Life in the Spotlight:
IRS Issues New Form 990
Disclosure Regulations

Introduction

The Omnibus Reconciliation Act of 1987 (OBRA '87) required tax-exempt organizations to allow public inspection of their application for tax exemption and Form 990 annual information returns (for the previous three years) at the organization's principal office. The Taxpayer Bill of Rights 2, enacted in July 1996, amended certain aspects OBRA '87's of the public inspection requirements. Included in these amendments was a requirement that these documents not only be made "available" but that copies be provided to any party requesting them, including by mail. This new requirement will vastly increase the availability and scrutiny of not-for-profit financial data.

Effective June 8, 1999, the final regulations implementing these new rules were issued by the Internal Revenue Service (IRS). These final regulations define what documents must be made available for public disclosure and the procedures an organization must follow in making covered documents available.

Which Organizations Are Required to Disclose?

All tax-exempt organizations, other than private foundations as defined in section 509(a), that are described in sections 501(c) of the Internal Revenue Code (e.g. trade associations, educational foundations, charitable organizations, and other tax-exempt entities) or Section 501(d) (i.e., apostolic organizations) are subject to the new disclosure regulations.

What Documents Are Required to Be Made Available?

Annual Information Return

A tax-exempt organization is required to make available its annual information return (i.e., Federal Form 990 Return of Organization Exempt From Income Tax, or any version of Form 990 (e.g., 990-BL Informational and Initial Excise Tax Return for Black Lung Benefit Trusts or 990-EZ) and Form 1065 US Partnership Return of Income. Additionally, all schedules and supporting attachments, except for lists of contributions, gifts or grants received, also must be made available.

However, under the new regulations, an organization is not required to make available its Form 990-T, Schedule A of Form 990-BL, Schedule K-1 of Form 1065, or Form 1120- POL.

Informational returns only need be made available for the past three years (unless an organization filed an amended return, which then must be made available for three years after the amendment was filed).

Application for Tax Exemption

An organization's application for recognition of tax exemption (e.g., Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code) includes all documents and supporting statements submitted to the IRS in connection with the application.

The application for tax exemption, includes, but is not limited to the application letter, the articles of incorporation, a declaration of trust or other similar instrument that sets forth the permitted powers or activities of the organization, bylaws, and any other statements or documents the IRS requires the organization to file to support its application.

However, under the new regulations, application documents that are not required to be made available include:

• An application filed by an organization that the IRS has not yet recognized as exempt from taxation (i.e., preliminary or final determination letter has not been received);or

• An application for tax exemption filed before July 15, 1987 (unless the organization had a copy of its application on July 15, 1987).

What Are the Procedures for Processing Requests?

On-Site Requests

If a request for the application for tax exemption or the annual information return is made at the organization's principal office, the organization may have an employee present in the room during an inspection; however, the employee may not hinder the inspector from taking notes. However, the organization must allow the individual to photocopy the covered documents free of charge if the individual provides photocopying equipment at the place of inspection.

Written Requests

Written requests must be fulfilled within 30 days of the organization's receipt of the request. The request must set forth the address to which a copy of the documents should be sent. Additionally, an organization must comply with a specific request for a particular section of a document if the request indicates a desire for a particular section of a covered document.

The organization may charge a reasonable fee for processing a request. This fee should not exceed $1.00 for the first page of copying and $0.15 for each additional page. An organization may also charge no more than the actual postage fees to provide the copies. Advance payment may be requested before the requested documents are released.

A copy of the requested documents is deemed to be provided as of the date of the postmark or private delivery mark. If an organization provides the documents via electronic mail, then the requested documents are deemed to be provided on the date the electronic mail is logged as successfully sent.

Exemption for Web Site-Posted Documents

An organization is not required to comply with a request (in person or by mail) for a copy of covered documents if it makes such documents "widely available" on the Internet. However, the requestor must be given the World Wide Web address, instructions as to how to download the information, and have the ability to download the information in a format that replicates the application for tax exemption and information returns exactly as they appear when filed with the IRS.

What if the Organization Does Not Maintain a Permanent Office?

Organizations that do not maintain permanent offices:

• must make the covered documents available at a reasonable location of its choice;

• must make the requested documents available within a reasonable period of time (not more than two weeks); and

• may, at the organization's option, mail the information and charge for copying and mailing costs only if the organization first obtained the requestor's approval for such charges.

An organization that has a permanent office but limited office hours may either make the documents available during its limited office hours or available as if it did not have a permanent office.

A regional or district office of an exempt organization must comply with the same rules as apply to the principal office requirements with respect to allowing public inspection and providing copies of the covered documents. However, a regional or district office is not required to make its annual information return available for inspection or to provide copies until 30 days after the date the return is required to be filed, or is actually filed whichever is later.

What Are the Procedures for Local or Subordinate Organizations?

Local or subordinate organizations (i.e., an organization, such as a chapter, covered by a group exemption), must, upon request:

• make available or provide copies of the application for group exemption and any documents filed by the central or parent organization on behalf of the local or subordinate organization's application (whether or not the local or subordinate organization files its own Form 990); and

• provide the application for group exemption and the page(s) of the list or directory to which it specifically refers, if the central or parent organization submits a list or directory of the organizations covered by the group exemption.

The requestor also has the option of requesting the documents from the central or parent organization.

What if There Are Unusual Circumstances?

Unusual circumstances may include:

• receipt of a volume of in-person requests that exceed the organization's ability to process such requests on the same day; or

• a request received while the staff are performing special duties (e.g., attending an off-site convention or meeting).

When a request is made where such unusual circumstances exist, an organization is allowed one day after the unusual circumstance ceases (e.g., when the volume of in-person requests subsides or upon returning from a meeting) or the fifth business day after the request, whichever occurs first, to process the request.

What Constitutes a Harassment Campaign?

A harassment campaign is defined by the regulations as a group of requests for an organization's application for tax exemption or annual information return that are part of a single coordinated effort to disrupt the operations of the organization.

Under the regulations, an organization may disregard any request from a specific individual or address beyond the first two received in any 30 day period or the first four received within any one year period.

What Are the Penalties for Noncompliance?

The IRS may impose fines on tax-exempt organizations that do not comply with the disclosure requirements outlined above. Fines of up to $20 per day may be assessed, not to exceed $10,000 for each return not provided during the period of noncompliance, and fines of $20 per day (unlimited ceiling) for each day an application for tax exemption is not made available or otherwise provided.

Conclusion

The new rules governing Form 990 and related document disclosures are expected to significantly increase the availability of and scrutiny applied to the financial information of not-for-profit organizations. Accordingly, organization leaders must implement appropriate policies and procedures to ensure that the covered documents accurately reflect the necessary financial and non-financial data and information, as well as ensure ongoing compliance with these disclosure requirements.