way, Habitat for Humanity and ALS Association, filed a joint comment letter in opposition; and the Senate introduced a bill in December in attempts to block the rule.

Due to this overwhelming opposition, the IRS and Treasury Department withdrew the proposal, stating:

"The Treasury Department and the IRS received a substantial number of public comments in response to the notice of proposed rulemaking. 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. In response to those comments, the Treasury Department and the IRS have decided against implementing the statutory exception to the CWA requirement, and therefore that exception remains unavailable unless and until final regulations are issued prescribing the method for donee reporting."

Are you celebrating this news today?