Warning: The IRS Wants You to Do Something Dangerous

The US Internal Revenue Service wants you to do something foolish.

The IRS has proposed that charities acquire, record, and report the Social Security numbers of all donors who give $250 or more in any given calendar year. The IRS justifies the proposal by stating that “the collection of information is necessary to properly substantiate charitable contribution deductions under the exception to the general requirements for substantiating charitable contribution deductions of $250 or more.”

IRS logoHowever, the proposed regulation is particularly stupid because it is completely unnecessary while being dangerous — to nonprofits and their donors — and costly to implement properly.

You can read the proposed regulation by clicking here. In addition, the website will allow you to share your comments with the IRS by December 16, 2015.

If adopted, compliance with the regulation would be voluntary, for now. Nevertheless, there are several reasons you should be very wary, including:

Voluntary Compliance Could be Made a Requirement.

If the IRS truly believes the measure is necessary, why wouldn’t it seek to change voluntary compliance to a requirement? The collection of Social Security numbers from donors is either essential or not. The IRS can’t have it both ways. Therefore, there is a strong possibility that the IRS is cynically hoping to gain acceptance for the proposal in stages, first seeking voluntary compliance before making it a requirement.

“Any proposed regulations that would create this has the potential for being a slippery slope,” David Heinen, spokesman for the North Carolina Center for Nonprofits, told Fox News.

The IRS Lacks the Capacity to Safeguard Data.

“Number one, the IRS has not demonstrated its capacity to hold this type of information from confidentiality and a security point of view,” US Rep. Peter Roskam (R-IL), a member of the House Ways and Means Committee, told Fox News.

Mark Fitzgibbons, President of Corporate Affairs at American Target Advertising, echoed Roskam’s concerns when he told Fox News, “The IRS can’t keep its information confidential, they’ve been hacked.” ATA offers direct-response fundraising services.

There are two major security problems with providing the IRS with donor Social Security numbers: 1) The very real risk that the data would not be safe in the hands of the IRS, and 2) the public’s perception that the data would be at risk at the IRS.

Most Charities Lack the Ability to Safeguard Data.

The data security concern also applies to charities themselves. Few nonprofit organizations are capable of truly protecting donor data. Giving hackers and nefarious insiders easy access to donor Social Security numbers and other information puts donors at significant risk of identity theft. To mitigate that risk would cost charities an enormous amount of money.

“Charities are not well equipped to deal with this,” Roskam said. “We’ve had for-profit companies — some of the biggest companies in the world — that have spent millions and millions and millions of dollars trying to protect their confidential data. And it’s been hacked, and it’s been breached.”

The Regulation Would Result in Confusion.

The new rule would likely result in confusion both among charities and donors. The proposal has already resulted in misunderstandings that prompted the IRS to issue a statement to clarify “major misimpressions and inaccuracies.” If you want to know why the clarification statement was necessary, try reading the actual IRS proposal.

The New Rule Could Expose Donors to Abuse.

Given the recent IRS controversy, where the agency abused its power concerning the oversight of conservative groups and where no one at the agency was held accountable, it’s not unreasonable to expect that some members of the public would be fearful of yet another government overreach that could lead to abuse.

“And there’s also this feeling that the government is overreaching…. and that still leaves a little bit of a bad taste in everybody’s mouth,” Republican media specialist, T.J. McCormack, told Fox News.

The Measure Could Suppress Charitable Giving.

Asking donors to provide their Social Security numbers could have a chilling effect on charitable giving as they worry about privacy and data protection.

“I don’t know any charity that would adopt this, but those who do will certainly be scaring their donors,” Fitzgibbons said.

“This is a huge issue for nonprofits — and the American public,” said Tim Delaney, CEO of the National Council of Nonprofits, which opposes the rule.

“[The new rule] would have a dramatic effect on donors’ decisions on whether or not to contribute. You’d see a lot of $249.99 contributions to every charitable organization in America. It’s preposterous,” says Cleta Mitchell, an attorney working with a number of nonprofit organizations.

The bottom-line is that the proposed rule would come with significant risk and expense while offering little or no benefit to charities and their donors.

The Charitable Giving Coalition is preparing a statement to the IRS expressing the nonprofit sector’s concerns. I encourage you to also comment about the IRS proposal. The more voices of concern, the safer charities and donors will be. We cannot leave this important matter to the IRS to decide in a vacuum; the risks are too great.

That’s what Michael Rosen says… What do you say?


UPDATE (Dec. 11, 2015): The Association of Fundraising Professionals has prepared a tip sheet to assist you when commenting to the IRS about the proposed new rule. The tip sheet contains all of the information you’ll need to make your comment including talking points, format suggestions, and web links. You can download the tip sheet by clicking here. Remember, the comment period closes on Dec. 16. So, take action now!

UPDATE (Dec. 15, 2015): Sen. Pat Roberts (R-KS) has introduced a bill (S. 2370) that would block the IRS’ proposed substantiation regulation regarding the acquisition of donor Social Security numbers. It’s unclear if this bill will gain traction.

UPDATE (Dec. 16, 2015): The Association of Fundraising Professionals has filed its comment with the IRS. You can download a copy of the statement by clicking here.

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