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Final regs. for exempt organization disclosure requirements.

The IRS has issued final regulations on disclosure requirements for all exempt organizations other than private foundations. New Regs. Sec. 301.6104(d)(1)-(5) applies to disclosure requests made on or after June 8, 1999. The regulations apply to organizations described in Sec. 501(c) or (d) that are exempt from tax under Sec. 501(a).


Exempt organizations have long been subject to public disclosure requirements, but, until 1996, were only required to make their exemption applications (Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, or Form 1024, Application for Recognition of Exemption Under Section 501(a)) and information returns (Form 990 series) "available for public inspection at their offices." No rules specified the timing or format for providing these documents. Regulations proposed in 1996 added the requirement that exempt organizations mail or fax copies of their exemption application or Forms 990, Return of Organization Exempt From Income Tax Under Section 501(c) of the Internal Revenue Code (except black lung benefit trusts or private foundations) or section 4947(a)(1) nonexempt charitable trusts, to individuals who requested the forms in writing. Organizations could avoid having to provide their documents in response to written requests by making the forms "widely available" by publishing them on the Web.

New Rules

Two sets of documents must be disclosed. The first set includes exemption applications and all required attachments, plus any letter or document issued by the IRS in connection with the application (e.g., a determination letter or questions about the application). The second set of documents to be disclosed includes the organization's three most recent annual information returns, including all schedules and attachments, except for any parts of an information return that identify names and addresses of contributors. The organization is not required to disclose Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)).

Under the final regulations, copies of these documents must be provided on request, not just made available for viewing. The documents must be provided at no charge, except for reasonable reproduction and postage costs.

Time for Compliance

For written requests, the organization must provide copies of requested documents within 30 days from the date the request is received. For requests made in person, the information requested must normally be provided on the same day. However, if unusual circumstances prohibit providing them on the same day, an organization must provide copies no later than the next business day after the day that the unusual circumstances cease to exist. The delay is limited to five days.

Some examples of allowable delays provided in the regulations include an unusual volume of requests, requests received shortly before the end of regular business hours that require an extensive amount of copying, or requests received on a day when the organization's managerial staff capable of fulfilling the request is conducting special duties.

Use of an Agent

Under the new rules, an organization may retain a local agent to process written requests or requests made in person (or both) for copies of its documents. A local agent must be located within reasonable proximity of the applicable office. The agent must provide the copies within the time limits and under the conditions applicable to the organization itself.

An organization that transfers a request to an agent is not required to respond further to the request. However, the organization will be liable for any penalties due to an agent's noncompliance.

Relief Provisions

Any organization that filed its application for exemption before July 15, 1987 is not required to make those applications available, unless it possessed a copy of the application on that date. Also, disclosure of an application is required only after the Service has granted an organization exempt status.

Internet Disclosure

Organizations are not required to provide copies of forms they make "widely available" by publishing them on the Web. The regulations do not prescribe any particular computer format that must be used in posting forms on the Internet; however, the following criteria must be met. First, an individual must be able to access, download, view and print the posted document in a format that exactly reproduces the image of the original document filed with the IRS, except for any information permitted to be withheld from public disclosure. Second, the format must allow the individual to access, download, view and print the document without payment of a fee to either the exempt organization or the entity maintaining the Web page. Third, the individual must not require special computer hardware or software for that format, other than software readily available to members of the public free of charge. Currently, the IRS and Treasury Department understand that the HTML format may not exactly reproduce the image of the original document. One format that currently satisfies the criteria in the regulations is PDE although permissible formats are not limited to PDF and the Service does not endorse or warrant a specific document format.

Organizations that publish forms on the Internet will still be required to honor requests to view applicable documents in person.

Harassment Campaigns

Organizations do not have to provide requests for copies that the organization believes are part of a harassment campaign. An organization must file an application for a harassment determination within 10 business days after suspending compliance. If the IRS subsequently determines that the organization did not have a reasonable belief for suspending compliance, penalties may be imposed. The Service intends to publish a revenue procedure that will provide additional details on harassment campaign determination procedures and the imposition of penalties.

Also, the final regulations allow an organization (without submitting an application) to disregard requests for copies in excess of two per month or four per year made by a single individual or sent from a single address.


For annual information returns, the penalty for failure to provide required copies or to allow public inspection is $20 for each day the failure continues, subject to a $10,000 maximum per return. The penalty applies on a per-return basis; if multiple returns are not disclosed, there will be a penalty for each return not provided. For applications for recognition of exemption, the penalty for failure to allow public inspection or provide copies of applications is $20 for each day the failure continues, with no maximum. For willful failures to provide either information returns or applications, the penalty is $5,000 per return or application.

All of these penalties apply not just to the organization, but also to any officer, director, trustee, employee or other individual who is under a duty to allow inspection or provide copies. Because the list of individuals subject to penalty (e.g., "employee or other individual") is very broad, it is important that all employees who may receive the request are made aware of the requirements (including timeliness) and the individual within the organization to whom requests should be directed.

Fees for Providing Copies

An organization can charge a "reasonable fee" for copies of forms provided, plus actual postage costs. Reasonable fees cannot exceed the IRS per-page copying charge for such documents, currently $1.00 for the first page and $0.15 for each additional page. For written requests, if the organization charges a fee, it must accept payment by certified check, money order and either personal check or credit card. For requests made in person, the organization must accept payment by either cash or money order, but may also accept other forms of payment, such as credit cards and personal checks.

An organization can require advance payment. If it does, it must provide copies within 30 days from the date it receives payment. If advance payment is required and the organization receives a written request without payment enclosed, the organization must notify the requester of its prepayment policy within seven days from the date it receives the request.

Documents that Cannot Be Located

Several possibilities exist if an organization cannot locate copies of Forms 990, its exemption application or its determination letter. First, the Service has provided some relief for certain exemption applications. If an organization filed its application before July 15, 1987, it would have to make a copy of its application only if it had a copy of the application on that date.

Second, the IRS will provide a copy of both Form 990 and the organization's determination letter on request. It may also be able to supply a copy of the exemption application (although the Service does not guarantee that it can retrieve those records).

Application to Private Foundations

The new rules do not apply to private foundations. Private foundations must continue to publish a newspaper legal notice. The IRS has indicated it will "shortly" publish public disclosure rules for private foundations, similar to the new ones for other organizations. It is currently expected that the regulations for private foundations will be issued sometime in 1999.

Looking Ahead

At a recent conference, IRS Exempt Organizations Director Marcus S. Owens predicted that, due to the enhanced disclosure requirements, nonprofits are likely to find that their compensation arrangements and other operations will receive more scrutiny from big donors, investigative reporters and other curious individuals. Owens also predicted that "in the future, the key way the [exempt organization] community is going to be talking to Congress and the world is through the Form 990." As a result, Owens recommended that organizations complete their annual information returns in such a way that the public can obtain a complete and accurate picture of the organization.

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Article Details
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Title Annotation:IRS regulations
Author:Green, Gerri Chaneles
Publication:The Tax Adviser
Geographic Code:1USA
Date:Aug 1, 1999
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