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  Tax Exemption Home: Non Profit / Exemption Information: Exemption Workshop - Chapter 10 - Required Disclosures
 

Exemption Workshop - Chapter 10 - Required Disclosures

Most tax exempt organizations are required to disclose to the public or to the IRS certain information concerning their activities. Usually, an organization reveals this information by entering it on the designated lines of its annual information return. There are distinct rules that determine disclosures that pertain to quid pro quo contributions and the sale of government information or services that are available free of charge. Also, donors are required to have a written acknowledgment in order to claim a charitable deduction for particular donations. Tax exempt organizations are not required to provide these, unless they choose to do so.

Public Inspection and Copying of Annual Returns and Exemption Applications
A tax exempt organization is required to provide its annual information returns, its exemption application, and Forms 990-T (501(c)(3) organizations only) accessible for the public to examine. These items are required to be ready-accessible for anyone who, wishing to inspect them, can do so by requesting them during the usual business hours at the organization's principal business office, as well as at the organization's district or regional offices, as long as the organization has three or more employees.

Other than a small fee for the actual postage costs and for reproduction, the tax exempt organization is required to provide a copy of all or any part of any return or application that is required to be made available for public viewing for free to anyone that requests for a copy, whether in writing or in person. Restrictions on the place, time and manner of in-person copying and inspection may be reasonably placed by organizations.

Annual Information Returns
A tax exempt organization must divulge its annual information return (Form 990 series), with attachments, schedules, and supporting documents filed with the IRS. The names and addresses of contributors are not required to be disclosed by organizations, but all other information, including the description of noncash contributions, the amount of contributions, and any other information that is required to be disclosed unless the contributor is plainly identified by it. It is required that the organization provide its yearly information return accessible for a period of 3 years starting on the date the return is required to be filed or is actually filed, whichever is later.
Chapter 8 of this text provides more information on information returns.

Annual Business Income Tax Return
It is mandatory for A section 501(c)(3) organization to reveal the unrelated business income tax returns (Form 990-T) that it files.

Exemption Application
It is required for an organization to issue its exemption application (Form 1023 or 1024) along with each of the following documents--
• All documents that are to be included with Form 1023
• All documents in support of its application that the IRS requires the organization to yield
• The exemption ruling letter that came from the IRS

Public Inspection of Application for Exemption for a Subordinate Organization
If a tax organization that did not file its own application for exemption because it is a subordinate organization under a group ruling receives an inquiry for an examination of its application for exemption and supporting materials, the subordinate organization must furnish a copy of those documents that were supplied to the Internal Revenue Service by the parent organization that include the subordinate in the group ruling, and make the material accessible to the requester in a fair and timely manner.

Material submitted by the parent organization in connection with including a subordinate organization in the group ruling can also be requested by the requester, at the parent organization's principal office.

Public Inspection of Annual Returns for a Subordinate Organization
For subordinate organizations that do not file its own Form 990, they must obtain a copy of its parent organization's group return for anyone who requests a copy for inspection and make the material accessible to the requester in a fair amount of time. The requester may also request, at the main office of the parent organization, inspection of the group return from the parent organization.

Information That May be Withheld from the Public's Inspection
Material that may be withheld from the public's inspection includes—
• Information relating to a style of work, patent, trade secret, or apparatus that, if revealed, would negatively affect the tax exempt organization (initial approval by the Internal Revenue Service to withhold is required)
• Information that would have a negative impact on the national defense (initial approval by the Internal Revenue Service to withhold is required)
• Negative determinations or rulings
• Determination letters or rulings that modify or revoke a favorable determination letter, and
• Various letters or memoranda issued by or filed with the IRS
Refer to Publication 557, Tax-Exempt Status for Your Organization, for more details.

Organizations That Do Not Have Permanent Offices
For a tax organization that is without a permanent office, a reasonable location for an inspection of the materials at the choice of the organization must be offered to the requester. After receiving such a request for a review, the organization should permit public inspection at a reasonable time of day, within a reasonable amount of time (generally not over 2 weeks' time). The organization may also wish to mail a copy of the return or application in lieu of granting an inspection within 2 weeks of receiving the request.
For organizations that have a permanent office, but with no office hours, or very limited hours at certain times of the year, this same rule is applicable.


Making Applications and Returns Widely Available
If tax exempt organizations make copies of its annual returns, Forms 990-Ts, and exemption applications freely available, it is not necessary for the organization to grant requests for copies of its annual returns, Forms 990-Ts, and exemption applications. However, the tax exempt organization is not relieved from making its documents available for public inspection just because they have made these documents widely available.

The tax exempt organization can make its returns and application freely available by advertising them on the Internet. The organization must inform anyone who requests a copy how they can obtain the documents, including the Web address, if applicable.

The notice must be given immediately for any requests that are made in person. A notice within 7 days must be given for any written requests.

Penalties for Failing to Cooperate with Public Inspection Requirements
For a tax exempt organization that fails to allow public inspection of its annual information return, the person who failed to fulfill this requirement will be penalized $20 per day for each day in which the failure continues, with a maximum penalty in regards to any one return of $10,000.

For a tax exempt organization that fails to allow public inspection of the exemption application, the person failing to fulfill this requirement will be penalized $20 per day for each day in which the failure continues, with no limitation on the total sum of the penalty. For organizations that can produce a reasonable cause for the failure, no penalty will be required.

Any person who willfully fails to cooperate with the public inspection requirement for any application or return will be penalized $5,000 in regards to each required application or return.

Quid Pro Quo Contributions
A quid pro quo contribution is defined as a payment partly made in consideration for services or goods given to the payer by the donee tax exempt organization and partly as a contribution.

A quid pro quo contribution may only be deducted to the extent that the contribution goes above the fair market value of the services or goods that the donor receives in return for the contribution; therefore, donors are required to be informed in regards to the value of the services or goods.

If a tax exempt organization is given a quid pro quo contribution of more than $75, the organization is required, in connection with the receipt of the contribution or solicitation; to give a written statement to the donor that contains the following—
• Information that the contribution amount that is deductible for federal income tax purposes is reduced to the excess of money (as well as the fair market value of property other than cash) that the donor contributed over the value of services or goods given by the tax exempt organization, and
• A good-faith estimate of the fair market value of the services and goods.

Example of a Quid Pro Quo Contribution
In exchange for a concert ticket that has a fair market value of $40, a donor gives $100 to the charitable organization. This example shows that the tax deduction of the donor may not surpass $60. The charitable organization is required to give the donor a disclosure statement if the donor's payment (quid pro quo contribution) surpasses $75,even though the deductible amount does not surpass $75.

Exceptions to Written Disclosure
When a written disclosure statement is not required--
• In the instance where the services or goods that were given to a donor meet the "membership benefits exception," the "intangible religious benefits exception," or the "token exception," that are described on pages 10-9 and 10-10
• In the instance where no donative element is involved in a certain transaction, such as in an ordinary museum gift shop sale

Written Disclosure: Penalty
For charities failing to fulfill the written disclosure requirement in regards to quid pro quo contributions, a penalty will be imposed. The penalty will be $10 per contribution, not to be more than $5,000 per fundraising mailing or event. If an organization can give proof of a reasonable cause for its failure to fulfill the requirements, the penalty may be avoided.

Disclosure or Sale of Information or Services Available Free From the Government
If a tax exempt organization offers to sell services or goods that were freely supplied by the federal government, it is required of the organization to report this fact in a distinct and in a format that is easily recognizable.
If a tax exempt organization fails to comply with this requirement, due to disregarding it intentionally, it will be penalized. The penalty will be based on the greater of 50 percent of the total cost of all solicitations that the organization made during the same day that it failed to meet the requirement, or $1,000 for each day the failure occurred.

Notice 88-120
For more direction regarding the disclosure of nondeductibility of contributions, disclosure of the availability of material free or at a small charge from the federal government, and public inspection of annual applications and returns for tax-exempt status, refer to Notice 88-120.

Substantiation of Contributions
Unlike the disclosure requirements for quid pro quo contributions, a tax exempt organization has no disclosure requirements for non-cash or cash contributions for which the organization provides no services or goods in return.

But for donors who give a single contribution of $250 or more, the donor must obtain a written acknowledgement from the charity before the donor is allowed to claim a charitable contribution on his or her federal income tax return.

Cash Contributions
Unless the donor keeps a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a letter or receipt) revealing date of the contribution, the name of the charity, and the amount of the contribution, the donor is not allowed to claim a tax deduction for any contribution of cash, check, or any other monetary gift made on or after January 1, 2007

Vehicle Donations
For an airplane, boat or a motor vehicle with a claimed value of over $500 that a donor contributes, the donee organization must supply the donor with a contemporaneous written acknowledgment of the contribution on Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes. If this is not done, the donor will not be allowed to claim a deduction of more than $500 for the vehicle. For more information, refer to the Instructions for Form 1098-C or Publication 4302, A Charity's Guide to Vehicle Donations.

Written Acknowledgement: Requirements
Before a donor can claim a tax deduction for any single contribution of $250 or more, the recipient tax exempt organization must supply the donor with a contemporaneous, written acknowledgment of the contribution. It is the responsibility of the donor to obtain this information, the organization can help the donor by supplying him or her with a timely, written statement that contains the following information--
• The organization's name
• The sum of the cash contribution
• The description of non-cash contribution, but not including the value
• A statement that no services or goods were given but the tax exempt organization in return for the contribution, if that was the situation
• A good faith estimate and description of the value of services or goods, if any, that an organization provided in return for the contribution
• A statement that services or goods, if any, that a tax exempt organization gave in return for the contribution consisted completely of intangible religious benefits, if applicable

It is not necessary to include either the donor's tax identification number or social security number on the acknowledgment. A single acknowledgment, typical of an annual summary, may be used to confirm several single contributions of $250 or more or a separate acknowledgment may be provided for each single contribution of $250 or more.

The IRS does not provide forms for the acknowledgment. Computerized forms, postcards or letters containing the above information are acceptable. A tax exempt organization can give either an electronic acknowledgement, such as by way of an e-mail addressed to the donor or by way of a paper copy of the organization's acknowledgment to the donor.

It is not necessary for the donor to attach the acknowledgment to his or her individual income tax return, but should keep it as proof of the contribution. Contributions that were separate and were less than $250 will not be combined. For example, weekly offerings to a donor's church of less than $250, even though the donor's annual total contributions are $250 or more applies to this rule.

Written Acknowledgement: Contemporaneous Defined
Recipient organizations usually send donors written acknowledgments no later than January 31 after the year the donation was given. The acknowledgement must have been given to the donor prior to donor filling his or her individual federal income tax return for the year the contribution was made, or the due date (including extensions) of the return.

Written Acknowledgement: Describing Services and Goods
Services or goods provided by a tax exempt organization in exchange for a contribution of $250 or more must be described within the written acknowledgment. The organization must also provide a good faith estimate of the value of such services or goods for the reason that a donor is required to reduce the contribution deduction by the fair market value of the services and goods given by the organization. Services or goods include privileges, benefits, services, property, or cash.

There are, however, exceptions of importance that are described in the paragraphs that follow below.

Goods and Services - Token Exception
Insubstantial goods or services given by a charitable organization for the exchange of contributions are not required to be described in the acknowledgment. Goods or services are not considered substantial if the payment occurs place in the context of a fund-raising campaign in which a charitable organization has informed the donor of the part of the contribution that is deductible and the--
• Fair market value for the benefits that were received does not go above $95 or the lesser of 2 percent of the payment (for tax year 2009)
or
• Payment is at least $47.50, the only benefits received in relation to the payment are gift items that bear the logo or name of the tax exempt (such as posters, mugs or calendars), and the value of all the benefits that the donor received must, in total, be within the boundaries for "low-cost articles," which is $9.50 (for the 2009 tax year). The "low-cost" amount is annually set.

Low-cost, unordered, and free articles are considered not to be substantial as well.

Example: For a charitable organization that gives donors who contribute $47.500 or more a coffee mug that bears its logo and costs the organization $9.50 or less, the organization may state that no services or goods were given in return for the contribution. The contribution is completely deductible.

Goods and Services -Membership Benefits Exception
An annual membership benefit is also considered not to be substantial if it is given in return for an annual payment of $75 or less and consists of privileges or rights that recur annually, such as--
• Discounted or free admittance to events for members only that are sponsored by a tax exempt organization, with a per-person cost (not to include overhead) is considered within the "low-cost articles" limits
• Discounted or free parking
• Discounts on purchases made from the tax exempt organization's gift shop
• Discounted or free admittance to the charitable organization's events or facilities

Example: For the charitable organization that offers an annual membership of $75 and gives a $20 poster, as well as offering free admission to all of its weekly events in exchange, it is only necessary for the organization to give a written acknowledgement that only records the $20 value of the poster, because the free admission is not considered substantial, so would be disregarded.

Intangible Goods and Services -Religious Benefits Exception
The value of benefits are not required to be described in the acknowledgement if a religious organization provides only "intangible religious benefits" to a contributor. The tax exempt organization need only mention that it gave intangible religious benefits to the contributor.

How is "intangible religious benefits" defined? In most cases, these are benefits given by a tax-exempt organization operated solely for religious purposes, and are generally not sold in commercial sales outside of a "gift" context.

Examples include a de minimis tangible benefit, such as wine used in a religious ceremony and admittance to a religious ceremony. Consumer goods, travel services, and education leading to a recognized degree are benefits that are not to be counted as intangible religious benefits.

Written Acknowledgement: Payroll Deductions
For a single contribution of $250 or more from a donor by payroll deduction, an acknowledgement from the donee organization is not necessary. But, when the employer of a donor withholds $250 or more from any one paycheck, the donor must maintain these--
•A Form W-2, Wage and Tax Statement, a pay stub, or any various documents that were furnished by the employer proving the amount that was withheld, and
• Some type of document or pledge card supplied by the donee organization stating that the organization does not give services or goods in exchange for any contribution that was made to it by payroll deduction.

It is necessary that the donor keep these records that were just described for any contribution by payroll deduction, without regard of the amount. The document or pledge card, however, must include the statement relating to services or goods only if the employer withheld $250 or more from a single paycheck.

Written Acknowledgement: Unreimbursed Expenses
For a donor who gives a single contribution of $250 or more in the form of unreimbursed expenses, meaning out-of-pocket travel expenses that were necessary to perform donated services for a tax exempt organization, it is necessary for the donor to obtain a written acknowledgment from the organization that has the following information--
• A statement that services or goods, if any, which were given by a tax exempt organization in exchange for the contribution, consisted completely of intangible religious benefits, if this were the case
• A good faith estimate and description of the value of services or goods, if any, that a tax exempt organization gave in exchange for the contribution
• A statement of whether or not the tax exempt organization gave services or goods or services in exchange for the contribution and
• A description of the services that the donor provided

Also, sufficient records of the unreimbursed expenses must be kept by the donor

Written Acknowledgement: Unreimbursed Expenses (continued)
Example: An airline ticket was purchased by a representative for the purpose of travelling to a charitable organization's annual convention. This $500 ticket will not be reimbursed by the tax exempt organization. A record of this expense should be kept by the representative, like a copy of the ticket. The representative should also request that the tax exempt organization give the representative a description of the services provided by the representative, as well as a statement that the representative did not receive any services or goods from the organization.

Written Acknowledgements Examples
• "Thank you for your contribution of a used oak baby crib and matching dresser that (organization's name) charity received on March 15, 2008. No services or goods were given in exchange of your contribution."
• "Thank you for your cash contribution of $350 that (organization's name) received on May 6, 2008. We gave you a cookbook with an estimated fair market value of $60 in exchange for your contribution."
• "Thank you for your cash contribution of $300 that (organization's name) received on December 12, 2008. No services or goods were given in exchange for your contribution."

The following is an example of a written acknowledgment showing how a charity accepts contributions that were made in the name of one of its activities--
• "Thank you for your contribution of $450 to (organization's name) that was made in the name of its Special Relief Fund program. No services or goods were given in exchange for your contribution."

No Penalty
There is no penalty for a tax exempt organization that does not acknowledge a contribution (other than a quid pro quo contribution greater that $75 – see page 10-6, "Written Disclosures"); however, the donor is not able to claim the tax deduction without a written acknowledgment.

Written Acknowledgement: Contributions of Airplanes, Boats and Motor Vehicles
Unless the tax exempt organization gives the donor with a correctly completed Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, as well as the donor attaching copy of the form to the income tax return in which he or she is claiming the deduction, the donor may not claim a deduction that exceeds $500 for such a contribution. Should the tax exempt organization sell the vehicle that was donated, the amount that the donor can deduct is limited to the gross proceeds of the sale.

It is required that the tax exempt organization provide the donor a written acknowledgement on Form 1098-C within 30 days of selling the vehicle. Also, the organization is required to file a copy of the Form 1098-C with the IRS by February 28 (March 31, if filing electronically) of the year that follows the year it gives the donor's copy of Form 1098-C to the donor.

Various rules are applicable in regards to the donee organization that makes material improvement or substantial intervening use of the donated vehicle, or transfers the vehicle at a far less fair market value to a needy or poor individual in furthering the charitable purposes of the organization. In such circumstances, the donee organization must provide the donor with a written acknowledgment on Form 1098-C within 30 days of the donation. See Publication 4302, A Charity's Guide to Vehicle Donations for more information.

For More Information
Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes
Publication 526, Charitable Contributions
Publication 557, Tax-Exempt Status for Your Organization
Publication 1771, Charitable Contributions - Substantiation and Disclosure Requirements
Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities
Publication 4302, A Charity's Guide to Vehicle Donations
Instructions to Form 990, Return of Organization Exempt from Income Tax
Notice 88-120: available at www.IRS.gov/charities.html
Forms and Publications

 


 

 

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