New IRS Rules Tell Foundations How to Comply With Public-Disclosure Law

The Internal Revenue Service has issued rules governing how private foundations are to comply with a law designed to give the public greater access to their annual informational tax returns,

called Forms 990-PF. The regulations take effect March 13.

Congress passed legislation in 1998 to make foundations follow the same disclosure requirements as those followed by charities. The provisions for foundations were not to take effect until 60 days after the I.R.S. issued final regulations on how it would enforce the statute.

Under the new law, foundations must provide photocopies of their three most-recent tax returns — and their original applications for tax-exempt status — to anyone who requests them in person or in writing.

Foundations currently need only make their most-recent tax returns available to the public for inspection for 180 days from the date they publish a notice that they have filed the returns.

Exemptions from the copying requirement will be made if foundations make their tax returns “widely available” through the Internet.

The new law drops a longstanding requirement that private foundations publish notices that they have filed their returns.

Under the new rules, when someone requests a copy of a Form 990-PF in person, a foundation generally must hand over a copy on the same day the request is made. But an organization could have more time in “unusual circumstances,” such as when the request is made late in the day and an “extensive amount” of copying is required, or when a foundation’s managerial staff is out of the office at a meeting.

Written requests for forms, which must be answered within 30 days, could be sent in various ways, including through the mail or in faxes.

Foundation officials who refuse to allow public inspection or to provide copies of tax returns will face a personal penalty of $20 for every day they fall behind in providing a form, up to a maximum of $10,000 per return. An additional penalty for “willful failure” to follow the statute is $5,000.

Congress had stiffened the requirements for public access to charities’ informational tax returns in 1996, but the changes only started to make a big difference for most groups last spring. Since June 8, charities have been required to follow the law and the service’s new rules for disclosure of their tax forms (The Chronicle, April 22, 1999).

To put the foundation law into effect, the I.R.S. essentially borrowed the same rules that it used for charities.

But there are some differences. For example, the final regulations make clear that private foundations, unlike charities, will have to make available copies of the names and addresses of their contributors. And the I.R.S. says that foundations will have to make widely available Form 4720, on which they report payment of certain taxes.

Like charities, foundations will not have to accede to requests for information when it is clear that the purpose of the requests is to disrupt the organization’s operations. Foundations will be able to charge a reasonable fee for providing photocopies.

The new rules apply only to foundation returns that are due to be filed on or after the effective date of March 13. Forms 990-PF that are due to be filed before that date will not be subject to the new regulations.

For example, a foundation that filed its return on time in November of last year will only be obligated to make that Form 990-PF available for inspection during regular business hours for 180 days from the date the return was filed. But that foundation’s subsequent returns would be subject to the new rules on copying when filed in November 2000 and in future years.

When new disclosure rules were applied to charities last year, those organizations were required to provide photocopies of their tax returns dating back three years. Foundations, however, get a break. During the first year that the rules apply to them, foundations must make photocopies of only their most recent return. Thus, three years will pass before foundations will have to provide copies of a full three years’ worth of forms.

The rationale behind this “transition rule” for foundations, says James J. McGovern, a former top charity regulator at the I.R.S.: Foundations have long been required to make only their most-current return available for inspection, while charities for years have had to make their three most-recent forms available for viewing.

The final regulations for foundations were published in the January 13 issue of the Federal Register, Pages 2,030-34.