IRS finalizes regs. on public disclosure and inspection of tax-exempt organization's documents.
The Tax and Trade Relief Extension Act of 1998 contained provisions that expanded the public disclosure and inspection requirements applicable to all tax-exempt organizations. However, private foundations are excluded from these requirements, at least until the Service issues final regulations that apply specifically to them.
The Taxpayer Bill of Rights II amended Sec. 6104 to significantly increase public access to a tax-exempt organnization's exemption application, as well as to annual information returns filed by the organization for its past three fiscal years. This modification requires all tax-exempt organizations described in Sec. 501(c) and (d) to comply with both in-person and written requests for the documents, Requests made during regular business hours at the tax-exempt organization's principal office, as well as at certain regional and district offices, must be satisfied.
Documents That Must Be Made Available
A tax-exempt organization's exemption application includes either Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, or 1024, Application for Recognition of Exemption Under Section 501(a) for Determination Under Section 120 of the Internal Revenue Code, and all supporting documents submitted to the IRS in connection therewith. Also subject to disclosure is any related correspondence received from the Service, such as questions about the application and the organization's determination letter. An organization that has applied for, but not yet received, tax, exempt status is not subject to this disclosure requirement until the IRS recognizes its tax-exempt status.
All versions of Form 990, Return of Organization Exempt from Income Tax, including any amendments, as well as any Form 1065 filed by the tax-exempt organization, are subject to these disclosure requirements. The disclosure requirements include all attachments and schedules, with the exception of the names and addresses of contributors disclosed in Form 990. Further, under Regs. Sec. 6104(d)-3(b)(4)(ii), Forms 990-T, Exempt Organization Business Income Tax Return, 1120-POL, U.S. Income Tax Return of Certain political Organizations, and 990-PF, Return of Private Foundation or Section 4947(a)(1) Charitable Trust Treated as a Private Foundation, are specifically excepted from these disclosure rules.
Time and Place of Availability
In-person requests. A request to inspect these documents may be made at any principal office, as well as at certain regional or district offices, of the tax-exempt organization. Any location of a tax-exempt organization with three or more full-time employees (defined in the regulations as a weekly payroll in excess of 120 hours) is considered a regional or district office potentially subject to these rules.
Recognizing the administrative burden that these rules may create, the Service has carved out an exception to the public disclosure requirements for certain regional or district offices (Regs. Sec. 301.6104(d)-3(b)(5)). A regional or district office is excepted from these requirements if it meets the following two-pronged test:
1. Only exempt-purpose services are provided at the location, such as healthcare or medical research.
2. The only management staff at the location manage exempt-function activities.
All in-person requests must be satisfied the same day. If fulfilling an in-person request on the same day places an unreasonable burden on the tax-exempt organization, copies of the requested documents may be provided by the earlier of (1) the next business day when the unusual circumstances cease to exist or (2) the fifth business day after the date of the request. Examples of an unreasonable burden might include receipt of a request that requires excessive copying, as well as receipt of a request at the end of a business day or when managerial stag is not on the tax-exempt organization's premises.
Written requests. Written requests made by mail, e-mail, fax or overnight service, which give the requester's address, must be honored within 30 days of receipt.
Use of agents. A tax-exempt organization may appoint a local agent to satisfy all in-person requests for inspection, as well as all written requests for copies of documents. To fulfill its obligations under Regs. Sec. 301.6104(d)-3(d)(1)(iii), the tax-exempt organization, on receipt of an in-person request, must immediately provide the agent's name, address and telephone number to the requester. The agent is bound by the same requirements as the tax-exempt organization for both in-person and written requests.
Fees Associated with Compliance
A reasonable charge may be assessed for copying, based on IRS rates; current rates are $1 for the first page and $0.15 for each additional page. Postage charges may also be assessed for the actual mailing costs incurred by the tax-exempt organization. Cash, money orders and other forms of payment (such as credit card or personal check) may be accepted in connection with in-person requests, while certified checks, money orders, personal checks or credit cards may be accepted in connection with written requests.
Tax-exempt organizations that do not require prepayment of copying and postage charges must obtain the requester's consent before providing copies if the charges exceed $20.
Regs. Sec. 301.6104(d)-4 attempts to alleviate the potential administrative burden associated with responding to requests for copies by stating that a tax-exempt organization is not required to comply with a request for a copy of its exemption application and annual information returns if it posts exact replicas of these documents, as filed with the Service, on the Internet. The documents must be posted to a Website that may be accessed at no charge and without the use of special software or hardware. An Internet posting, however, does not except an organization from the requirement to make its exemption application and annual information returns available for public inspection at its principal, regional or district offices, as described above.
Exception for Harassment Campaign
A tax-exempt organization that reasonably believes the requests it receives are not merely information-seeking in nature, but part of an organized campaign to disrupt its operations, does not have to comply with those requests. However, to avoid the imposition of penalties for noncompliance, the organization must submit a detailed letter to the INS within 10 business days of denying a request.
The following factors indicate a harassment campaign:
* A sudden increase in the number of requests;
* A large number of requests made via form letter;
* Evidence of an intent to prevent the organization from achieving its exempt purpose;
* Direct evidence of bad faith by those individuals who organized the harassment campaign; and
* Evidence that the organization's documents have already been provided to a participant in the harassment campaign.
Regs. Sec. 301.6104(d)-5 provides several scenarios to illustrate when a harassment campaign exists and when it does not. One scenario describes a tax-exempt organization that experiences an increase, but not a significant increase, in the number of requests for its documents, the majority of which (15 out of 25) are known to have come from individuals who are hostile to it. On the basis of these facts alone, the organization is not considered to be subject to a harassment campaign and must comply with the requests. Accordingly, as this scenario demonstrates, the mere presence of one or two of the factors listed above does not necessarily lead to the conclusion that an organization is being subjected to a harassment campaign.
Requests from members of the press, even those individuals who have punished negative stories about a tax-exempt organization, are not considered to constitute a campaign of harassment.
The determination of whether a tax-exempt organization is, in fact, the subject of a harassment campaign can be made only in light of all the relevant facts and circumstances. Organizations should be advised to review the various examples relating to such a determination, as provided in the final public disclosure regulations, before refusing either a request for inspection of copies of its exemption application and information returns, as well as before seeking a harassment campaign determination from the Service.
Affiliated Entities Governed by a Group Exemption
Regs. Sec. 301.6104(d)-3(f) governs subordinate organizations included in a group exemption. The exemption application of the parent organization, as well as any paperwork submitted to the IRS for including the subordinate in the group exemption, is subject to public inspection. However, the time frame for a subordinate organization to respond to public inspection requests is somewhat different from that of a stand-alone, tax-exempt organization, in that:
* A subordinate organization may take up to two weeks to respond to in-person requests for copies; and
* Instead of satisfying in-person requests for inspection on-site, a subordinate organization may satisfy the request by mailing copies within a two-week period.
Written requests received by a subordinate organization must still be fulfilled within 30 days of receipt, however.
Penalties for Noncompliance
A penalty of $20 per day (subject to a $10,000 maximum) may be assessed against a tax-exempt organization that fails to honor a request for public inspection of its annual information return. An additional penalty of $20 per day may be assessed against a tax-exempt organization that fails to honor a request to inspect its exemption I application. This penalty will continue to be assessed until the tax-exempt organization allows inspection of its exemption application by the party requesting the inspection.
If a tax-exempt organization's failure to comply with these public inspection requirements is willful, the organization is subject to an additional $5,000 penalty.
These penalties may be abated if a tax-exempt organization is able to demonstrate that its failure to comply with these public inspection requirements was due to reasonable cause.
FROM TOM MAYER, CPA, MINNEAPOLIS, MN, RANDALL SNOWLING, J.D., WASHINGTON, DC, JANE HOPKINS, CPA, MINNEAPOLIS, MN, AND SUZZANNE THOMSON, J.D., MIAMI, FL
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|Title Annotation:||IRS regulations|
|Publication:||The Tax Adviser|
|Date:||Mar 1, 2000|
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