Toward Increased Accountability

EXECUTIVE SUMMARY * THE IRS ISSUED NEW DISCLOSURE RULES TO INCREASE the extent to which exempt organizations must distribute information to the public. Effective June 8, 1999, the rules put a greater burden on organizations to make copies of documents available upon request or to make them widely accessible through other means. * THE NEW RULES SPECIFY THE DOCUMENTS AN organization must make available for public inspection and copy upon request, provide guidance on where those documents must be available, set conditions organizations may put on copy requests, describe the fees an organization can charge, offer alternative ways to make documents widely available and offer guidance on dealing with potential harassment. * AN EXEMPT ORGANIZATION CAN AVOID THE BURDEN of having to copy documents if it makes them widely available to the public--through the Internet, for example. The organization could put the documents on its own Internet Web page or on that of another entity as part of a database of similar materials. * IN THE EVENT AN ORGANIZATION BELIEVES THE requests for documents it receives represent harassment, the regulations offer relief. An organization can refuse to respond to such requests while it applies to the IRS district director for a determination. * ORGANIZATIONS FACE AN INCREASED BURDEN IN STAFF hours when complying with the new rules. Failure to do so leaves the individual charged with making the required disclosures open to civil and criminal penalties. New IRS disclosure rules for exempt organizations. It a time when the public is pressuring charitable and other tax-exempt organizations to disclose details of their operations, the IRS issued new rules to increase the extent to which they must distribute such information. Affected entities include charitable, educational, scientific, literary and medical organizations, public radio and television stations, trade and professional associations, sports leagues, social welfare organizations, social clubs, cemeteries and fraternal beneficiary societies. It is important that CPAs who work for not-for-profit organizations, as well as those in public practice, be aware of the disclosure requirements, the policies and procedures that an entity should put in place to respond to them and the penalties for noncompliance. The rules apply to entities described in sections 501(c) and 501(d) of the Internal Revenue Code and exempt from taxation under section 501(a). They expand the disclosure requirements for these exempt organizations--except for private foundations--and put an increased burden on them to make the documents available to the general public. Effective June 8, 1999, the regulations also bring conformity to the information organizations must provide. Regulatory authorities expect this to make exempt organizations more accountable for their operations and more forthcoming in their disclosures. The flowchart in exhibit 1, pages 52-53, summarizes the decisions an exempt organization should make to assure compliance with the new IRS regulations. BUILDING ON THE PAST Disclosure requirements have existed for some time. The Omnibus Budget Reconciliation Act of 1987 (OBRA) called for exempt organizations, including private foundations, to allow public inspection of their tax exemption applications. OBRA also called for exempt organizations, other than private foundations, to allow public inspection at their principal offices (and certain regional and district offices) of the three most recent annual information returns. The Taxpayer Bill of Rights 2, enacted on July 30, 1996, called for additional public disclosures. On April 9, 1999, the IRS issued final rules interpreting the expanded requirements. The new regulations * Specify the documents an organization must (1) make available for public inspection and (2) copy for individuals upon request--whether in writing or in person. …