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Exempt Organizations Bulletin (February 2001)

Tax-Exempt Organizations Subject to
Increased Disclosure Requirements

By Carol S. Boulanger, a tax partner and Michael Burnstein, formerly an associate in our New York office. If you have or can obtain the Acrobat Reader, or have an Acrobat-enabled web browser, you may wish to download or view our February 2001 Exempt Organizations Bulletin (a 96K pdf file), containing a printed version of this article.

This article concerning disclosure requirements applicable to exempt organizations was originally published in May 2000 and is part of the Pillsbury Winthrop Shaw Pittman LLP Tax Page, a World Wide Web demonstration project, no portion of which is intended and cannot be construed as legal or tax advice. Comments are welcome on the design or content of this material.

New Disclosure Burdens Imposed

Under a change in law effective in 1999, most tax-exempt organizations (other than private foundations) generally are required to provide to any individual who requests them copies of their exemption applications and annual returns filed with the Internal Revenue Service (the "IRS"). Taxpayer Bill of Rights 2, P.L. 104-168. Effective March 13, 2000, this requirement has been extended to private foundations and the period of time that private foundations must retain annual returns for public inspection has been increased. Tax and Trade Relief Extension Act of 1998, P.L. 105-277.

Prior Law Required Mostly Passive Compliance

Under prior law, most tax-exempt organizations were required to make their exemption applications available for public inspection during normal business hours at their principal offices and certain regional and local offices if (1) the application had been filed on or after July 15, 1987 (or prior thereto if the organization had in its possession a copy of the application on that date), and (2) the IRS had issued a favorable determination letter. Thus, an organization that either had not yet received a determination or had received an adverse determination was not required to disclose its exemption application. Similarly, an organization that had filed an exemption application prior to July 15, 1987 generally was not required to make its application available. In addition, private foundations were required to make annual returns available for public inspection for 180 days from the date of publication of availability, and most other tax-exempt organizations were required to make such returns available for three years from the later of the date the returns were due to be filed and the date the forms were actually filed.

Organizations Generally Must Provide Documents on Request

As a result of the recent changes in law, most tax-exempt organizations generally are required to provide to any individual who requests them copies of their exemption applications or annual returns for as long as such forms must be made available for public inspection under existing law. Copies must be provided immediately if the request is made in person or within 30 days if in writing. The organization may charge a fee to defray the costs of postage and, subject to certain limitations, photocopying documents.

Organizations May Instead Post Documents on the Internet

Under a significant exception to these requirements, an organization need not comply with a request for copies of documents that are "widely available." Treasury regulations provide that a document is considered widely available if it is posted on a Web site that complies with applicable IRS guidelines.

An organization may satisfy this exception either by posting its exemption application and annual returns on its own qualifying Web site or by relying on the fact that a second qualified organization has posted the organization's documents on its own Web site.

If an organization's documents appear on a qualifying Web site, the organization must respond to requests for copies by providing the address of the site where the documents may be downloaded. The address must be provided immediately if the request is made in person or within seven days if in writing. Even if an organization makes its exemption application and annual returns widely available, however, the documents must remain available for public inspection during normal business hours at the organization's principal office and certain regional and local offices.

Organizations Subject to Harassment Need Not Respond to Document Requests

Under the new rules, if the IRS determines that the requests that an organization has received for documents constitute a campaign of harassment and that compliance with the requests would not be in the public interest, the organization need not comply with any request that it reasonably believes is part of that campaign. In addition, Treasury regulations provide that, even without an IRS determination of harassment, an organization may disregard the third (and any subsequent) request within a 30-day period for all or part of a particular document and the fifth (and any subsequent) request within any one-year period from the same individual or address.

Private Foundations' Annual Returns Must Be Available for Three Years

The new rules require private foundations to retain, make available for public inspection, and provide copies of, their annual returns for three years from the later of the filing due date, including extensions, and the actual date of filing. Private foundations are subject to the same requirements that apply to most other tax-exempt organizations for retaining and making available for public inspection their annual returns. However, private foundations are not required to publish the availability of their annual returns due to be filed on or after March 13, 2000.

Managers Should Actively Monitor Disclosure

These changes in law may result in an increase in the number of requests for exemption applications and annual returns. As a result, organization managers should become increasingly sensitive to the information disclosed on their applications and returns. Through an organization's exemption applications and annual returns, the public can obtain not only the organization's certificate of incorporation and by-laws, but also information relating to its relationships with other organizations, the names of its managers and information concerning their compensation, detailed information relating to the organization's finances and activities and, in the case of private foundations, the names and addresses of certain contributors.

Organization managers should also consider making the organization's documents available on the Internet. Relevant factors include (1) the cost of complying with requests for copies as compared to the cost of Internet posting, (2) the relative convenience of each method, (3) the relative ability of the organization to ascertain and track the identity of individuals requesting documents, and (4) the size and composition of the targeted audience. While some organizations may view Internet disclosure as a way to attract public support, others may consider it an additional source of unwanted public scrutiny.

Available Materials

The following Treasury Decisions contain implementing regulations as well as background and explanatory material.

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