Should an organization disclose nonprofit information?
“A complete stranger asked me for a copy of my organization’s annual return. She said if I don’t give her a copy right away, she’ll complain to the IRS and I’ll get a fine. Is she right? What do I do?”
We get this kind of a call from time to time. Sometimes it comes from the other side. “Can I force them to show me what they are doing? I think they are not doing things right? Isn’t there some way to find out what they are doing?” Sometimes it even comes from a director or officer of the nonprofit who is excluded from knowing what is going on! Must you disclose nonprofit information?
First of all, this blog will be limited to federal law, since it’s federal law that requires certain information to be disclosed by a 501c3. It is the IRS that gives the determination of 501c3 status, so it is the IRS that requires certain disclosures. (Actually, it is Congress operating through the IRS.) State law may also require certain disclosure.
So, from the IRS point of view, let’s take a look at what is required.
Public Inspection Rules for 501(c)(3) Organizations
In return for not paying income taxes and for receiving tax-deductible contributions, Congress requires 501(c)(3) organizations to disclose the following nonprofit information to the public upon request:
- Annual returns for three years after the due date, including any extensions:
—Form 990, 990-EZ, 990-PF, and any Forms 990-T filed after August 17, 2006 Annual returns
- All Form 990 schedules (except Schedule B), attachments, and supporting documents
- Application for exemption and all supporting documents: Form 1023 , if you filed the form on or after July 15, 1987
- Letter from the IRS ruling that your organization has tax-exempt status
When do you have to disclose these documents?
Simple answer: Normally, on the day you are asked for them.
What if your nonprofit does not have a permanent office? Many nonprofits are run out of someone’s home. Some nonprofits have no office or has limited hours at certain times of the year. Do the documents have to be disclosed on the day they are requested? No, the requested information should be made available within two weeks.
So far, we have talked about disclosing the documents. This means allowing them to be viewed. But in addition to permitting inspection of these documents, you must provide copies of the information requested, whether the request is made in person or in writing. How much can you charge for providing copies? Only a reasonable fee to cover the cost of the copies.
Here is a simple solution to the requirement to make copies for the requester—the Internet!
If you post the information on the Internet, you can refer requesters to the website and consider your job done.
However, you still need to have paper copies available for anyone who wants to inspect but does not want to make copies.
As a representative of an exempt organization, you can post these documents on your website and direct people there if they make requests over the phone or via email. If you don’t have the documents posted, you need to make a copy of the forms—and you can charge the requesters a reasonable fee for doing so.
You are NOT required to share…
- Schedule B of Form 990/990-EZ
Why not? Because you do not have to identify your contributors by name—only the amounts and natures of the contributions.
- Unfavorable rulings
What is an example of an unfavorable ruling? An earlier denial of tax-exempt status is an example of an unfavorable ruling.
- Certain types of information that the IRS approved withholding
What are some examples? Trade secrets, patents, processes, styles of work, and national defense material.
Public Inspection Rule
If your organization intentionally disregards this rule, it will be penalized $20 each day for noncompliance, up to a maximum of $10,000. Also, if an individual at the organization willfully refuses to comply, he or she could be assessed a penalty up to $5,000.
Let’s see if you got it:
“A man just asked me to mail him copies of the last three years’ returns. He says he’ll pay for the copies. Do I have to do that?”
I hope you got it right. Answer: Yes, you are required to disclose the last three years of annual returns. If the returns are available on a web site, send him to the web site. Otherwise, mail them within two weeks.
Here’s another one: “A woman just asked me to mail her a list of contributors. Should I do it?” Answer: No. you don’t have to disclose the names of your contributors.—only the amounts and natures of the contributions.