At first glance, this U.S. Supreme Court case seems to be resolving a simple technical issue: whether we nonprofits should be required to attach Schedule B to the 990 to the California Attorney General (CA AG) as we already do.

But there is actually much more at stake here for California nonprofits than first meets the eye. In fact, this case is just the kind of high impact / low profile policy issue that CalNonprofits takes up – because the outcome will have a big effect on our sector.

As you know, nonprofits who file either the 990 or the 990EZ (but not the 990N) prepare Schedule B to the 990. Schedule B is a list of donors who contributed $5,000 or more or 2 percent of total gifts to the organization, whichever is greater, and is sent to the IRS and to the CA AG. By the way, the option of listing donors that contribute 2 percent or more of total gifts to the organization means that some nonprofits (including Americans for Prosperity, the petitioner in this U.S. Supreme Court case) only have to disclose donors that contribute very large amounts – which greatly limits how many donors they include on their Schedule B.

The IRS and CA AG are not allowed to release the Schedule B information to the public. Instead, they hold the information in confidence and only use it to investigate fraud, self-dealing, and the misuse of nonprofit funds.

(When nonprofits give a copy of their 990 to a member of the public, they can remove Schedule B.)

Opponents are misleading

In recent years, we have seen a dangerous rise in the use of nonprofit legal entities for political influence, for private enrichment, and for defrauding the public. The Trump administration tried to eliminate Schedule B – in what was largely viewed as an effort to shield his political and financial activities.

In the case now before the U.S. Supreme Court, Americans for Prosperity Foundation v. Xavier Becerra, two conservative advocacy groups are challenging the requirement that nonprofits must submit Schedule B to the CA AG. AG Becerra is defending this requirement because the information on Schedule B is crucial for investigating and prosecuting "bad actors" in the nonprofit sector.

Unfortunately, in communications about this case, some people are deliberately misleading the nonprofit community by claiming that Schedule B discloses donor names to the public.

THIS IS FALSE.

In fact, CA law requires the AG to hold private all Schedule B information unless it is needed to prosecute a “bad actor.”

CalNonprofits is working with two law school professors – Ellen Aprill of Loyola Law School and Dan Hemel of the University of Chicago Law School – on an amicus brief (a statement to the court) supporting the CA AG's position.

The values behind our decision to submit an amicus brief in this case

1. Vigorous and proactive prosecution of fraud is crucially important to nonprofits. Drivers rely on the California Highway Patrol to catch and prevent dangerous driving, thereby protecting all drivers. Nonprofits rely on the AG's office in the same way.

2. Schedule B is a powerful deterrent, similar to "speed limits enforced by aircraft." Schedule B discourages "bad actors" from using nonprofit legal entities for private benefit or fraud, knowing that they could be caught through Schedule B.

3. Each fraud case disproportionately erodes public confidence in nonprofits and results in fewer donations and lower usage by people in need. Nonprofits support the investigation and prosecution, if needed, of people who misuse nonprofit legal frameworks for non-charitable purposes, including for fraud or embezzlement.

4. Growing dramatically: the use of public charity entities by individuals and corporations to wield political and other influence through money transfers and misleading entity names. The need for vigorous prosecution is also growing as a result.

5. We defend the right of nonprofits to keep the names of their clients and donors private. At the same time, we insist on the right – a duty – of law enforcement to identify and prosecute crime. Having names of donors disclosed to the AG – but not the public – is a smart and reasonable compromise and strongly protects donor privacy.

6. Limited security breaches in the past are not a reason to stop providing information, especially given that security measures have been increased and new security systems are adequate to protect private information. We should not hinder law enforcement by over-reacting to a few small, isolated incidents in the past.

7. Submitting Schedule B to the IRS and the CA AG is not an onerous burden on nonprofits. We must keep records of donations and grants anyway, and Schedule B is simple to complete. It is well worth a very small investment of our time to support the integrity of the nonprofit sector.

We look forward to seeing your thoughts in the comments below!