Public Disclosure of Tax Filings of Nonprofit Organizations

The IRS recently released final regulations which spell out how, when and where tax-exempt organizations, other than private foundations, must disclose their tax-exemption applications and annual tax filings to the public. The regulations became effective June 8, 1999. The IRS intends to issue proposed regulations governing private foundations shortly.

Background

Since the adoption of the Omnibus Reconciliation Act of 1987 (OBRA '87), tax-exempt organizations have been required to make available for public inspection copies of their IRS tax exemption applications and annual information returns. The 1996 Taxpayer Bill of Rights 2 added a requirement that tax-exempt organizations furnish copies of their exemption applications and annual information returns upon request made in person or in writing. The recently released regulations provide detailed guidelines for complying with the statutory disclosure requirements.

Questions and Answers

The following questions and answers highlight provisions of the regulations which are likely to be of interest to most non-profit organizations.

  1. What documents must be disclosed?
  2. Application for Tax Exemption.
    A tax-exempt organization must make available its application for tax exemption, including the application form and all schedules and exhibits (such as articles of incorporation and by-laws). The organization is also required to include any correspondence received from the IRS, including its favorable determination letter.

    In recognition of the fact that organizations which have been in existence for a long time may have not kept copies of their exemption applications, the regulations provide that an organization which filed its exemption application prior to July 15, 1987 must make available a copy of its application only if it had a copy of the application on July 15, 1987.

    Annual Information Returns.
    An organization must make its three most recent Form 990 annual information returns (other than Form 990T) available. This includes substantially all of the information on the Form and its attachments and schedules, including the names and addresses of officers and directors and information regarding their compensation. An organization is not required, however, to disclose the parts of the return that identify the names and addresses of the contributors to the organization. If an organization files an amended Form 990, the amended return must be made available for three years after it is filed.

  3. What are the requirements for making documents available for publicinspection?
  4. An organization is required to make its exemption application and annual information returns available for public inspection, and must provide copies upon request. The organization may have an employee present in the room during an inspection but must allow the inspector to take notes freely. The documents must be made available during regular business hours.

    Documents must be available not only at the principal office, but also at regional and district offices. Generally, an office having management or administrative personnel and at least three full-time employees would be covered, unless the only services provided at the site are those which further the organization's exempt purposes, and unless the management personnel at the site are involved solely in managing the activities at the site.

  5. How soon must copies of documents be provided?
  6. When a request for documents is made in person, the organization must provide the requested copies the same day. However, in unusual circumstances, a delay of up to five days would be permissible.

    An organization receiving a written request for copies must mail the requested documents within 30 days. However, if the organization requires payment in advance, it is only required to provide the copies within 30 days from the date it receives payment.

  7. May an organization charge fees for copies?
  8. An organization may charge "reasonable" fees for providing copies. A fee is reasonable only if it is no more than the per page copying fee charged by the IRS, plus no more than the actual postage costs incurred. The IRS copying fee is currently $1.00 for the first page and 15 cents for each subsequent page. For requests made in person, the organization must accept payment by cash, certified check or money order, and may accept credit cards and personal checks. When the request is made in writing, the organization must accept payment by certified check or money order and either personal check or credit card or both.

  9. May an organization require payment in advance?
  10. Yes. Advance payment may be required, and if the individual requesting copies of documents does not pay the fee within 30 days after being advised of the charge, or if the individual pays the fee by check and the check does not clear upon deposit, the organization may disregard the request. Even if the organization does not normally require payment in advance, if the amount it intends to charge exceeds $20, it must receive consent from the requester before providing copies.

  11. How do the rules apply to local organizations which are part of largersystems?
  12. The regulations contain special guidelines for a tax-exempt organization that did not file its own exemption application because it is a local or subordinate organization covered by a group exemption letter. Generally, local or subordinate organizations are required to comply with requests for the group exemption application and IRS determination letter. If the organization does not file its own annual information returns, it must make available for inspection, or provide copies of, the group returns filed by the parent organization. However, it may omit any schedules that relate only to other organizations included in the group return.

    In recognition of the fact that local or subordinate organizations might not have the documents on hand, the regulations permit a reasonable time (normally not more than two weeks) to secure copies of the group exemption application and annual information returns. In lieu of making copies available for inspection, a local or subordinate organization may instead mail the documents to the requester, but may not charge for the copies without the consent of the requester.

    Organizations which have secured separate determination letters and which file their own annual information returns are subject to the disclosure rules applicable to stand alone organizations even though they may be part of larger systems.

  13. Can documents be disclosed on the Internet?
  14. Yes. The regulations state that an organization which makes its application for tax-exemption and/or annual information returns "widely available" is not required to comply with requests for copies of documents. However, the organization must still make its documents available for public inspection.

    A document will be deemed to be widely available if it is posted on a World Wide Web page that the organization establishes and maintains, or by having the document posted as part of a data base of similar documents of other tax-exempt organizations on a web page established and maintained by another entity. The web page must clearly inform readers that the document is available and must provide instructions for downloading it. Also, the document must be posted in a format which, when accessed, downloaded, viewed and printed in hard copy, exactly reproduces the text of the exemption application or annual information return.

    If an organization has made its exemption application or annual information returns available on the Internet, it must notify any individual requesting a copy where the documents are available (including the address on the World Wide Web).

  15. Does an organization have protection against harassment campaigns?
  16. The regulations provide protection for organizations that receive so many requests for information that they are deemed to be the victims of a harassment campaign. Whether a group of requests constitutes such a harassment campaign depends on the relevant facts and circumstances, including: a sudden increase in the number of requests; an extraordinary number of requests made through form letters; evidence that the organization has already provided the requested documents to a member of the purported harassing group; and requests that contain language hostile to the organization. If multiple requests are received from the same individual or from the same address, the organization may disregard any request beyond the first two received during any 30-day period or the first four received in any one-year period.

    An organization being harassed may apply to the IRS District Director for the District in which the organization's office is located for a determination that it is the subject of a harassment campaign, and may refuse to provide the requested documents pending receipt of the ruling.

    If the IRS concludes that there was no harassment, the organization will not be subject to sanctions if it provides the requested documents within 30 days after receiving the District Director's determination. In this circumstance, the District Director needs to conclude that the organization had a reasonable basis for requesting a harassment campaign determination. If the IRS determines that there was no such reasonable basis, the organization would be liable for penalties.

  17. What are the penalties for failing to comply?
  18. The Internal Revenue Code imposes financial penalties for failure to comply with the public inspection or copying requirements. The penalty is $10 per day for each document the organization failed to provide. Thus, if an organization failed to make available or to provide copies of its application for exemption and annual information returns for each of the most recent three years, the total penalties would be $40 per day. Additional penalties could be imposed if the IRS determines that failure to comply was willful. The regulations do not include any remedy whereby private individuals can enforce the disclosure rules, and at least one court has held that there is no private enforcement right.

CONCLUSION

Although the requirements for making documents publicly available, and of providing copies upon request, have been on the books for several years, the issuance of detailed regulations suggests that tax-exempt organizations should expect to be subject to much more scrutiny than ever before, from competitors, public interest groups, news media and others. Exempt organizations should therefore make certain that they will be able to respond in a timely manner to requests for their documents.

The public disclosure requirements set forth in the regulations are quite detailed, and this Memorandum is merely intended to provide an overview. If you have any questions about the requirements of the regulations, please contact any Buchanan Ingersoll attorney who regularly advises tax-exempt organizations.

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