Tax-exempt organizations must allow timely public inspection of their last three annual information returns and their exemption application or risk steep penalties. Many nonprofits are caught off guard when they receive their first request. Below is a summary of what must be provided and when and what may be withheld.
Documents Exempt Organizations Must Disclose
Specifically, tax-exempt organizations must make the following forms available for public inspection:
- Form 1023
- Form 1023-EZ
- Form 1024
- Form 1024-A
- Form 990
- Form 990-EZ
- Form 990-PF
- Form 990-T
- Form 990-BL
- Form 1065
- Form 8871
In addition, the letter submitted to gain exemption under any paragraph for which no form is prescribed must be disclosed. Finally, any schedules, attachments, or supporting records attached to a return subject to public disclosure must also be made available for public inspection.
Documents Excluded from Disclosure Requirement
A section 501(c)(4) organization is exempt from disclosing information on Form 8976, Notice of Intent to Operate Under Section 501(c)(4).
Schedule K-1 of Form 1065 and Schedule A of Form 990-BL is not necessary disclosures for exempt organizations.
Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, does not require that the organization make its return available.
Further, exempt organizations do not have to share:
- Portions of Schedule B of Form 990/990-EZ – You don’t have to identify your contributors by name, only the contributions’ amounts and natures.
- Unfavorable rulings
- Certain types of information that the IRS said could be withheld (e.g., trade secrets, patents, processes, styles of work, and national defense material)
- Names of contributors on Schedule B of Form 990/990-EZ
Timely Response to Requests
A response is considered timely if a reply is made the day you are asked for them. If you don’t have an office open during regular hours, you must provide them within two weeks of the request. If someone asks for copies, you have to offer them, but you may charge a reasonable fee to cover the cost of the copies. Most nonprofits provide electronic copies or refer requesters to a website that hosts the information, such as “guidestar” or the IRS select check website.
Penalties for Noncompliance
Organizations can be fined $20 for each day of noncompliance, up to a maximum of $10,000. If the failure to comply was deemed willful, an employee who fails to comply could face a penalty of $5,000 per return or application.
It’s important to remember that these disclosure requirements are the law and must be dealt with promptly. Keeping an electronic disclosure copy with all information that is not required to be disclosed, removed, or redacted and information about where the requested information can be downloaded is the simplest way to manage disclosure requests.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C., licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide, and Ellis also advises donors with regard to significant gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.