Lichtman, Trister & Ross, PLLC -- Public Disclosure

Requirements for Public Disclosure of Tax Documents

B. Holly Schadler & Rich Thomas December 17, 2001

This memo summarizes the general rules regarding requests from the public for certain tax documents. It is also discusses the options and rights tax-exempt organizations may have in meeting the IRS’ public disclosure requirements.[1]

An organization that is tax-exempt under Internal Revenue Code Section 501(c) is required to make available its application for tax-exempt status including accompanying documents. In addition to 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)),[2] an organization must disclose all attachments, supporting documents such as articles of incorporation and bylaws submitted with the application, IRS follow-up correspondences, the organization’s response(s), and the IRS’ determination letter.

If the organization successfully requests during the application process that certain information remain confidential, that information may be withheld.

Exception: No disclosure of the tax-exempt application is required if the organization filed the application before July 15, 1987 and the organization did not have a copy on July 15, 1987.[3]

B. Annual Information and Tax Returns

Annual returns must be made publicly available for three years after their due dates or after they have been filed, which ever is later. Therefore, an organization must disclose its Form 990 (Return of Organization Exempt From Income Tax), Form 990-EZ (Short Form Return of Organization Exempt From Income Tax), Form 990-PF (Return of Private Foundation),[4] or Form 1120-POL (U.S. Income Tax Return for Certain Political Organizations),[5] whichever is applicable, as well as schedules, attachments and supporting documents for the past three years.[6]

Portions of Forms 990 & 990-EZ not subject to public disclosure:

Contributors listed on Schedule B of Form 990 or 990-EZ are not subject to public disclosure for tax-exempt organizations that are not private foundations or 527 organizations. Contributor names and addresses may be omitted before disclosing or providing copies of annual tax returns to requesters. The IRS takes the position, however, that the aggregate contribution of each contributor should not be omitted.

Form 990-T (Exempt Organization Business Income Tax Return) is also not subject to disclosure.

C. Notice of Status & Contribution/Expenditure Reports

As of June 30, 2000, 527 organizations must disclose Form 8871 (Notice of Section 527 Status) or Form 8872 (Political Organization Report of Contributions and Expenditures), along with any supporting documents. There does not appear to be a limit three year or otherwise) on the number of years that a 527 organization must disclose its Forms 8872, but see the discussion below on the �widely available� exception on how requests for copies of Form 8872 (and Form 8871) may be complied with by referring the requester to the IRS website.

A. In-person Requests

As discussed below, there are various ways in which requests for copies of documents may be addressed. Documents (or the portion of documents) subject to public disclosure, however, must always be available for public inspection. Such inspection should ordinarily be permitted during regular business hours at the organization’s principal, regional or district offices.[7] A regional or district office is an office in which three or more employees work at least 120 hours per week and which is not merely providing the exempt services (i.e., health care) of the organization.[8]

An employee may be present in the room during the person’s inspection of the documents. The person is permitted to take notes and copy the documents with his or her own copying equipment at the place of inspection.

An in-person request for copies of the public documents should be fulfilled on the same business day that the request is made. If unusual circumstances exist to create an unreasonable burden, the request can be provided within five business days or within one business day after the �unusual circumstances� end, whichever is sooner.

If the documents are made �widely available,� the organization is not required to provide copies, but it must provide instructions on how to obtain access to the documents. See discussion below for what constitutes �widely available.�

Reasonable fees may be charged for all requests for copies. The IRS has indicated that charges of $1.00 for the first page and 15 cents for each additional page are reasonable.

If a fee is charged for copies, payments by cash and money order must be permitted for in person requests, and credit cards and personal checks may be permitted.

A mailed written request for copies of documents subject to disclosure must receive a response within 37 days of the date of the postmark. If a request is received by fax or email, the response must get sent within 30 days of the transmittal of the fax or email. A request is fulfilled on the date it is postmarked, faxed or emailed.

If the documents are made �widely available,� the organization is not required to provide copies, but it must send instructions on how to obtain access to the documents. See discussion below for what constitutes �widely available.�

An organization may require copying fees to be paid in advance. In such a case, the organization must within seven days of receiving a written request, notify the requester of its prepayment policy and the amount due. Copies will then be due within thirty days of receipt of payment.

Payment for written requests may be made accepted by certified check, money order, personal check or credit card.

C. �Widely Available� Exception to Providing Copies

An organization is not required to provide copies of its application for tax exemption or annual returns if such documents are made widely available. To date, only two means of meeting the �widely available� requirement have been approved by the IRS: posting the document(s) on a webpage established and maintained by the organization or by having the document(s) posted, as part of a database of similar documents of other tax-exempt organizations, on a webpage established and maintained by another entity.

1) the page through which the information is available clearly tells the viewer that the document is available, provides instructions for downloading, and can be downloaded and printed for free;[9]

2) the document is posted in such a format that when accessed, downloaded, viewed and printed in hard copy, it reproduces as it originally was filed (with the exception of portions that are not subject to public disclosure, as discussed above);

3) the organization must have procedures to ensure the accuracy and reliability of the documents posted on its own site or on another’s site; and

4) Notice of how the information is available must be provided to an in-person request for copies immediately and to a written request for copies within seven days of receiving the request.

The IRS has stated informally that the posting of an organization’s 990, 990-EZ or 990-PF on www.guidestar.org or www.grantsmart.org appears to satisfy the widely available requirement.[10] An organization must, however, respond to a request for annual returns by informing the requester of how he/she can obtain the information from Guidestar or GrantSmart. [11] In addition, copies of the organization’s tax-exempt application must still be made (if requested) and the application and the returns must be available for public inspection.

For 527 organizations, Forms 8871 and 8872 are posted on the IRS website in a manner that complies with the regulations. Requests for copies of this information may be referred to the IRS website: http://eforms.irs.gov/search_result.asp or www.irs.gov/polorgs.

III. Harassment

An organization need only respond to the first two requests for copies of documents within any thirty-day period or the first four requests received within any one-year period from the same individual or the same address.

B. �Harassment Campaign�

An organization is not obligated to supply copies in response to a request that is part of a harassment campaign. The IRS regulations state that �a group of requests for an organization’s tax exemption or annual information returns is indicative of a harassment campaign if the requests are part of a single coordinated effort to disrupt the operations of a tax-exempt organization, rather than to collect information about the organization.�

An organization that reasonably believes it is subject to a harassment campaign may apply for a determination to the IRS. Factors that will be taken into consideration include:

2) an extraordinary number of requests made through form letters or similarly worded correspondence;

3) evidence of a purpose to deter the organization’s employees or volunteers from pursuing its exempt purpose;

5) evidence that the organization has already provided the information to a member of the alleged harassment campaign; and

6) demonstration by the organization that it generally complies with requests for copies.

An organization need not comply with a request that it reasonably believes is part of a harassment campaign provided it submits an application for determination within ten business days of suspending compliance with the request. The organization may continue not to comply until it receives a response from the IRS to its application.

The penalty for failure to comply with the public disclosure requirements is $20 a day for each day the requirement is not met. The maximum penalty for failure to comply with the public disclosure of annual return requirements is $10,000. There appears to be no maximum penalty for failure to comply with the public disclosure of tax-exempt application requirements. If a failure is deemed willful, a $5,000 penalty will be assessed.

[1] It is worth noting that a person may seek public inspection and/or copies of an organization’s tax documents directly from the IRS. However, the availability of such documents through the IRS does not relieve an organization of its disclosure requirements.

[2] Form 1024 is filed by, among others, 501(c)(4),(c)(5), & (c)(6) organizations. Unlike 501(c)(3) organizations, 501(c)(4) organizations are not required to file an application for tax-exemption in order to gain such status from the IRS, although it is generally advisable. If the organization never filed an application, disclosure is obviously not possible or required. See FN3.

[3] Unless an organization knows whether it had a copy of the application on July 15, 1987, this exception is difficult to apply in the year 2001. It is not recommended that an organization that believes it meets the criteria invoke this exception unless a copy of the application cannot be located after a diligent search of the organization’s records (or consultation with the attorney who filed the application).

[4] Private foundations were brought under these requirements effective March 13, 2000. Previously, a private foundation’s annual return was subject to public inspection for 180 days after the publication by the private foundation of its availability. As a result, for private foundations that complied with the prior law, no annual returns filed before March 13, 2000 must be disclosed.

[5] Only Forms 1120-POL filed after June 30, 2000 must be disclosed. 527 organizations should also be aware that under the change in the 2000 law, they may need to file (and thus disclose) Form 990 (or Form 990-EZ).

[6] An organization concerned with the privacy of persons listed as receiving the top compensation for the organization may want to list the organization’s business address as each person’s address.

[7] An organization that does not maintain a permanent office must, within a reasonable period of receiving the request, make the requested documents available for inspection at a reasonable time and place of its choosing. In the alternative, the organization may mail a copy of the requested documents; however, it may not charge for these copies unless the requester consents.

[8] Organizations covered as part of a group exemption (�subordinates�) are required to disclose the group exemption application submitted by their parent organization, but not the parent’s tax-exempt application. Subordinates also do not have to provide the right to inspect; however, in lieu of inspection they will need to provide copies of all requested documents and may not charge for these copies unless the requester consents.

[9] The use of free software, such as Acrobat Reader, which is available to those with Internet access, to facilitate downloading of the document is clearly envisioned and permissible.

[10] The GrantSmart website indicates that the fact that it deletes the SSN of the tax preparer listed on the Forms 990-PF it posts on its website to protect the preparer’s privacy may mean that such postings do not meet the disclosure requirements. Preparers can now get a PTIN (preparer’s tax identification number) instead.

[11] While an organization may decide to refer requests for copies of its annual returns to Guidestar or GrantSmart, there is no obligation to provide this resource if the organization decides to provide copies instead or post them via the organization’s own website. One reason not to refer someone to Guidestar or GrantSmart is if an organization seeks to only provide the annual returns, as required, for the past three years. In the case of some organizations, Guidestar already has Forms 990 posted on its website for more than the previous three years and this number will obviously only increase over time.