Backstory on RERI; More on Revenue Procedure 2018-38 (regarding disclosure of donor identities)

Yesterday’s Jack Straw Fortnightly* contains some really good updates on recent events effecting exempt organizations.  First, Jack provides some Paul Harvey-like “rest of the story” details on RERI Holdings I, LLC v. Commissioner, about which we recently posted. And in New York’s ongoing efforts to discover the political motives behind the issuance of Revenue Procedure 2018-38, the newsletter reports that the Treasury Department apparently intends to comply with the Freedom of Information Act Request by which NY seeks all documents and papers leading to the issuance of the revenue procedure.  In a letter to the Court, the NY Attorney General states:

Defendants have confirmed that active review efforts in response to the October 2018 Freedom of Information Act requests at issue in this action are ongoing. As additional searches are in progress, at this time the total volume of potentially responsive records is unknown and therefore Defendants cannot propose a production and briefing schedule at this time. The IRS currently advises that it will make additional rolling productions to the Plaintiffs beginning on or before Friday; June 21 and on that date will be in a position to propose a schedule for the completion for production. The Treasury Department will be in a position to propose a schedule for its own production by the same date. In light of these commitments~ and the fact that Defendants’ FOIA productions will affect the scope of any motion practice in this action, Defendants respectfully request that the parties not be required to present a briefing schedule at this time but rather to provide a status update to the Court in thirty days.

The more interesting story regarding Revenue Procedure 2018-38 is that Montana and New Jersey have joined together in a suit directly challenging the legality of the Revenue Procedure:

On July 16, 2018, Defendants the Internal Revenue Service, the United States Department of the Treasury, and David Kautter, former Acting Commissioner of the Internal Revenue Service, announced that the IRS would no longer require reporting of substantial contributor information on the Schedule B for 501(c) organizations other than § 501(c)(3) groups. The change was made through a sub-regulatory document called a “Revenue Procedure”–specifically, Revenue Procedure 2018-38.2 Revenue Procedure 2018-38 amends a prior legislative rule-26 C.F.R. § 1.6033.2–and the Administrative Procedure Act (“APA”) requires agencies to notify the public and provide an opportunity for comment before amending a legislative rule. See 5 U.S.C. § 553(b). The IRS promulgated its new Revenue Procedure in violation of the APA without notice and without giving the public any opportunity to comment. Accordingly, because Defendants promulgated Revenue Procedure 2018-38 “without observance of procedure required by law,” under the APA, this Court must hold the revenue procedure unlawful and set it aside.  5 U.S.C. § 706(2)(D). 

Darryll K. Jones

Hat Tip:  Russ Willis