OPINION:
After sitting on ice for most of the winter, the Corporate Transparency Act (CTA) is ready to spring into action. Companies must comply with the law’s reporting requirements by March 21, the Financial Crimes Enforcement Network (FinCEN) announced, after two national injunctions were lifted to allow the law’s implementation.
Small business owners have been bracing for the law’s impact, but philanthropists could be blindsided.
On its face, the law does not appear to target charities and nonprofits. The CTA contains an exemption for tax-exempt organizations. Yet despite this apparent protection, the law will expose many Americans’ private giving to an army of bureaucrats, financial institutions, and even foreign governments.
Snuck through Congress as part of an omnibus spending bill, the CTA requires small businesses to report personal information about their beneficial owners to FinCEN, the federal agency tasked with enforcing the law). This includes home addresses and photocopies of passports or driver’s licenses. FinCEN is authorized to provide access to the database to a wide range of public and private entities.
While the CTA does not cover nonprofits, philanthropists who utilize LLCs as vehicles for charitable giving are. These individuals will be entered into FinCEN’s database, and their donation history will be easily traced. Since charitable donors often use LLCs to help protect their privacy, revealing beneficial owners will negate many of the benefits of this arrangement.
The database is not open to the public in theory. In practice, the government has little credibility to promise that personal data will be secured. From OPM to the IRS, millions of Americans have been victimized by hacks, leaks, and accidental disclosures of data that receive greater protections than the CTA affords. The CTA’s database of small business owners will make for an especially juicy target.
The sheer number of people who will have access to the database is itself a privacy concern. In recent years, the IRS has worked to improve data security by reducing the amount of donor information it collects yearly. The CTA moves decisively in the opposite direction. The law is designed for sharing, not security. It embodies the ambitious anti-privacy agenda of politicians like Rhode Island Senator Sheldon Whitehouse, who have long sought to unmask nonprofit donors.
Donor privacy is an important value for a wide range of charities and Americans. Some choose to give privately for religious or ethical reasons; others to protect their employees or family members from harassment; and others simply to avoid being flooded with requests from the millions of nonprofit organizations active in the U.S.
Whatever their intent, courts have consistently ruled that Americans have a right to privacy in their donations to nonprofits. As recently as 2021, the Supreme Court struck down a demand by the state of California that nonprofits submit their confidential donor lists. When government officials know who is funding the organizations that challenge their agendas, freedom of speech is easily chilled.
The CTA circumvents the numerous legal precedents protecting donor privacy. As a result, privacy-conscious Americans may cease using LLCs to support charities, and worthy causes will lose out on much-needed funding.
Nonprofits may have no choice but to feel the pain of funding cuts as the federal government seeks to get its fiscal house in order. They should not have to endure lost donations from supporters chased away by unconstitutional privacy invasions.
• Brian Hawkins is Senior Director of External Affairs at People United for Privacy Foundation. Tyler Martinez is a Senior Attorney at National Taxpayers Union Foundation.
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