IRS nixes controversial plan to collect Social Security numbers of charity donors

In this March 22, 2103 file photo, the exterior of the Internal Revenue Service (IRS) building is seen in Washington. (AP)

A wave of complaints forced the IRS on Thursday to withdraw its controversial plan to have nonprofit charities report the Social Security numbers of donors who give just $250 in any given year.

Under the proposed rule, the IRS would have created a voluntary system for nonprofits to collect and send the IRS personal donor information in their yearly report. The idea was to simplify the process for nonprofits – ranging from traditional charities to churches – and donors alike.

But lawmakers and nonprofits cried foul, and warned even a voluntary program could scare off donors who don’t want to give out their Social Security numbers. Plus there were concerns that nonprofits would need to beef up data security to protect the information from hackers.

A new IRS notice to be published in the Federal Register says that, in the wake of these complaints, the proposal is being pulled.

“The Treasury Department and the IRS received a substantial number of public comments in response to the notice of proposed rulemaking,” the notice said. “Many of these public comments questioned the need for donee reporting, and many comments expressed significant concerns about donee organizations collecting and maintaining taxpayer identification numbers. … Accordingly, the notice of proposed rulemaking is being withdrawn.”

An IRS official confirmed to FoxNews.com that the plan was withdrawn in reaction to the public comments.

The relationship between certain nonprofits and the IRS already suffers from trust issues in the wake of the controversy over officials subjecting conservative groups to additional scrutiny – and data breaches. The reporting proposal revived some of that tension.

“There's a big caution here. There's a big yellow light that should be flashing,” Illinois Republican Rep. Peter Roskam told Fox News last month. “… Number one, the IRS has not demonstrated its capacity to hold this type of information from confidentiality and a security point of view.”

Tea Party Patriots, which had opposed the rule, cheered the latest decision on Thursday.

“This is a huge victory for American democracy, the First Amendment and our grassroots supporters. President Obama’s IRS is abandoning its blatantly heavy-handed regulation to ask charities to disclose the Social Security numbers of donors giving $250 or more annually,” TPP President Jenny Beth Martin said in a statement.

The IRS earlier described some of the pushback as “misimpressions and inaccuracies.”

The agency said the change was proposed in September in part because some taxpayers who were being audited said they lost their donation records – and if charities had a record, it would help them verify deductions.

“[S]ome … organizations and donors were interested in using this option,” the agency said. “This proposal would impose no mandatory changes to existing rules.”

Some were concerned, though, that the voluntary option could eventually become mandatory.

As it stands, nonprofits are required to send any contributor of $250 or more a “contemporaneous written acknowledgement (CWA)” that includes the amount of the donation and any services or gifts received in return. This document is used by the donor when filing for deductions from income taxes.

The proposed rule would have allowed nonprofits to send all that information – along with Social Security numbers – directly to the IRS on a single form.

Fox News’ Mike Emanuel and FoxNews.com’s Kelley Beaucar Vlahos contributed to this report.