In 2023, the charitable sector faced multiple threats to charitable giving. While lawmakers in some states took action to protect philanthropic freedom, we continued to see legislation that threatens the nonprofit community. These threats arose not only from the legislature, but from executive branch officials as well.
This is nothing new of course, but the fact that several of these came from more conservative states might be cause for concern. When it comes to the constitutionally protected rights to freedom of speech and association, threats to charitable giving must be taken seriously.
Donor Disclosure
Protecting the right to give privately is crucial to fostering a vibrant charitable sector. Unfortunately, multiple donor disclosure bills were introduced this year, both at the federal and state level.
While there’s been a heightened interest in foreign donor disclosure bills nationwide, this is especially true for Congress, where committees and individual lawmakers called for new disclosures for foreign nationals.
In the states, as expected, Hawaii, Massachusetts and Washington introduced donor disclosure bills. But this year also saw increased disclosure legislation from states that traditionally have been supportive of donor privacy. Donors to nonprofit organizations should be free to give when, where and how they want without fear of disclosure, harassment or intimidation.
Oklahoma: Gov. Kevin Stitt openly called for the disclosure of donors in his annual State of the State address. Ultimately, no new law materialized, but it’s concerning that a state that passed both the Charity Protection Act and a bill to protect the privacy of donors within the past few years is calling for disclosure of citizens giving to nonprofits.
Montana: We saw two bills introduced that if passed would have had an immediate impact on nonprofits participating in the litigation process. As written, Senate Bill 524 says if a nonprofit paid legal fees and/or other costs in challenging or supporting the government, that expense would not be considered charitable and would be subject to taxation. This bill was tabled. Senate Bill 557 as introduced, required the disclosure of donors if a nonprofit challenged the government. The bill was enacted with the disclosure piece stripped out.
North Dakota: The legislature introduced House Bill 1452 that would have imposed a 90% tax on monetary contributions given by nonresidents of the state. The bill died on the House floor.
Charitable Sector Regulation
In 2023 legislation was introduced that would have expanded regulation over the charitable sector. Based on data from the 50-State Index of Charity Regulations, nonprofits are already heavily regulated and states with higher levels of red tape have relatively fewer charities. The last thing we need is to add more burdens onto donors, nonprofits and the communities they serve.
Indiana: Attorney General Todd Rokita introduced two bills that would have greatly expanded his regulatory authority over nonprofits. House Bill 1075 and Senate Bill 278 ultimately died at the end of session, however, the AG will more than likely re-introduce a reiteration of the bills during the upcoming legislative session.
Oklahoma: State Rep. Ty Burns introduced House Bill 2268, which called for mandatory disclosure for charities and their fundraisers inside and outside Oklahoma. This bill didn’t make it to the governor’s desk, but had it passed, it would have further chilled giving.
Another area of concern for the Roundtable is the continued interest of some elected officials in regulating donor-advised funds (DAFs). DAFs are popular giving vehicles. If changes to the DAF code are pursued, unintended consequences like decreased charitable giving could arise. As a reminder, money in DAF accounts is permanently committed to charitable giving.
California: In 2024, Attorney General Rob Bonta, along with some state legislators, could still impose some type of regulation on DAFs. It’s unclear what the focus would be and if change would be made via the legislature or by the attorney general issuing a proposed rule.
According to the Roundtable’s Community Foundation Use of DAFs in California policy brief, the average DAF payout rate for the majority of California Community Foundations is 22%, much higher than the minimum 5% rate required. Over 90% of community foundation assets in the Golden State belong to the twenty-two foundations examined in this study.
Congress/U.S. Department of Treasury/IRS: In the House, the Ways and Means committee is currently exploring the impact of foreign donors on the tax-exempt sector and how these donors might be influencing elections and our national discourse. Legislative action resulting from this inquiry is possible in 2024.
Treasury recently issued new proposed regulations for DAFs. These changes are primarily definition-based in nature but could be a first step toward further restrictions.
Look Ahead to 2024
As this is an election year, legislators are more likely to focus on headline issues such as the budget. Yet several states have looming legislation challenging donor privacy.
The Roundtable expects threats to the nonprofit sector to continue at the federal and state level. Disclosure bills in several states carried over from the previous session. The Roundtable will continue to push back on those and any newly introduced legislation.
On the federal level, new disclosure bills are being considered, including the DETERRENT Act, which passed the House in December and requires institutions of higher education, and their affiliated organizations, to disclose foreign donations over $50,000.
On the issue of DAFs, we are preparing for further Treasury regulations and we’re ready for new legislation introduced in Congress as well. Proposed regulations from the California attorney general and/or legislation introduced in the state to regulate DAFs continues to be a probability at some point. We’ll be ready if/when regulations and/or legislation is announced.
In charitable sector regulation, we’ve already seen a bill in Pennsylvania for the 2023-2024 session. House Bill 1824, would give the secretary of state and attorney general increased authority over nonprofits. More bills nationwide are expected on this issue.
There’s no shortage of threats to charitable giving going into 2024. The Roundtable will be right here to monitor and speak out against threats that impede donors’ freedom to give when, where and how they choose. It’s a First Amendment right that must be protected.
