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Introduction

Federal law requires tax exempt organizations to publicly disclose various documents upon request by members of the general public. Many of Rackemann, Sawyer & Brewster’s tax exempt clients were unsure if the public disclosure law applies to all 501(c) entities or just 501(c)(3) nonprofit charities. The information below addresses the relevant issues and concerns related to the federal public disclosure law and serve as a reminder to Rackemann, Sawyer & Brewster’s tax exempt clients of its required obligations. Also, we have generated a list of the documents that are subject to the federal public disclosure law.

Tax Exempt Organizations Affected

The public disclosure law applies to all organizations exempt from federal income tax under section 501(a) of the Internal Revenue Code (the “Code”) and described in section 501(c) of the Code. The public disclosure law applies to 501(c)(3) charitable organizations, social welfare organizations, agricultural and horticultural organizations, private foundations, labor organizations, business leagues and trade associations, social clubs, fraternal societies, employee benefit associations or funds, veterans organizations, title holding corporations or trusts, child care organizations, as well as political organizations organized pursuant to section 527(a) of the Code.  

The public disclosure law does not apply to certain split-interest trusts, organizations exempt under other provisions of the Code, such as farmer’s cooperatives (section 521), homeowners’ associations (section 528), and qualified tuition programs (section 529).

Documents Subject to Public Disclosure

These are two main documents that are subject to the public disclosure law:

1. Application for Tax Exemption. For example, a tax exempt organization’s Form 1023, Form 1024, or a letter or notice submitted under the Code sections for which no form is prescribed, together with supporting documents and any letter or document issued by the IRS concerning the application for tax exempt status.

An organization that applied for tax exemption before July 15, 1987 and has since been misplaced is not required to make a copy of its application for tax exemption available for public disclosure. Any organization that applied for tax exemption after July 15, 1987, but has since misplaced a copy of its application, may contact the IRS and request a copy of its application.

Private foundations that came into existence prior to July 15, 1987 but converted to a public a public charity after July 15, 1987 will be required to disclose the notices and related documentation that was provided to the IRS during the conversion.

1. Annual Returns. For example, a tax exempt organization’s Forms 990 (Return of Organization Exempt From Income Tax), 990-EZ (Short Form Return of Organization Exempt From Income Tax), 990-PF (Return of Private Foundation), 990-BL (Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons), 1065 (U.S. Partnership Return of Income), 990-T (Exempt Organization Business Income Tax Return).

Returns must be available for inspection or copying for a three (3) year period beginning with the due date of the return, including any extension of time for filing. An organization that is not required to make available its tax exempt applications because it was submitted prior to July 15, 1987 does not excuse an organization from making its annual returns available for public disclosure.

An organization exempt under 501(c)(3) must make available for public inspection and copying any Form 990-T (Exempt Organization Business Income Tax Return) filed after August 17, 2006. Returns must be available for a three (3) year period beginning with the due date of the return, including any extension of time for filing. For this purpose, the return includes any schedules, attachments, or supporting documents that are attached to the return that relate to the imposition of tax on the unrelated business income of the charity.

An organization exempt under 501(c)(3) is not required to disclose Schedule K-1 of Form 1065 or Schedule A of Form 990-BL.

Logistics and Costs

Copies of an organization’s tax exempt application and/or annual return must be provided immediately to a requestor in the case of in-person requests at an organization’s principal, regional, or district offices during regular business hours and within thirty (30) days after receipt of payment in the case of written requests. An organization may charge a reasonable copying fee plus actual postage, if any.

A reasonable fee for providing copies is generally defined as the amount charged by the IRS for providing copies. Under regulations issued in July 2004, the IRS may not charge more for copies than the fees listed in the Freedom of Information Act (FOIA) fee schedule attached hereto Exhibit A. In addition, although the attached FOIA fee schedule directs the IRS to provide the first 100 pages free, exempt organizations may charge a fee for all copies. For non-commercial requesters, the FOIA schedule currently provides a charge of $.20 per page.

An organization may require payment before it provides copies, but it must advise requesters of the total cost of the copies requested if adequate payment is not included with the original request.  

Contributors’ Identities

With the exception of private foundations, a tax exempt organization is generally not required to disclose the names or addresses of its contributors on its annual return, including Schedule B (Form 990, 990-EZ, or 990-PF). The law specifically excludes the name and address of any contributor to the organization from the definition of disclosable documents. Contributor names and addresses listed on an organization's exempt application, however, are subject to disclosure.

This general exclusion for contributor information on annual returns does not apply to private foundations or to political organizations described in section 527 of the Code. Certain tax exempt political organizations are required to report the name, address, and the occupation and employer (if an individual), of any person that contributes in the aggregate of two hundred dollars ($200.00) or more in a calendar year on Schedule A of Form 8872. Tax exempt political organizations may also be required to file Form 990, including Schedule B. Political organizations are required to make both of these forms available to the public, including the contributor information.

“Widely Available” Exception to Public Disclosure Requirement

A tax exempt organization does not have to comply with individual requests for copies if it makes its application and return widely available. This can be effectuated by posting the relevant documents on a readily accessible web site, either on the organization’s own database or the database of another exempt organization. In general, the format must exactly reproduce the image of the original document and allow an internet user to access, download, view, and print the posted document without the payment of a fee. One format that currently meets the criteria is the portable document format (pdf). An organization that makes its documents widely available in this manner must advise requesters how to access these forms.

Despite having its required documents widely available, an exempt organization must still continue to keep its public disclosure documents available for and subject to public inspection on its premises.

Harassment Exception to Public Disclosure Requirement 

An exempt organization is not required to comply with a request for the public disclosure of its relevant documents if it is determined by the IRS that the request is part of a harassment campaign and that compliance with such request is not in the public’s interest.

Noncompliance Penalties

Responsible persons of a tax exempt organization who fail to provide the relevant documents as required may be subject to a penalty of twenty dollars ($20.00) per day for as long as the failure continues. There is a maximum penalty of ten thousand dollars ($10,000.00) for each failure to provide a copy of an annual return. There is no maximum penalty for the failure to provide a copy of an exemption application.

Summary

Tax exempt organizations must make available for public inspection and copying the following documents:

1. Application for Tax Exemption (the IRS will provide you with a copy of a misplaced application that was submitted to the IRS on or after July 15, 1987); and
2. Annual Returns (extending back for a three (3) year period).

Feel free to contact your attorney at Rackemann, Sawyer & Brewster should you have any questions about your organization’s obligations under this federal public disclosure law.