By Thomas O. Duvall, Jr.

June 8, 1999 was D-Day for tax-exempt organizations, Disclosure Day that is. On that day new Internal Revenue Service ("IRS") regulations went into effect that require tax-exempt organizations to produce their applications for federal tax exemption and their three most recent Form 990s for public inspection and copying.

The disclosure regulations apply to over 400,000 tax-exempt organizations, such as:

• Hospitals, Nursing Homes and Healthcare Organizations
• Educational Organizations including Schools, Colleges and Universities
• Churches and Religious Organizations
• Social and Recreation Clubs
• Fraternal Societies and Associations
• Charitable and Scientific Organizations
• Labor, Agricultural and Horticultural Organizations
• Civic Leagues and Social Welfare Organizations
• Business Leagues

Churches and some religious organizations and local or subordinate organizations with group exemptions have special considerations, which are discussed later, and private foundations are exempt from the regulations.

Documents Required to be Disclosed. Documents that must be available for public inspection and copying include:

• The application for tax exemption (IRS Form 1023 or Form 1024) including all supporting documents, statements, questions, responses, and letters filed with the application, documents issued by the IRS concerning the application, and the determination letter from the IRS.
• The three most recent annual information returns filed with the IRS (IRS Form 990 or versions of the Form 990) including all schedules, attachments and supporting documents relating to the Form 990, which includes compensation information. There are exceptions protecting disclosure of the Form 990-T (unrelated trade or business income) and parts of a return that identify names and addresses of contributors.
• An application for tax exemption filed before July 15, 1987 is not covered by the regulations unless the organization had a copy of the application on July 15, 1987, in which case it is covered.

Disclosure Required at Regional and District Offices. Documents must be available for public inspection, without charge, during regular business hours at the organization's principal office, and also at the organization's regional and district offices.

• A regional or district office is any office, other than a principal office, where there are paid employees, either part-time or full-time, whose paid hours are normally at least 120 hours per week.
• A site is not considered a regional or district office if the only services provided at the site further the organization's exempt purposes (i.e., day care, healthcare, or scientific or medical research), and any managers at the site are involved solely in managing the exempt function activities at the site.

Public Inspection of Documents. Any person may come to an organization's offices and inspect documents during regular business hours. The organization may have an employee present during the inspection. A person inspecting documents must be allowed to freely take notes and, if the person inspecting documents provides photocopying equipment at the place of inspection, photocopying must be allowed at no charge.

When Requests for Copies are Made in Person. If a request is made in person, copies must be provided that day unless there are unusual circumstances.

• Unusual circumstances exist where fulfilling the request on the same day would place an unreasonable burden on the organization. Where there are unusual circumstances, copies must be provided no later than the next business day after the unusual circumstances cease to exist, or on the fifth business day after the request, whichever comes first.
• Examples of situations considered unusual circumstances are where an organization's personnel are attending an offsite meeting or convention, where personnel are performing special duties such as student registrations, or where the request was received shortly before the end of business hours.

When Requests for Copies are Made in Writing. If a request is made in writing, copies must be provided within 30 days after receipt of the request.

• A request may be delivered by mail, e-mail, facsimile, or a private delivery service, and the request must provide an address to which copies should be sent.
• If payment in advance is required, copies can be provided within 30 days from the date payment is received. If a request is made without payment, the requestor must be notified within seven days of the prepayment policy and the amount due.

Fees Charged for Copies. A reasonable fee may be charged for providing copies. A fee is reasonable if it does not exceed the per page fee charged by the IRS, which is currently $1.00 for the first page and $0.15 for each additional page, plus the actual cost for postage. If payment in advance is required, and the fee is not paid within 30 days, the request may be disregarded.

How Payments for Copies Can be Made. When a request for copies is made:

• If the request is made in person, payment must be by cash or money order, unless the organization accepts other forms of payment.
• If the request is made in writing, payment may be by certified check, money order, personal check or credit card. If pre-payment is not required and payment is not enclosed with the request, the requester must consent before copies are provided where the fee and postage will exceed twenty dollars.

Exception for Documents "Widely Available" on the Internet. If documents are "widely available" to the public on the Internet, the organization is not required to provide copies. However, this does not relieve the organization from having documents available for public inspection at its offices. In order for documents to be "widely available" on the Internet:

• Documents must be posted on a World Wide Web page established and maintained by the organization, or by another entity as a part of a database of similar documents, and the page must clearly inform readers that documents are available and provide instructions for downloading.
• Documents must be posted in a format that, when downloaded and printed, exactly reproduces the image of a document as it was originally filed with the IRS (except for information not required to be disclosed.)
• Documents must be capable of being accessed, downloaded, viewed, and printed without special computer hardware or software and without payment of any fee, and procedures must be in place to ensure the reliability and accuracy of documents posted.

Churches and Religious Organizations. Churches, their integrated auxiliaries, and conventions or associations of churches are not required to file an application for tax exemption or Form 990 annual returns. However, should they file an application for exemption or annual returns, such documents are subject to disclosure. Further, if a church, integrated auxiliary, or convention or association of churches enters into other activities, such as day care, education, assisted living, etc., it may be required to file an application for exemption and Form 990 annual returns for such activities, which would be subject to disclosure.

Local and Subordinate Organizations and Group Exemptions. Where an organization does not file its own application for exemption or annual returns because it is a local or subordinate organization covered by a group exemption letter of a parent or central organization, the disclosure regulations apply to both the local or subordinate organization and the parent or central organization. There are special provisions in the regulations covering such organizations which should be reviewed in those particular situations.

Exceptions for Harassment Campaigns. An exception for providing documents exists where an organization is the subject of a harassment campaign. A harassment campaign would indicate that the request is part of a single or coordinated effort to disrupt the operations of the organization, rather than to collect information.

• Should an organization believe it is the subject of a harassment campaign, it must submit a signed application to the IRS, containing its name, address, contact person, employer identification number, and describing facts and circumstances to support its claim.
• An organization can suspend compliance regarding a request, but it must file the harassment campaign application within ten business days from the suspension.
• After an application is filed an organization may suspend compliance with subsequent requests, which it reasonably believes are part of the harassment campaign, until it receives a response from the IRS.

Rationale for Public Disclosures. The disclosure regulations reflect the intent of Congress that tax-exempt organizations operate in the open. Exempt organizations receive a benefit of exemption and in return operate for the benefit of the community and the public. Congress wants to ensure that the public is aware of detailed information about their operations, activities and finances.

Penalties for Failure to Comply with Disclosure Regulations. Failure to comply with the disclosure regulations can subject organizations and individuals to penalties up to $10,000 with respect to a Form 990, and with no maximum limit on penalties with respect to applications for exemption. Also, anyone who willfully fails to comply can be subject to an additional penalty of $5,000 with respect to each return or application.

Use Care in Completing the Form 990. Since the Form 990 annual return is a public document, organizations should carefully and thoughtfully prepare the return. In completing the form, the organization has an opportunity to appropriately document its mission, to communicate with the community, and to show the public benefits the organization provides in return for its tax exemption. For example, Part III of the Form 990 provides for a statement of the organization's programs and accomplishments. In Part III the organization should fully describe its achievements in a clear and concise manner. This can also be used to further the organization's public image and explain its operations. An incomplete, poorly documented, or incorrect Form 990, may result in an embarrassment for the organization should anyone question or challenge information contained within the form. For some organizations, the Form 990 as a public record will be the primary or sole source of information about the organization and will affect how it is perceived by the public. Now, more than ever, an organization should take advantage of the opportunities provided when completing the Form 990 and should use care in responding to the questions and providing requested information.

If you have any questions regarding the detailed requirements of the IRS Disclosure Regulations, or if you would like to have a copy of the regulations, please contact Thomas O. Duvall, Jr. at 404-873-8600 or e-mail at: thomas.duvall@agg.com

This bulletin was prepared by the law firm of Arnall Golden Gregory LLP. It presents information on legal matters of general interest in summary form. This document should not be construed as legal advice or opinion on specific matters.