New York Attorney General Letitia James and New Jersey Attorney General Gurbir Grewal filed a public-records lawsuit Monday against the tax agency. The suit comes as Montana and New Jersey are challenging the policy change itself in a separate case.
The new lawsuit seeks records that could shed light on the reasons behind the change, which the states worry will hamper their own work as nonprofit watchdogs. "My office depends on these critical donor disclosure forms to be able to adequately oversee nonprofit organizations in New York," James said in a statement Monday.
She and Grewal, both Democrats, submitted public-records requests in October for information about how the new policy was developed. They say the IRS has answered only a fraction of the requests. The IRS declined to comment. A request for comment also was sent to the Treasury Department, which is the IRS' parent agency and is named in the suit.
The agencies announced in July that the IRS would cease collecting donor information from business associations, labor unions and what are classified as "social welfare" organizations, which include groups as disparate as the NAACP and the National Rifle Association.
"Americans shouldn't be required to send the IRS information that it doesn't need to effectively enforce our tax laws, and the IRS simply does not need tax returns with donor names and addresses to do its job in this area," Treasury Secretary Steven Mnuchin said at the time.
Previously, the organizations had to give the IRS — though not the public — a list of everyone who contributed over $5,000. The new policy still requires the groups to keep the information in case the IRS requests it for an audit.
Soon after the change, Montana Gov. Steve Bullock, a Democrat, sued the IRS and Treasury Department over the policy. New Jersey later joined the Montana suit, which argues that the new donor-disclosure policy was developed without public input and hampers states' abilities to administer their laws about tax-exempt nonprofits, as states rely on donor and other information from the IRS.
U.S. government attorneys have responded that states shouldn't be allowed to dictate what information the IRS collects. Meanwhile, a federal court ruling last August said nonprofits would have to tell the Federal Election Commission the names of donors who gave over $200 for furthering an "independent expenditure," a type of political advertising.
However, when 100-plus "social welfare" organizations and other outside groups spent over $50 million on independent expenditure ads in the run-up to November's midterm elections, only a fraction revealed who was behind the ads, according to a report released by the nonpartisan Campaign Legal Center.
Some groups maintained the disclosure requirements didn't apply because they didn't get donations specifically earmarked for ads.