IRS proposal would force nonprofits to disclose leaders' terrorism convictions

Washington — The Trump administration is weighing a proposal to require nonprofits to disclose in their annual tax filings whether their top officials have been convicted of certain financial or terrorism-related crimes, sources with direct knowledge of the matter told CBS News.

The IRS disclosure requirement would be added to the Form 990, the annual return that nonprofit groups file with the agency, said the sources, who spoke on the condition of anonymity because they were not authorized to talk publicly. Federal officials have viewed it as an effort to pressure tax-exempt groups to cut ties with people who have such criminal records and ensure that donors can make informed decisions about how to best direct their money, the sources said.

Convictions that would have to be reported include providing material support to terrorists, fraud, money laundering, securities fraud, tax evasion, theft and civil judgments from Securities and Exchange Commission or state securities regulators' enforcement actions.

The IRS proposal would not force groups to identify which officer, director or trustee was convicted, according to the sources. It is not a violation of federal law for people with felony convictions to serve on a nonprofit board.

The proposal is expected to relate to convictions that occurred within the last 10 years. Nothing has been finalized, and it is one of at least two proposed revisions to the Form 990 moving through the Treasury Department and the IRS. Another proposal announced in April would impose new disclosure requirements for nonprofits that receive government funding.

"No one has a right to privacy of their criminal record," said Tom Jones, an ally of President Trump who leads the conservative American Accountability Foundation nonprofit. "If your board members are convicted criminals, I am hard pressed to understand why you have a problem with that being publicized. You should have to explain why those people are on your board."

A spokesperson for the Treasury Department said that it is considering "a range of measures to strengthen accountability for nonprofit organizations" and that the agency "will continue to follow the money to ensure tax-exempt status is not exploited to facilitate illicit activity."

Inside the IRS, some officials have privately raised concerns about the conviction-related proposal and what the agency could lawfully do with the information — as well as questioned how it relates to enforcement of tax laws, multiple sources familiar with the conversations told CBS News.

These IRS officials have said they view the effort as a form of potential political targeting that could draw legal challenges, including on free speech grounds, sources said.

"This disclosure rule goes directly to guilt by association," said Roger Colinvaux, a law professor at the Catholic University of America and former counsel to the nonpartisan Joint Committee on Taxation in Congress. "There's no federal law that says a nonprofit cannot have a convicted felon on their board. It could just create a stigma and chill association.