During the last few years the problems at the IRS in terms of how it deals with nonprofit organizations and their donors have become well known. You would think that given all these problems that the IRS would perhaps be just a little bit cautious going forward in how it handles issues concerning non-profits.

Once again, however, this is not how they are operating.

In what is a complete waste of time and resources, the IRS is proposing a new donor reporting regime that will have nonprofit organizations putting the private information of their donors, including items such as their Social Security Number, on a government form and submitting it to the IRS. This reporting regime is designed to replace the current system where a donor receives a written acknowledgement of the gift from the donee organization.

The problems with the proposed regulation are many. The IRS has proven time and time again that they are incapable of protecting taxpayer information that is provided to them.

This year it was revealed that despite numerous warnings from their inspector general, the IRS still has significant problems with computer security. These problems resulted in over 100,000 people having their private information stolen from the IRS computer systems. The thieves then used this information to file fraudulent tax returns and received fraudulent tax refunds — causing an inordinate amount of problems for the victims.

The IRS has been warned that they are not even doing simple things correctly, like installing security patches on individual computers.

Technical problems aside, the IRS has also shown extreme animus to conservative organizations, especially tea party groups. This animus has resulted in actions such as the agency asking irrelevant questions when these groups seek tax-exempt status, and delaying action on those applications for exempt status.

The IRS also seems to be completely unaware of the impact that nonprofits will have if they are required to obtain sensitive information from donors, such as their Social Security numbers. Few, if any, donors will be enthusiastic about providing this private information to say the least. Many will choose to simply not give contributions if they are required to provide this personal information to the organization.

The IRS even admits that this regulation is unnecessary. It admits that the filing regime is unlikely to be used very often, if at all. Given the dangers associated with this type of recordkeeping by nonprofits, coupled with the fact that the IRS cannot maintain the security of the data it currently has, this prophecy is likely to come true. This of course, means that this entire regulatory exercise is a complete waste of our hard-earned tax dollars.

The statutory section that gives the IRS the option of promulgating a regulation in this area was enacted over twenty years ago. The long passage of time, with no discernable problems, since this statute was enacted shows that there is no need for the regulation. The current system where a donor receives an acknowledgement from the organization has worked just fine for decades.

Even though the reporting regime is proposed to voluntary, the IRS through this regulation is clearly setting the stage for a future regulation which will be mandatory.

The regulation is a classic solution in search of a problem. In a time when the IRS is claiming to Congress and the public that it doesn’t have enough money to do its job, there is absolutely no reason why they should be dreaming up new reporting regimes to inflict on the American public. They should return instead, to their primary program functions and not engage in rulemakings such as this which are a complete waste of everyone’s time, energy, and money. Americans for Limited Government and Americans for Limited Government Foundation have separately filed comments with the IRS urging them to do exactly that.

The proposed regulation should be immediately withdrawn, and the bad idea behind it filed away never to be revisited.

Nathan Mehrens is President of Americans for Limited Government Foundation

By Nathan Mehrens