As part of receiving the benefits of tax exempt status, nonprofit organizations must comply with Public Disclosure requirements. If approached, would you know how to comply with this requirement? Nonprofit organizations must make a copy of their exemption application and their annual returns for the preceding three years [IRC Sec. 6104(d)(1)] available for public inspection upon request.
You need to make a copy of the organization’s exempt application available. This is Form 1023 for a 501(c)(3) organization or Form 1024 for all other tax exempt organizations. This includes all schedules and attachments that support the application. The only information that may be omitted would be information marked on the original application as “Not Available for Public Inspection,” which may include information that relates to a trade secret, patent, national defense, etc.
You also need to make the three most recently filed annual returns available. This would be either Form 990, Return of Organization Exempt From Income Tax, Form 990EZ Short Form Return of Organization Exempt From Income Tax or Form 990-PF, Return of Private Foundation. All schedules and attachments should be included. Form 990-T Exempt Organization Business Income Tax Return, would also need to be included if the organization was required to file this form. A political organization exempt from taxation under code section 527(a) must make available Form 8872 (the form that discloses contributions and expenditures) but not Form 1120-POL.
Schedule B (Schedule of Contributors) must be shown in its entirety for 990-PF and 527(a) organizations. For all other organizations, the names and addresses of contributors may be omitted. Most tax professionals can print a “Public Disclosure” version of the annual return that would have the names and addresses of contributors blanked out. Unless specifically required by the state, do not include Schedule B when attaching the federal annual information return to the state annual report.
If requested in person, the organization must provide the required copies immediately. The organization is allowed to charge a fee that is reasonable for reproduction of these documents. If requested by mail, the organization must comply with the request within 30 days. Many organizations comply with this disclosure requirement by having their exempt application and the three most recently filed information returns available on their websites. Having the documents available on Guidestar, or similar websites, does not fulfill the requirement as these documents come from the Internal Revenue Service rather than the organization.
There are penalties involved with failure to comply with these requirements. So, it is prudent to have these documents readily available if and when they are requested. A person responsible for failure to comply with any of the disclosure requirements is personally liable for a penalty of $20 per day [IRC Sec. 6652(c)(1)(C) and (D)]. The maximum penalty imposed on all persons for any one return or report shall not exceed $10,000.
Please contact your Hawkins Ash CPAs representative if you have any questions regarding the public disclosure requirements for your organization.