On July 30, 2019, the court in Bullock v. IRS, No. CV-18-103-GF-BMM (D. Mont. July 30, 2019) invalidated IRS Revenue Procedure 2018-38 governing tax-exempt organizations’ disclosure of donor information on the grounds that it was promulgated without the required notice-and-comment period.


As described in our previous blog post, prior to Revenue Procedure 2018-38 (“Rev. Proc. 2018-38” or the “Rev. Proc.”), all organizations exempt under Internal Revenue Code § 501(c) were required to report the names and addresses of substantial contributors (generally donors who contributed $5,000 or more during the taxable year) on Schedule B to their Form 990 series annual return. Rev. Proc. 2018-38 eliminated that requirement for all tax-exempt organizations except those exempt under § 501(c)(3) and § 527 political organizations. Organizations relieved of the reporting requirement under the Rev. Proc.—including § 501(c)(4) organizations engaged in lobbying and political activity—must continue to collect donor information and submit it to the IRS upon a specific request.

Schedule B donor information is generally not available to the public, but federal law grants states access to tax return information gathered by the IRS for the purpose of state tax law administration. According to the Bullock court, such information sharing is intended to help ensure compliance with tax laws, and “relieves state governments from the burden of expending resources to gather information already obtained by the IRS.” As the plaintiffs in Bullock, Montana and New Jersey alleged that they relied on substantial-contributor information contained in Schedule B to enforce their own state tax laws, and the loss of such previously available information would be injurious. Specifically, New Jersey alleged that Schedule B information enables it to track contributions over time and “identify suspicious patterns of activity, locate donors to aid in determining whether the entity is soliciting from individuals within New Jersey, and otherwise supplement state investigations under its Charitable Registration and Investigation Act.” Similarly, Montana alleged that

in determining whether exempt organizations are adhering to legal obligations such as the ban on ‘private inurement, limitation on political activity, or the requirements of state charities laws’ a key piece of information for Montana regulators ‘is the source of those organizations’ income—and in particular, the identity of contributors to the organization’ . . .

as set forth in Schedule B.

Legal Grounds

The plaintiffs asked the court invalidate Revenue Procedure 2018-38 on the grounds that the IRS failed to follow applicable Administrative Procedure Act (“APA”) rulemaking procedures before its enactment. The APA requires that agencies give the public notice of a proposed legislative rule and allow a period of time to comment. Legislative rules are those that “create rights, impose obligations, or effect change in existing law pursuant to authority delegated by Congress.” According to the plaintiffs, because the Rev. Proc. “effectively amends a prior legislative rule,” it is a legislative rule subject to the APA requirements. The IRS conceded that it failed to follow public notice-and-comment procedures, but argued that the Rev. Proc. is not a legislative rule; instead, it is an interpretive rule, which “merely explain[s], but do[es] not add to, the substantive law that already exists in the form of a statute or legislative rule.” Interpretive rules are not subject to APA requirements.


In setting aside the Rev. Proc, the court found that “[t]he IRS’s promulgation of Revenue Procedure 2018-38 appears to represent a[n] . . . attempt to ‘evade the time-consuming procedures of the APA.’” According to the Court, the Rev. Proc. is a legislative rule subject to APA notice-and-comment requirements because it “effectively amends the previous rule that required tax-exempt organizations to file substantial-contributor information annually,” and “explicitly upends a fifty-year practice.” In confirming the need to comply with the APA, the court affirmed that

[t]he APA’s notice-and-comment requirement grants interested persons, organizations, and entities ‘an opportunity to participate in the rulemaking process’ by submitting written data, opposing views, or arguments. . . . This procedural gate holds government agencies accountable and ensures that these agencies issue reasoned decisions.

The ruling does not speak to the merits of Revenue Procedure 2018-38, and the IRS could ultimately reinstate the Rev. Proc.’s donor disclosure exemption after the requisite notice-and-comment period. However, the ruling should afford the plaintiff states and other interested parties the opportunity to submit arguments in opposition.

Note: As of the date of this post, the Schedule B instructions have been updated to reflect the Rev. Proc. requirements, and the IRS has not issued further guidance in the wake of the Bullock ruling.  We continue to monitor developments on this issue.

-Ahsaki Benion