Charities’ Disclosure of Financial Information: Summary of IRS Proposal

Following are excerpts from rules the Internal Revenue Service has proposed to explain how charities must comply with a law that requires them to make it easy for the public to obtain copies of their informational tax returns. Charities must immediately provide copies of their three most recent tax returns to anybody who requests them in person; they have 30 days to send out copies to people who make written requests for them. The rules would take effect 60 days after the I.R.S. issues a final version.

Public inspection and distribution of annual information returns

Unusual circumstances. Where unusual circumstances exist such that fulfilling a request on the same business day places an unreasonable burden on the tax-exempt organization, the organization may provide the copies in response to a request made in person on the next business day following the day of the request. Unusual circumstances may include, but are not limited to, receipt of a volume of requests that exceeds the organization’s daily capacity to make copies; requests received shortly before the end of regular business hours that require an extensive amount of copying; or requests received on a day when the organization’s managerial staff is conducting special duties, such as student registration, rather than its regular administrative duties.

Agents for providing copies. A principal, regional or district office of a tax-exempt organization subject to the requirements of this section may retain a local agent, within reasonable proximity of the applicable office, to process in person requests for copies of its documents. An agent that receives a request for copies must provide the copies within the time and under the conditions that apply to the organization itself.

For example, an agent must provide a copy to a requester on the day the agent receives the request. However, an office using such an agent that receives an in-person request for a copy must immediately provide the name, address and telephone number of the local agent to the requester. An organization that notifies an in-person requester of such an agent is not required to respond further to the requester.

However, the penalty provisions of sections 6652(c)(1)(C), 6652(c)(1)(D), and 6685 continue to apply to the tax-exempt organization if the organization’s agent fails to provide the documents …

Request for copies in writing. A tax-exempt organization must honor a written request for a copy of documents that the organization is required to provide under section 6104(e) if the request (a) Is addressed to, and delivered by mail, electronic mail, facsimile, a private delivery service …, or in person, to the principal, regional or district office of the organization; and (b) Sets forth the address to which the copy of the documents should be sent. …

A tax-exempt organization receiving a written request for a copy shall mail the copy of the requested documents (or the requested parts of documents) within 30 days from the date it receives the request. If a tax-exempt organization requires payment in advance, it shall provide the copies within 30 days from the date it receives payment. If an organization requiring payment in advance receives a written request without payment or an insufficient payment, the organization must, within seven days from the date it receives the request, notify the requester of its prepayment policy and the amount due. A request or payment that is mailed shall be deemed (in the absence of evidence to the contrary) to be received by an organization seven days after the date of the postmark. Requests transmitted to the organization by electronic mail or facsimile shall be deemed received the day the request is transmitted successfully. Copies are deemed provided on the date of the postmark or private delivery mark (or if sent by certified or registered mail, the date of registration or the date of the postmark on the sender’s receipt). If an individual making a request consents, a tax-exempt organization may provide a copy of the requested document exclusively by electronic mail. In such case, the material is provided on the date the organization successfully transmits the electronic mail. …

A tax-exempt organization subject to the requirements of this section may retain an agent to process written requests for copies of its documents. The agent shall provide the copies within the time and under the conditions that apply to the organization itself. For example, if the organization received the request first (e.g., before the agent), the deadline for providing a copy in response to a request shall be determined in reference to when the organization received the request, not when the agent received the request. An organization that transfers a request for a copy to such an agent is not required to respond further to the request. However, if the organization’s agent fails to provide the documents as required under section 6104(e), the penalty provisions of sections 6652(c)(1)(C), 6652(c)(1)(D), and 6685 continue to apply to the tax-exempt organization.

Request for a copy of parts of document. A tax-exempt organization must fulfill a request for a copy of the organization’s entire application for tax exemption or annual information return or any identifiable part, attachment or supporting paper of its application or return. A request for a copy of less than its entire application or less than its entire return must describe the information desired in sufficient detail to enable the organization to identify the desired part of the applicable document without placing an unreasonable burden upon the organization. For example, a request may be limited to those parts of an organization’s annual information return that relates to the compensation of the organization’s officers and managers.

Fees for copies. A tax-exempt organization charges a reasonable fee for providing copies only if it charges no more than the per-page … fee charged by the Internal Revenue Service for providing copies to a requester, plus no more than the actual postage costs incurred by the organization to provide the copies. An organization may require that an individual requesting copies of documents pay the fee before the documents are provided. If the organization has provided an individual making a request with notice of the fee, and the individual has not paid the fee within 30 days, or if the individual pays the fee by check and the check does not clear when deposited, the organization may disregard the request.

Form of payment. Request made in person. If a tax-exempt organization charges a fee for copying … it shall accept payment by cash and money order for requests made in person. The organization may accept other forms of payment, such as personal checks or credit cards.

Request made in writing. If a tax-exempt organization charges a fee for copying and postage … it shall accept payment by certified check, personal check and money order for requests made in writing. The organization may accept other forms of payment, such as credit cards.

Avoidance of unexpected fees. Where a tax-exempt organization does not require prepayment and a requester does not enclose prepayment with a request, an organization must receive consent from a requester before providing copies for which the fee charged for copying and postage … is in excess of $20.

Responding to inquiries of fees charged. In order to facilitate a requester’s ability to receive copies promptly, a tax-exempt organization shall respond to any questions from potential requesters concerning its fees for copying and postage. For example, the organization shall inform the requester of its charge for copying and mailing its application for exemption and each annual information return, with and without attachments, so that a requester may include payment with the request for copies. …

Documents to be provided by regional and district offices. A regional or district office of a tax-exempt organization must satisfy the same rules as the principal office with respect to public inspection and providing copies of its application for tax exemption and annual information returns. However, a regional or district office is not required to make its annual information return available for inspection or for providing copies until 30 days after the date the return is required to be filed (including any extension of time that is granted for filing such return) or is actually filed, whichever is later.

Documents to be provided by local and subordinate organizations. A local organization that does not file its own annual information return (because it is affiliated with a central organization that files a group return …) must make available the applicable annual information returns filed by the central organization. However, a local organization is not required to make its annual information return available for inspection or for providing copies until 30 days after the date the return is required to be filed (including any extension of time that is granted for filing such return) or is actually filed by the central organization, whichever is later. If a subordinate organization is covered by a group exemption letter, the application for tax exemption the subordinate organization must make available for public inspection and furnish in response to requests for copies is the application submitted to the Internal Revenue Service by its parent or supervisory organization to obtain the group exemption letter, as well as any additional documents submitted in order to cover the subordinate organization under the group exemption letter.

Failure to comply with public inspection or copying requirements. If a tax-exempt organization denies an individual’s request for inspection or a copy of an application for tax exemption or an annual information return …, and the individual wants to alert the Internal Revenue Service to the possible need for enforcement action, the individual may provide a statement to the Director, Exempt Organizations Division, CP:E:EO, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224 that describes the reason why the individual believes the denial was in violation of the requirements of section 6104(e). …

Making applications and returns widely available

(A) In general. A tax-exempt organization is not required to comply with a request for a copy of its application for tax exemption or an annual information return … (a) if the organization has made the requested application or return widely available in accordance with paragraph (b) of this section. An organization that makes its application or return widely available must nevertheless make the application or return available for public inspection …

(B) Widely available — (1) In general. A tax-exempt organization makes its application for tax exemption and/or an annual information return widely available if the organization uses a method specified in paragraph (b)(2) of this section or in a revenue procedure or other form of guidance issued by the Commissioner, and if the organization satisfies the requirements of paragraph (b)(3) of this section.

(2) Internet posting. A tax-exempt organization can make its application for tax exemption and/or an annual information return widely available by posting the application or return on a World-Wide Web page that the tax-exempt organization establishes and maintains or by having the application or return posted, as part of a database of similar documents of other tax-exempt organizations, on a World-Wide Web page established and maintained by another entity. In order for the application or return to be widely available through an Internet posting, the entity maintaining the World-Wide Web page must have procedures for ensuring the reliability and accuracy of the application or return that it posts on the page and must take reasonable precautions to prevent alteration, destruction or accidental loss of the application or return posted on its page. Furthermore, the application or return will be considered widely available only if —

(i) It is posted in the same format used by the Internal Revenue Service to post forms and publications on the Internal Revenue Service World-Wide Web page;

(ii) The World-Wide Web page through which it is available clearly informs readers that the document is available and provides instructions for downloading it;

(iii) When downloaded and printed in hard copy, the application or return is in substantially the same form as the original application or return, and contains the same information provided in the original application or return filed with the Internal Revenue Service. …

(iv) A person can access and download the application or return without payment of a fee to the organization maintaining the World-Wide Web page.

(3) Notice requirement. If a tax-exempt organization has made its application for tax exemption and/or an annual information return otherwise widely available it must tell any individual requesting a copy where the documents are available (including the address on the World-Wide Web, if applicable). If the request is made in person, the organization shall provide such notice to the individual immediately. If the request is made in writing, the notice shall be provided within seven days of receiving the request. …

Tax-exempt organization subject to harassment campaign

In general. If the key district director for the district where the organization’s principal office is located determines that the organization is the subject of a harassment campaign and compliance with the requests that are part of the harassment campaign would not be in the public interest, a tax-exempt organization is not required to fulfill a request … for a copy that it reasonably believes is part of the campaign. … A group of requests for an organization’s application for tax exemption or annual information returns is indicative of a harassment campaign if the requests are part of a single coordinated effort to disrupt the operations of a tax-exempt organization rather than to collect information about the organization. Whether a group of requests constitutes a harassment campaign depends on the relevant facts and circumstances. Facts and circumstances that indicate the organization is the subject of a harassment campaign include: a sudden increase in the number of requests; an extraordinary number of requests made through form letters or similarly worded correspondence; evidence of a purpose to deter significantly the organization’s employees or volunteers from pursuing the organization’s exempt purpose; requests that contain language hostile to the organization; direct evidence of bad faith by organizers of the purported harassment campaign; evidence that the organization has already provided the requested documents to a member of the purported harassing group; and a demonstration by the tax-exempt organization that it routinely provides copies of its documents upon request.

Special rule for multiple requests from a single individual or address. A tax-exempt organization may disregard any request for copies of all or part of any document beyond the first two received within any 30-day period or the first four received within any one-year-period from the same individual or the same address, regardless of whether the key district director has determined that the organization is subject to a harassment campaign.

Harassment determination procedure. A tax-exempt organization may apply for a determination that it is the subject of a harassment campaign by submitting a signed application to the key district director for the key district where the organization’s principal office is located.

The application shall consist of a written statement giving the organization’s name, address, employer identification number, and the name, address and telephone number of the person to contact regarding the application, and describing in detail the facts and circumstances that the organization believes support a determination that the organization is subject to a harassment campaign. The organization may suspend compliance with respect to any request for a copy of its documents based on its reasonable belief that such request is part of a harassment campaign, provided that the organization files an application for a determination within five days from the day the organization first suspends compliance with respect to a request that is part of the alleged campaign. In addition, the organization may suspend compliance with any request it reasonably believes to be part of a harassment campaign until it receives a response to its application for a harassment campaign determination.

Effect of a harassment determination. If the appropriate key district director determines that a tax-exempt organization is the subject of a harassment campaign, such organization is not required to comply with any request for copies that it reasonably believes is part of the campaign. This determination may be subject to other terms and conditions set forth by the key district director. A person … shall not be liable for any penalty …for failing to timely provide a copy of documents in response to a request covered in a request for a harassment determination if the organization fulfills the request within 30 days of receiving a determination from the key district director that the organization is not subject to a harassment campaign.

Notwithstanding the preceding sentence, if the key district director further determines that the organization did not have a reasonable basis for requesting a determination that it was subject to a harassment campaign or reasonable belief that a request was part of the campaign, the person … remains liable for any penalties that result from not providing the copies in a timely fashion.

Examples. The provisions of this section may be further illustrated by the following examples.

Example 1. V, a tax-exempt organization, receives an average of 25 requests per month for copies of its three most recent information returns. In the last week of May, V is mentioned in a national news magazine story that discusses information contained in V’s 1996 information return. From June 1 through June 30, 1997, V receives 200 requests for a copy of its documents. Other than the sudden increase in the number of requests for copies, there is no other evidence to suggest that the requests are part of an organized campaign to disrupt V’s operations. Although fulfilling the requests will place a burden on V, the facts and circumstances do not show that V is subject to a harassment campaign. Therefore, V must respond timely to each of the 200 requests it receives in June.

Example 2. Y is a tax-exempt organization that receives an average of 10 requests a month for copies of its annual information returns. From March 1, 1997 to March 31, 1997, Y receives 25 requests for copies of its documents. Fifteen of the requests come from individuals Y knows to be active members of the board of organization X. In the past X has opposed most of the positions and policies that Y advocates. None of the requesters have asked for copies of documents from Y during the past year. Y has no other information about the requesters. Although the facts and circumstances show that some of the individuals making requests are hostile to Y, they do not show that the individuals have organized a campaign that will place enough of a burden on Y to disrupt its activities. Therefore, Y must respond to each of the 25 requests it receives in March.

Example 3. The facts are the same as in Example 2, except that during March 1997, Y receives 100 requests. In addition to the 15 requests from members of organization X’s board, 75 of the requests are similarly worded form letters. Y discovers that several individuals associated with X have urged X’s members and supporters, via the Internet, to submit as many requests for a copy of Y’s annual information returns as they can. The message circulated on the Internet provides a form letter that can be used to make the request. Both the appeal via the Internet and the requests for copies received by Y contain hostile language. During the same year but before the 100 requests were received, Y provided copies of its annual information returns to the headquarters of X. The facts and circumstances show that the 75 form letter requests are coordinated for the purpose of disrupting Y’s operations, and not to collect information that has already been provided to an association representing the requesters’ interests. Thus, the fact and circumstances show that Y is the subject of an organized harassment campaign. To confirm that it may disregard the 90 requests that constitute the harassment campaign, Y must apply to the district director for a determination. Y may disregard the 90 requests while the application is pending and after the determination is received. However, it must respond within the applicable time limits to the 10 requests it received in March that were not part of the harassment campaign.

Example 4. The facts are the same as in Example 3, except that Y receives five additional requests from representatives of the news media. In the past, some of these representatives have published articles criticizing Y. Some of these articles were hostile to Y. Normally, the Internal Revenue Service will not consider a tax-exempt organization to be reasonable under paragraph (d) of this section if it disregards requests from members of the news media. There are no additional facts that demonstrate that Y could reasonably believe the requests from the news media to be part of X’s harassment campaign. Thus, although Y is the subject of a harassment campaign, it must respond within the applicable time limits to the five requests that it received from representatives of the news media.