## Facts

- Federal tax law and Treasury regulations required many tax-exempt organizations filing Form 990 to report on Schedule B the names and addresses of substantial contributors (generally, donors exceeding $5,000 in the aggregate).
- The IRS historically collected that donor information and shared it with state regulators for oversight and enforcement purposes.
- In 2018, the IRS issued Revenue Procedure 2018-38 without notice-and-comment rulemaking.
- Revenue Procedure 2018-38 eliminated the annual requirement that many § 501(c) organizations (other than § 501(c)(3) entities and certain § 527 entities) report donor names and addresses to the IRS on Form 990, while still requiring organizations to maintain the information and produce it upon IRS request.
- Montana and New Jersey, through their governors/attorneys general and the states, alleged the change reduced their access to donor information and impaired enforcement of state campaign-finance, charitable-solicitation, and tax laws.
- The states sued federal tax authorities and officials, asserting that Revenue Procedure 2018-38 was unlawful under the Administrative Procedure Act (APA).
- The federal defendants moved to dismiss for lack of standing and on the ground that the revenue procedure was exempt from APA notice-and-comment requirements; the parties also presented related summary-judgment arguments.

## Issues

1. Whether the states had Article III standing based on alleged impairment of their ability to obtain donor information and enforce state law.
2. Whether Revenue Procedure 2018-38 was a legislative rule that required notice-and-comment rulemaking under the APA, or an interpretive rule/policy statement exempt from those procedures.
3. If notice and comment were required but not provided, whether the revenue procedure must be set aside under the APA and what remedy is appropriate.

## Decision

- The court denied the federal defendants’ motion to dismiss.
- The court held Montana and New Jersey had Article III standing because the alleged injury to their enforcement capacities was concrete, traceable to the revenue procedure, and redressable by setting it aside.
- The court held Revenue Procedure 2018-38 was a legislative rule because it effectively amended existing Treasury regulations governing donor reporting obligations.
- Because the IRS issued the rule without notice and comment, the court held it was promulgated without observance of procedure required by law.
- The court granted summary judgment to the states on the APA claim, set aside Revenue Procedure 2018-38, and remanded to the agency.

## Legal Principles

- States may establish Article III standing where federal action concretely impairs their sovereign or quasi-sovereign interests in enforcing state law, and the impairment is fairly traceable to the challenged action and redressable by judicial relief.
- Under the APA, a rule that changes regulated parties’ rights or obligations, or that modifies or repeals an existing legislative rule or regulation, is itself a legislative rule requiring notice-and-comment procedures.
- Agency characterization of a measure as internal, procedural, or interpretive does not control when the measure substantively alters compliance obligations imposed by regulation.
- When an agency issues a legislative rule without required notice and comment, a court may set it aside under 5 U.S.C. § 706(2)(D) and remand for further agency action consistent with lawful procedures.

## Conclusion

The court held that Montana and New Jersey had standing to challenge the IRS’s elimination of annual donor reporting for many tax-exempt entities and ruled that the change was a legislative rule unlawfully issued without notice and comment, requiring the revenue procedure to be set aside and remanded to the agency.


Bullock v. Internal Revenue Serv., 401 F. Supp. 3d 1144 (D. Mont. 2019)