Sobel & Co.’s Nonprofit and Social Services Group Webinar

“IRS Disclosure Requirements: What Do Organizations

Need to Provide to Donors?”February 15, 2012

Brett R. Harris, Esq.Wilentz, Goldman & Spitzer, P.A.

www.wilentz.com

© Brett R. Harris, Esq. 2012 All Rights Reserved

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Disclosure of Records

IRS Regulations provide for public access to information regarding exempt organizations significantly more information publicly available

than returns filed by individuals or business entities transparency as condition to not paying income

taxes and receiving tax-deductible contributions members of the public often rely on Form 990s as

principal source of information about a particular organization

members of the media utilize Form 990s for background and as subject matter

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Public Inspection of Records

certain records and returns must be subject to public inspection and distribution documents regarding recognition of exemption annual information returns returns of unrelated business income, if applicable reports by Section 527 political organizations

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Public Inspection of Records

documents regarding recognition of exemption letter of exemption issued by IRS application for recognition of tax exemption (Form

1023 under Section 501(c)(3) or Form 1024 under Section 501(a) for other 501(c) entities)

documents submitted in support of application correspondence to and from IRS concerning

application does not include applications filed before July 15,

1987 unless organization had copy on such date

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Public Inspection of Records

annual information returns must be available for prior three years three years measured from the date return is

required to be filed or is actually filed, whichever is later

if organization files amended return, amended return must be available for a period of three years from date of filing

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Public Inspection of Records

annual information returns exact copy of Form 990, Form 990-EZ or Form

990-PF any amended returns filed after original exact copy of Form 990-T (Exempt Organization

Business Income Tax Return) if filed by a 501(c)(3)

all schedules, attachments and supporting documents except limited disclosure required of Schedule B to Form 990, Form 990-EZ and Form 990-PF (Schedule of Contributors)

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Schedule B Disclosure Rules

private foundations must disclose full Schedule B for those filing Form 990 or 990-EZ other than

political organizations, names and addresses of contributors on Schedule B not required to be made available for public inspection, but all other information required (e.g., amount of contributions, description of non-cash contributions and other information unless it clearly identifies the contributor)

contributor names and addresses included in exempt application are subject to disclosure

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Records of Political Organizations

special rules for Section 527 entities (political parties, campaign committees for federal, state or local office and political action committees)

must make available Form 8871 (Initial Notice) and Form 8872 (Periodic Report of Contributions and Expenditures) which include name, address, occupation and employer of contributors of more than $200 per calendar year

if Section 527 entity files Form 990 or Form 990-EZ, must disclose full Schedule B, Schedule of Contributors (including contributor information)

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Place for Public Inspection

required documents must be available for public inspection without charge at principal, regional and district offices during regular business hours

if organization has no permanent office or no office hours, must make documents available at a reasonable location of organization’s choice at a reasonable time of day; must be arranged within reasonable time of receipt of request for inspection (two weeks) OR can mail copies to requestor within two weeks of receipt of request instead of inspection

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Rules for Public Inspection

can have an employee present in room during inspection

must allow individual conducting inspection to take notes

must allow individual to copy documents at no charge if individual has photocopying equipment at place of inspection

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Copies of Records

must provide copies without charge, other than a reasonable fee for reproduction

if request made in person, copies must be given that day absent unusual circumstances causing unreasonable burden to the organization

if request made in writing, may also charge for postage and must mail copies within thirty days from date of request

organization may require payment in advance may provide documents exclusively by email if receive

consent from individual making the request

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Penalties

penalty of $20 for each day that inspection is not permitted, up to maximum of $10,000 for each return not made available (no cap if organization fails to make application materials available for public inspection)

willful failure to comply with inspection requirements subject to additional penalty of $5,000

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Making Applications and Returns Widely Available

a tax-exempt organization is not required to comply with requests for copies if the organization has made the requested documents widely available

must still make documents available for public inspection

documents are widely available if the organization complies with the Internet posting and notice requirements

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Internet Posting

posting the document(s) on a website that the tax-exempt organization establishes and maintains, or by having the document(s) posted, as part of a database of similar documents of other tax-exempt organizations, on a website established and maintained by another entity

postings can be of some or all documents required to be made available (application for exemption and/or annual information returns)

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Requirements for Website

must clearly inform readers that document is available and provide downloading instructions

document must be posted in a format that, when accessed, downloaded, viewed and printed in hard copy, exactly reproduces the image as document was originally filed with the IRS, except for any information permitted to be withheld from public disclosure

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Requirements for Website

Any individual with access to the Internet must be able to access, download, view and print the document without special computer hardware or software required for the format the document is posted in (other than software that is readily available to members of the public without payment of any fee)

must be no requirement of a fee to the tax-exempt organization or to another entity maintaining the website

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Reliability and Accuracy of Internet Postings

the entity maintaining the website must have procedures for ensuring the reliability and accuracy of the document that it posts on the page and must take reasonable precautions to prevent alteration, destruction or accidental loss of the document when posted on its page

in the event that a posted document is altered, destroyed or lost, the entity must correct or replace the document

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Notice Requirement

if a tax-exempt organization has made its application for tax exemption and/or an annual information return widely available, it must notify any individual requesting a copy where the documents are available (including the website address, if applicable)

if the request is made in person, the organization must provide the notice to the individual immediately

if the request is made in writing, the notice must be provided within 7 days of receiving the request

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Availability of Records from IRS

returns, notices or exemption applications can be inspected at an IRS office free of charge

not in satisfaction of an organization’s obligations for public inspection and distribution

reports by Section 527 Political Organizations are available for inspection and printing from the Internet at www.irs.gov/polorgs

IRS will provide copies of exempt organization’s returns, notices or exemption applications

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Copies of Records from IRS

these are publicly available copies (i.e., will not include contributor information on Schedule B); organization can obtain publicly available copies or different process to request copies of organization’s own returns

copy fees differ for commercial user vs. educational institution, media and other requesters

copies can be obtained on CD or DVD up to 60 days to process copy requests

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Substantiation & Disclosure Requirements for Charitable Contributions

requirements are on the donor with respect to charitable contributions but donee organization must be aware so can provide necessary documentation upon donor’s request

organization must provide disclosure statement for quid pro quo contributions

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Donor Recordkeeping

recordkeeping rule applies for all cash, check, electronic funds transfers, credit card charges or other monetary contributions of any amount

to deduct such contribution, donor must maintain a bank record or a written communication from donee organization showing donee’s name, date, and amount of the contribution

bank records can be bank or credit union statements, cancelled checks or credit card statements

written records prepared by donor such as check registers or personal notations are no longer sufficient under current IRS regulations

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Donor Recordkeeping

for contributions made by payroll deduction, recordkeeping requirement can be satisfied with a paystub, W-2 or other document from employer that states amount withheld along with a document prepared by or at direction of charity showing name of donee

for text message contributions, donor’s phone bill meets recordkeeping requirement of a reliable written record if it shows name of donee organization, date and amount of contribution

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Deductions of $250 or More

to claim deduction for contribution of $250 or more, donor required to obtain and keep a contemporaneous written acknowledgment

to be contemporaneous, must be obtained no later than date donor files the return for the year the contribution is made

donor is responsible for requesting and obtaining the written acknowledgment from the organization

organization is not required to record or report information to IRS on behalf of donor

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Organization’s Written Acknowledgment

no prescribed format as long as provides sufficient information to substantiate amount of contribution

letters, postcards or computer generated forms acceptable

organization may provide separate statements for each contribution of $250 or more or furnish periodic statements substantiating contributions of $250 or more

separate contributions of less than $250 are not subject to the substantiation requirements, whether or not the sum of contributions made by the taxpayer to the organization during a tax year equals $250 or more

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Organization’s Written Acknowledgment

must describe the goods or services the organization received but no valuation needed by the organization (i.e., for non-cash contributions)

special rules apply to charitable contributions of motor vehicles, boats or airplanes with a claimed value of more than $500

if donor claims value of donated property over $5,000 and provides the charity with partially completed Form 8283, Non-Cash Charitable Contributions, organization must complete and return Form to donor

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Organization’s Written Acknowledgment

must state whether organization provided any goods or services in consideration for the contribution (a quid pro quo contribution)

must include good faith estimate of the value of any such goods or services unless they are: of insubstantial value (token exception) certain membership benefits either of the above categories, given to employees

of a charitable organization, or intangible religious benefits

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Token Exception

in the context of a fund-raising campaign, goods and services will be insubstantial if fair market value of benefits received does not

exceed the lesser of 2% of the payment or $97, or payment is $48.50 or more, items bare the charity’s

name or logo and are “low-cost articles” with aggregate cost to charity of $9.70 or less

dollar amounts are for tax year 2011, adjusted annually for inflation

free unordered low-cost articles are considered to be insubstantial

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Membership Benefits Exception

annual payment of $75 or less consists of annual recurring rights or privileges

such as free or discounted admission to organization’s

facilities or events discounts on purchases from organization’s gift

shop free or discounted parking free or discounted admission to member-only

events where per-person cost (no including overhead) is within “low-cost articles” limits

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Intangible Religious Benefits Exception

acknowledgment does not need to describe or value benefits but can simply state that organization provided intangible religious benefits to contributor

typically such benefits are provided by exempt organization operated exclusively for religious purposes and are not usually sold in commercial transactions

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Quid Pro Quo Contributions

quid pro quo is payment made to a charity by a donor partly as a contribution and partly for goods or services provided to the donor by the charity

organization must provide a written disclosure statement to donors of a quid pro quo contribution in excess of $75

$75 threshold is for entire payment amount, even if charitable contribution portion of the payment is less (i.e., donor gives a charity $100 and receives a concert ticket valued at $40, contribution is $60 but disclosure must be provided)

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Written Disclosure Statement for Quid Pro Quo Contributions

must furnish disclosure statement in connection with either the solicitation or receipt of quid pro quo contribution

must inform donor that amount of contribution that is deductible for federal income tax purposes is limited to the excess of any money (and value of any property other than money) contributed by donor over the value of goods or services provided by the charity

must provide the donor with a good faith estimate of the value of the goods or services that the donor received unless exception applies

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Exceptions to Quid Pro Quo Disclosure Statement Rule

no disclosure statement required when goods or services given to the donor are of

insubstantial value (token exception) goods or services in the nature of certain annual

membership benefits in exchange for payment of $75 or less per year

intangible religious benefits there is no donative element involved in a

particular transaction with a charity (e.g., visitor’s purchase from a museum gift shop)

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Penalties re: Quid Pro Quo Disclosures

penalty for failure to provide is $10 per contribution, up to $5,000 per fundraising event or mailing

penalty may be avoided if charity can show that the failure was due to reasonable cause

charity that knowingly provides false substantiation acknowledgment to a donor may be subject to penalties for aiding and abetting an understatement of tax liability

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Disclosure of Availability from Federal Government

if organization offers to sell or solicits money for specific information or a routine service to any individual that could be obtained by the individual from a Federal government agency free or for nominal charge must disclosure that fact in a conspicuous and easily recognizable format

intentionally disregarding requirement subject to penalty for each day offer or solicitation is made

penalty is greater of $1,000 or 50% of total cost of offers made on that day

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IRS Resources for Topics Discussed

Form 4506-A, Request for Public Inspection or Copy of Exempt or Political Organization IRS Form

Form 4506, Request for Copy of Tax Return Publication 1771, Charitable Contributions -

Substantiation and Disclosure Requirements Publication 526, Charitable Contributions Publication 4302, A Charity’s Guide to Vehicle

Donations Publication 4303, A Donor’s Guide to Vehicle

Donations

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IRS General Resources

Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities

Publication 4221-NC, Compliance Guide for Tax-Exempt Organizations (other than those described in section 501(c)(3))

Publication 4221-PF, Compliance Guide for 501(c)(3) Private Foundations

http://www.irs.gov/charities/

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Disclaimer

This presentation is for informational purposes only and is not intended to constitute legal advice. Every matter has specific facts and special circumstances requiring its own analysis by legal and tax counsel.

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Brett R. Harris, Esq.

Wilentz, Goldman & Spitzer, P.A.

90 Woodbridge Center Drive

Woodbridge, New Jersey 07095-0958

Tel: (732) 855-6122

E-Mail: bharris@wilentz.com

LinkedIn: http://www.linkedin.com/pub/brett-r-harris/33/497/a32

Twitter: @BrettHarrisEsq