Two Democratic senators hope to hear from the IRS in coming days about the agency’s rollback of nonprofit disclosure requirements, a move that has drawn scrutiny for the last year.

The letter Sens. Ron Wyden (D-Ore.) and Bob Casey (D-Pa.) sent to IRS Commissioner Charles Rettig calls on him to explain why the IRS Criminal Investigation division wasn’t consulted on the policy change and to explain how it came about. The letter is the first step for the lawmakers, who are working on a plan of what to do next, a Democratic aide said.

The IRS in July 2018 removed the requirement for certain tax-exempt organizations to report the names and addresses of contributors on the tax form they send to the agency. Critics of that IRS policy shift, announced in Revenue Procedure 2018-38, remain concerned that it could encourage the flow of dark money into the tax-exempt sector.

While the senators’ letter is a messaging tool in a Republican-led Senate, it shows a desire to continue scrutinizing the change, which has so far led to two state-level lawsuits.

“It definitely shows that the revenue procedure and the controversy surrounding it is far from over,” said Lisa Heller, senior manager at nonprofit accounting firm Tate & Tryon.

Rettig was asked to respond by July 24. The agency didn’t return a request for comment.

Pushing the IRS

The 2018 change applies to organizations exempt under tax code Section 501(c), except for 501(c)(3) charities and Section 527 political organizations.

While the organizations are no longer required to include names and addresses on Schedule B of their Forms 990 or 990-EZ, they must keep the information on hand so that it is available upon IRS request. The policy change is partly a way to avoid inadvertent disclosure of the non-public information, according to the IRS. Contributions amounts are still reported.

Without that donor information, the senators said authorities will have a tough time tracking illegal activity like tax fraud, illegal political contributions from foreign influences, and terrorist financing.

“It makes it very hard to hold organizations accountable in case there are bad actors out there and it makes it hard to follow the money in case you need to,” Heller said.

But now there is an extra step if the IRS wants more information on donors, which will “get to be quite impractical for them to conduct oversight,” she said. Donor information is useful to see who contributors are associated with, and whether they are eligible to be giving to nonprofit organizations, Heller said.

The IRS also now no longer has a key enforcement tool: having an officer sign a tax return under penalties of perjury, said Philip Hackney, a professor at the University of Pittsburgh School of Law. Hackney previously worked in the IRS Office of the Chief Counsel.

Ultimately, regulators lose out when donor information isn’t provided. Donor information lets officials know who has major influence in an organization, said Marcus Owens, a partner at Loeb & Loeb LLP and former head of the IRS Exempt Organizations Division.

“It suggests perhaps who the organization is actually benefiting,” Owens said. “Because large donors could be motivated by altruism and they could be motivated by self-interest and you don’t know that until you know more.”

Calls for Answers

States have questioned the policy shift since it was issued last year, too.

New York and New Jersey sued the IRS and Treasury in May in an effort to find out what prompted the change. The states argue that the change was made without pubic notice, and that it hampers their ability to oversee in-state organizations.

New York and New Jersey must file any motion for summary judgment by July 29 and the IRS and Treasury must file opposition by Aug. 19. The parties are directed to confer after July 19, the judge ordered late last month.

New Jersey then took its opposition to the IRS policy shift a step further, imposing a law that requires organizations in the state to provide a list of donors who have given more than $5,000 in a tax year.

Montana Gov. Stephen Bullock (D) and the Montana Department of Revenue sued the IRS in July 2018. The state also argued that the IRS made the change without proper notice-and-comment time. New Jersey joined the lawsuit.

“If the IRS finds out that an organization is engaged in political activity, and receives a report that the organization’s significant contributors consist of an unusually large number of foreign nationals, then the IRS, or state agencies action on information received from the IRS, may be well-positioned to investigate further and identify or stop a potential violation of federal law,” the Montana complaint said.

“Absent the reporting of names and addresses of the significant contributors, however, the IRS and state agencies will be less capable of making such a determination,” it said.

The IRS moved to dismiss the case in February, arguing that Montana didn’t suffer actual harm and has never sought the donor information that it now claims to need.

Pushing the IRS

The letter shows that Democratic lawmakers aren’t going to let the issue fade, said Lloyd Mayer, a professor at the University of Notre Dame Law School.

“They are going to continue to push Treasury and the IRS to explain and justify their decision,” Mayer said. “And they are going to continue to criticize the decision as a politically motivated one that undermines enforcement of tax and other laws.”

But any progress on the issue is unlikely in a divided Congress.

The Senate passed a resolution (S.J. Res. 64) in December 2018 to overturn the disclosure rule through the Congressional Review Act, a law that allows Congress to permanently overturn recently issued regulations using expedited floor procedures. The measure didn’t get a floor vote in the House.

A bill (S. 276) introduced by Sen. Jon Tester (D-Mont.) this session would repeal the disclosure change. Rep David Price (D-N.C.) introduced a House companion bill (H.R. 918). Neither measure has moved forward.

Democrats’ concerns about dark money—funds from groups that don’t publicly disclose donors, often used in reference to political spending—are valid, and IRS budget cuts have exacerbated the issue, said Cindy Lewin, chair of Venable LLP’s nonprofit organizations practice.

“I do think there’s dark money out there,” she said.

Of the IRS, Lewin said, “I also think they’d be better able to enforce our tax laws if people could stop cutting their budget and their staff.”