Final Regulations Concerning Public Disclosure of Materials Relating to Tax-Exempt Organizations

On April 8, 1999, the Internal Revenue Service (the “Service”) issued final regulations under section 6104 of the Internal Revenue Code (the “Code”) concerning public disclosure of annual information returns and applications for exemption of tax-exempt organizations.  This letter summarizes the requirements for compliance with the new disclosure rules, which are effective June 8, 1999.

Section 6104(d) of the Code generally requires an exempt organization to make available for public inspection each of its “annual information returns” for a period of three years from the date of filing and the “application for exemption” that the organization filed with the Service.  In addition, an exempt organization generally must provide a copy of an annual return or application for exemption to any individual who requests such a copy.

What Constitutes an "Application for Exemption"?
According to the final regulations, an "application for exemption" includes not only applications and attachments thereto filed on forms prescribed by the Service, such as Forms 1023 or 1024, but also includes any documents or  correspondence filed with the Service at a time when no form was prescribed, Such documents would include (1) an application letter and a copy of the articles of incorporation; (2) bylaws; (3) the organization's latest financial statements as of the date the application was filed; (4) statements describing the organization's activities; (5) descriptions of sources of receipts and their disposition; and (6) any other documents required by the Service.  Treas. Reg. § 301.6104(d)-3(b)(3)(ii).  any other documents requested by the Service and any documents issued by the Service in response to an application (such as a favorable determination letter or request for additional information).  See Treas. Reg. § 301.6104(d)-3(b)(3)(i).

However, if an organization filed its application before July 15, 1987, the final regulations provide that the organization is required to make available a copy of its application only if it had a copy of the application, or portions thereof, in its possession on July 15, 1987.  Id. § 301.6104(d)-3(b)(3)(iii)(B).  Therefore, to the extent an organization had no copies of the documents described above on July 15, 1987, the organization will only be required to comply with the disclosure rules that relate to annual information returns.

What Constitutes an "Annual Information Return"?
The term "annual information return" means an "exact copy" of any return filed by an exempt organization with the Service, such as the organization’s Form 990.  Treas. Reg. § 301.6104(d)-3(b)(4)(i).  For organizations other than  private foundations, the term does not include the "name or address of any contributor to the organization," even if such information was required on an annual return or a schedule or attachment to the return.  Id.  The term also does not include Form 990-T or a schedule K-1 for any partnership in which the organization is a partner.  Id. § 301.6104(d)-3(b)(4)(i) & (ii).  Annual information returns need only be made available during the three-year period from the date of filing.  However, this includes amended returns, which also  must be maintained and made available for three years from the date the amended return is filed with the Service.  Id. § 301.6104(d)-3(b)(4)(iii).

Where Must Returns and Applications be Made Available?
Annual information returns and applications for exemption must be made available at an organization's principal office and at certain "regional" and "district" offices. Treas. Reg. § 301.6104(d)-3(b)(5).  As such, to the extent an organization maintains any offices that satisfy the criteria described below, it must maintain and make available copies of the documents at those offices in addition to its national office.

According to the final regulations, "regional" and "district" offices include offices with "[p]aid employees, whether part-time or full-time, whose aggregate number of paid hours a week are normally at least 120."  Id. § 301.6104(d)-3(b)(5)(i).  However, an office that satisfies the foregoing criteria will not be considered a "regional" or "district" office if the only services provided at the office further the organization's exempt purpose, and no managers, other than those who manage the exempt activities, work out of the office.  Id. § 301.6104(d)-3(b)(5)(ii)(A) & (B).

What Procedures Apply to Public Inspections?
Under the regulations, an exempt organization may have an employee present during an inspection, but the employee must allow the individual inspecting the documents to take notes freely.The individual must also be permitted to make his or her own copies if the individual provides his or her own photocopying equipment at the place of inspection. Id.  Treas. Reg. § 301.6104(d)-3(c)(1).

When and Where Must Copies of Documents be Provided?
As discussed above, exempt organizations generally are required to provide copies of annual information returns and applications for exemption to individuals who request them.

In-Person Requests.  If an individual requests a copy of an application for exemption or annual returnAn individual may also request only a portion of an annual return or application for exemption, but the requesting individual must describe the desired information in sufficient detail.  Treas. Reg. § 301.6104(d)-3(d)(2)(ii)(B). in person, an organization must provide the copy the same day, unless there exist "unusual circumstances" that would place an unreasonable burden on the organization.  Treas. Reg. §301.6104(d)-3(d)(1)(i) & (ii). "Unusual circumstances" include, but are not limited to: (1) receipt of so many requests in a given day that the requests "exceed the organization's daily capacity to make copies"; (2) the receipt of certain requests shortly before the end of regular business hours; and (3) the receipt of requests on days when the staff is "conducting special duties" rather than engaging in regular operations. Id. § 301.6104(d)-3(d)(1)(ii).  If unusual circumstances exist, an organization may provide the copies the next business day following the day the unusual circumstances cease to exist or the fifth business day after the request, whichever is first.  Id.

Written Requests.  An organization generally must respond to a written request within 30 days of receiving the request. Id. § 301.6104(d)-3(d)(2)(ii).  A request that is mailed is deemed received seven days following the date of the postmark.  A request sent by facsimile or by electronic mail is deemed received on the date of transmission.

If the organization requires advance payment of copying and postage costs, the organization is only required to provide the copies within 30 days of receiving payment. If an organization with a prepayment policy receives a request without payment or with insufficient payment, the organization must notify the requester of its policy and the amount due within seven days of receiving the request.  Id.

The final regulations also add that if a requesting individual consents, the copy of the document may be provided exclusively by electronic mail.  Id.

May an Organization Employ an Agent to Provide Copies?
Under the regulations, an organization that is required to provide copies of documents may employ a local agent for purposes of processing in-person and written requests.  Treas. Reg. §§ 301.6104(d)-3(d)(1)(iii) & 3(d)(2)(ii)(C). Upon receiving an in-person request for copies, an organization that employs an agent must provide the name, address and telephone number of the local agent. 

An agent "must provide the copies [in response to an in-person or written request] within the time limits and under the conditions that apply to the organization itself."  Id.  If the agent fails to meet the copying requirements, the exempt organization is responsible for any penalties that may be imposed.

What is a Reasonable Fee for Copies, and What Forms of Payment Must be Accepted?
Fees charged for copying and postage must be "reasonable."  Treas. Reg. § 301.6104(d)-3(d)(3)(i).  Fees are considered reasonable if they do not exceed the copying fees charged by the Service for providing copies of returns (currently $1 for the first page and 15 cents for each additional page) and actual postage costs. See id.

If a request is made in person, the organization must accept payment by cash or money order but may allow payment by other means.  If a request is made in writing, the organization must accept payment by certified check, money order and either personal check or credit card.  The organization may accept other forms of payment.  Id. § 301.6104(d)-3(d)(3)(ii).

An organization must respond to inquiries concerning fees and may require prepayment.  Id. §§ 301.6104(d)-3(d)(3)(iv) & (d)(2)(ii).

Must Local and Subordinate Organizations That Are Covered by Group Exemptions or Group Returns Follow the Same Rules?
The final regulations provide relaxed rules governing compliance by certain local and subordinate organizations. If a local or subordinate organization receives an in-person request for inspection or for a copy of its application for exemption, it may make available within a reasonable period of time (ordinarily not more than two weeks) the application for group exemption letter filed by the central or parent organization and any specific documents filed with the Service by the parent organization that relate to the local or subordinate organization.  Similar rules apply with respect to group annual information returns. Treas. Reg. § 301.6104(d)-3(f).

How Does an Organization Make Its Documents "Widely Available"?
An exempt organization may avoid the requirement that it provide copies of its application for exemption and annual returns by making the documents "widely available."  Even if the organization makes the documents widely available, it must nevertheless continue to allow public inspection as described above. Treas. Reg. § 301.6104(d)-4(a).

Under the final regulations, an organization may make its application for exemption and annual returns widely available by posting copies of the returns on the internet or on an appropriate World Wide Web page that meets the standards set forth in the regulations.  See id. § 301.6104(d)-4(b).  The final regulations are restrictive in terms of appropriate posting formats. Specifically, the regulations provide that the posting must meet the following criteria: (1) an individual must be able to view, download and print the do cument in a format which exactly reproduces the original, except for information permitted to be withheld, and (2) the individual must not be required to have special hardware or software, and must not have to pay a fee, for accessing or downloading the document.  Id. One format that currently satisfies these requirements is Portable Document Format (PDF).

The final regulations also provide a one-year window within which to come into compliance with these requirements.  Documents posted in certain noncomplying  formats will be deemed made widely available during this one-year transition period.  Id.

How Does an Organization Treat Inquiries that It Reasonably Believes Are Part of a Harassment Campaign?
If an organization is deemed by the Service to be the target of a "harassment campaign," the organization need not respond to requests for copies that the organization "reasonably believes" are part of such a campaign.  See Treas. Reg. § 301.6104(d)-5.  According to the final regulations, a harassment campaign is "a single coordinated effort to disrupt the operations of a tax-exempt organization, rather than to collect information about the organization."  Id. § 301.6104(d)-5(b).

An organization may request a determination from the Service that a harassment campaign exists and may, under certain circumstances, suspend compliance with the section 6104(d) rules with respect to that request.  Id. § 301.6104(d)-5(d). If the Service ultimately finds that a harassment campaign does not exist, the organization may be liable for penalties.  Regardless of whether the organization has filed for or received a determination from the Service, the organization may disregard any requests in excess of two received from the same individual or address in any given month, or in excess of four such requests in any given year.  Id. § 301.6104(d)-5(c).

What are the Penalties for Failure to Comply?
If an organization denies a request for copying or public inspection, the requesting individual may provide a statement to the district director for the key district of the Service in which the organization’s principal office is located that describes the reason the individual believes the denial was in violation of the requirements of section 6104(d).  Treas. Reg. § 301.6104(d)-1(g).

Moreover, under section 6685 of the Code, any person who is required to comply with the disclosure requirements and who fails to so comply with respect to any return or application, if such failure is willful, must pay a penalty of $5,000with respect to each such return or application.  I.R.C. § 6685 (emphasis added).  In addition, there is a penalty of $20 per day for each day during which a failure to comply continues (not to exceed $10,000).

If you have any questions regarding any of these issues please contact Catharine Wilkinson at 202.429.6262.