IRS Is Urged to Make Some Revisions in Plan to Enforce Disclosure Law

The Internal Revenue Service is being encouraged to think more about the day-to-day pressures that face non-profit groups as it drafts new rules to explain how organizations must comply with a new information-disclosure law.

In comment letters it received from charity officials and others, the service drew praise for the overall approach it took last year when it proposed regulations (The Chronicle, October 16), but it also was urged to make numerous changes before the rules became final.

The rules are a response to a law that Congress passed in 1996 to require charities and other non-profit organizations to make their informational tax returns, called Forms 990, readily available to the public. The provision does not take effect until 60 days after the I.R.S. issues final rules explaining how it will enforce the statute.

Non-profit organizations now are required only to show copies of their three most-recent tax returns to anyone who requests them in person. They do not have to provide visitors with their own photocopies to keep.

When the law takes full effect, charities will be required to provide copies of their three most-recent tax returns immediately to anyone who requests them in person. Non-profit groups will have 30 days to send out copies to people who make written requests for them.

Charities that refuse to allow public inspection or to provide copies of returns face a penalty of $20 for every day they fall behind in providing the forms, up to a maximum of $10,000. The penalty for “willful failure” to follow the statute is $5,000.

The law also requires tax-exempt organizations to provide copies of their original application to the government for tax-exempt status and related documents.

The I.R.S.’s proposed regulations flesh out the law by describing in detail what tax-exempt organizations would have to do to comply with it.

Following are some of the key points raised in comments received by the revenue service:

Charging for copies. Under the government’s plan, charities could charge only a “reasonable fee” for making photocopies, plus the actual cost of mailing them. The I.R.S. defines reasonable as no more than the copying fee that the revenue service itself charges when it provides the tax returns to the public: $1 for the first page and 15 cents for each subsequent page.

But the I.R.S. fee is not appropriate for non-profit organizations, said James J. McGovern, a former top charity regulator at the I.R.S. who now works for the accounting firm KPMG Peat Marwick.

The new law will force non-profit groups to spend a lot of time setting policies and procedures on how to make the forms available, said Mr. McGovern.

“Many tax-exempt organizations will incur significant personnel costs to meet the mandates of the new law,” he said.

“Accordingly, a reasonable fee for reproduction and mailing costs should include an allocable portion of personnel time required to fulfill these requests,” he said. “Such a fee could be set at a flat rate, but it should not be limited to the I.R.S.’s per-page charge.”

Speed of response. The proposed rules say that when someone requests a copy of the Form 990 in person, the non-profit organiza tion generally must hand over a copy on the same day the request is made. In “unusual circumstances” — such as when the request is made late in the day and an “extensive amount” of copying is required — the organization could provide the copy on the next business day.

Planned Parenthood Federation of America said the I.R.S. should allow a charity to require that those seeking documents make an appointment and show identification — as long as the charity requires the same of the general public seeking entrance to its office.

“Planned Parenthood clinics operate under stringent security systems in order to avoid the violence and disruption that has become a staple of the provision of reproductive-health care,” said Dara Klassel, the organization’s director of legal affairs.

“Most often, individuals must have appointments to use the facility and show identification before entering,” Ms. Klassel continued. The I.R.S. should “clarify that organizations may apply the same security measures to individuals seeking access to tax documents as they apply to the public generally.”

The American Society of Association Executives, whose members include officials of charities and other non-profit organizations, asked the I.R.S. to give tax-exempt groups up to five business days to comply when “unusual circumstances” apply.

Many organizations have annual meetings or conventions of several days’ duration that are held away from their headquarters, frequently leaving no staff members behind with the qualifications to make the documents available, wrote George Constantine, the society’s legal section manager.

Instances of harassment. The proposed regulations say that charities can get an exemption from the photocopying requirement if they can show that requests for copies are being made by opponents who simply want to make them do extra work.

Charities that saw a sudden increase in the number of requests for forms, or received an extraordinary number of requests made through form letters or similarly worded correspondence, or were inundated with requests that contained language “hostile” to the organization, could make a case with the revenue service that they were right to reject such requests.

The proposed rules say that a tax-exempt group could refuse to send copies of its tax returns to those suspected of harassment if, within five days of the date it stopped sending the forms, it asked the I.R.S. to investigate and determine whether a harassment campaign was indeed under way.

If the revenue service determined that there was no harassment, and that the organization did not have a “reasonable basis” for asking the I.R.S. for such a ruling, the organization would have to pay the $20 penalty for each day that it did not provide the copies.

The American Federation of Labor and Congress of Industrial Organizations told the I.R.S. that it feared that the proposed regulations could allow charities to reject legitimate inquiries from their own employees, whether the workers were acting with the backing of their union or on their own.

Some employees “are often greeted with hostility and suspicion” by employers when they seek information, said Jonathan P. Hiatt, the labor union’s general counsel.

“The regulations ought to be clear that an organization does not have a ‘reasonable basis for requesting a determination that it was subject to a harassment campaign’ simply because an individual has participated in concerted activity directed toward the organization prior to requesting copies of the tax returns,” the union said.

Independent Sector, a coalition of charities and grant makers, said it was concerned that the I.R.S. could take a long time to decide that a non-profit group was wrong to ask for a harassment ruling, which could leave the organization with a big penalty bill.

Independent Sector’s suggestion to the I.R.S.: Limit the penalty that a tax-exempt group in that situation would face to $600 — a month’s worth — to protect the charity in case the revenue service did not take quick action.

Press inquiries. “Normally, the Internal Revenue Service will not consider a tax-exempt organization to be reasonable,” the proposed regulations say, “if it disregards requests from members of the news media.”

The I.R.S. added, in an explanation that accompanied the proposed rules, that it will “not allow organizations to suspend compliance with a request for copies from a representative of the news media even though the organization believes that request is part of a harassment campaign.”

The American Society of Association Executives said that the government needs to be more specific in its definitions.

“With the proliferation of Web sites, newsletters, and fax publications, many individuals and organizations that spend a very small percentage of their time on gathering and reporting news could conceivably fall under the news media exception,” said the society’s Mr. Constantine.

The I.R.S. does not even need a specific exception for the press in its final regulations, Mr. Constantine said. But at the least, he said, the government needs to be more specific about how the exception would work and make clear that it “only applies to requests coming directly from an individual working for a newspaper, magazine, broadcaster, or other regular publisher of news items for the purpose of reporting news to members of the public through the newspaper, magazine, broadcast, or other regular means of news dissemination.”

Nan Aron, president of the Alliance for Justice, a national association of advocacy groups, suggested that the final regulations state “explicitly that there is merely a presumption that media requests are to gather information and not to disrupt an organization’s operations, not an absolute bar to finding such requests to be part of a harassment campaign.”

Internet posting. The proposed regulations say that a charity could also receive an exemption from the photocopying requirement if it posted an electronic version of its return on its own World-Wide Web site or on another site as part of a data base of similar documents of other organizations.

Several non-profit organizations objected to the I.R.S.’s request that charities post their forms in the same electronic format that the revenue service uses on its site.

The I.R.S. primarily uses a file format known as “PDF,” or Adobe Acrobat, which makes it easy to provide electronic replicas of paper forms but which also requires users to download a free software program to read them.

Peter Swords, president of the Nonprofit Coordinating Committee of New York, told the I.R.S. that Adobe Acrobat and similar files “can be fairly expensive or difficult” for charities to use to post their Forms 990. He and others suggested that the I.R.S. expand the rules to include electronic files that use hypertext markup language — or H.T.M.L. — that are easily created; they contain the same information but differ slightly in appearance from the I.R.S. forms.

Mr. Swords also suggested that the revenue service consider dropping its requirements for computer formats and other technical matters from its final regulations.

Instead, he said, the I.R.S. could place those requirements in public announcements called “revenue procedures” that the government could issue in the future with more ease than it could issue revised regulations. “Technological changes will probably necessitate updating the requirements on a regular basis,” Mr. Swords observed.

Subordinate groups. The proposed regulations say that a local or “subordinate” non-profit organization that does not file its own Form 990 — because it is affiliated with a parent or central organization that files a group return — must make copies of the parent organization’s return available to anyone who asks for them. What’s more, the subordinate organization has to hand out copies of its parent’s application for tax-exempt status and other related documents.

The provision drew complaints from several churches, including the Evangelical Lutheran Church in America, the self-described “national churchwide unit” for about 11,000 Lutheran congregations, synods, schools, seminaries, social-service agencies, and other groups.

The Lutheran organization, which is considered a church by the I.R.S., does not file an annual Form 990, said David J. Hardy, one of its lawyers. But it did apply for and receive a “group exemption” for itself and its affiliated organizations.

Mr. Hardy said that the proposed regulations would force the Evangelical Lutheran Church in America to provide each of its 11,000 affiliates with a copy of its original application for tax-exempt status and related documents, as well as other materials that are updated annually — a total package hundreds of pages long for each affiliate.

While costly for the national organization, Mr. Hardy said, the proposed regulations would also be hard on the church’s affiliates, many of which are “very small Lutheran congregations without a full-time staff.”

He added: “For these congregations, the reproduction of a group exemption application with hundreds of pages would be both costly and time consuming.”

The I.R.S.’s proposed regulations were published in the September 26 issue of the Federal Register, Pages 50,533-41.