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Getting a Head Start Researching a Tax Exempt Organization (1999)

AFSCME members and staff deal with private companies on a regular basis—sometimes when they bid for bargaining unit work that is being contracted out, sometimes when they have gotten a service contract and we’re organizing the company, sometimes when we are deciding whether to pursue organizing, and sometimes when they’re our employer and we’re representing our members in bargaining or contract enforcement. Often the companies we deal with are “tax-exempt”—meaning they are exempt from federal taxes under the Internal Revenue Code. Many of the private companies that operate in the fields of social services, health care, child care and early childhood education are tax-exempt.

Note:
People often use the terms non-profit (or not-for-profit) and tax-exempt interchangeably. They are not synonyms. Non-profit and not-for-profit are state law concepts. Most states have laws permitting an entity to be incorporated as a non-profit or not-for-profit organization which may provide state tax advantages. However, the fact that an entity is a non-profit or not-for-profit organization does not necessarily indicate that it is exempt from federal income tax. To qualify as a tax-exempt organization, an entity must meet requirements set forth in the Internal Revenue Code.

The public-sector employers with whom we deal usually operate “in the sunshine”—their meetings and their records are open to the public. That is not the case with private companies. Finding information on private companies can be difficult and frustrating. Thanks to new Internal Revenue Service (IRS) regulations released this month, though, finding out what we need to know about tax exempt organizations has gotten much easier.

The primary source of information on tax-exempt organizations is the IRS Form 990, the annual tax/information return. Although tax-exempt organizations have been required to make their annual returns public for many years, obtaining copies from the organization or from the IRS was a time-consuming task. Many tax-exempt organizations were simply unaware of the disclosure requirements. In 1996, Congress enacted the Taxpayer Bill of Rights 2, which expanded the disclosure requirements for tax-exempt organizations and increased penalties. The IRS issued regulations implementing these expanded requirements last month. These regulations became effective June 8, 1999. The IRS promises stricter enforcement of these new requirements.

What Organizations are Tax Exempt?


Organizations described in §501(c)(3) of the Internal Revenue Code are eligible for tax-exempt status. These groups include religious organizations, social welfare organizations, child care organizations and more. Some examples of tax-exempt organizations are: Happy Days Day Care & Learning Center, Head Start Child Development and Family Services, Inc., Lakewood Economic Action Program, Inc., and Hospital Homecare Corporation.

The IRS publishes a list of tax-exempt organizations with the catchy title, Cumulative List of Organizations Described in Section 170(c) of the Internal Revenue Code of 1986. This is also known as Publication 78. You can search this same list on the IRS Web site. The book and Web site provide only the name, city and state of the organization. Look for the legal name of your organization. If it is a subordinate body of a larger organization, only the larger one will be listed.

Another source on the Internet, helpful in determining tax-exempt status, is GuideStar. This Web site offers a searchable database of approximately 669,000 tax-exempt organizations. Full reports, not available for every organization in the database, give a description of the organization, the IRS employer identification number (EIN), financial information from the 990 filing, and the board of directors. GuideStar derives its information from the 990 forms and from information submitted directly to GuideStar by the tax-exempt organizations.

What's in a Form 990?


A form 990 must be filed by every tax-exempt organization annually by the 15th day of the 5th month after the organization’s accounting period ends. For example, if an organization’s fiscal year ends in December, the 990 form is due on May 15th. It’s a six-page form containing over 900 different items of information. A form 990 can be used to find out where an organization gets its money and how it uses it, how well it pays its top employees and whether its financial situation is declining, improving or stable. Some of the information contained in the form includes:

  • revenue, expenses and changes in net assets or fund balances—including contributions, gifts, grants and similar amounts received;
  • program service revenue including government fees and contracts;
  • special events and activities;
  • program services, management, and general and fundraising expenses;
  • net assets or fund balances, beginning and end of year; and
  • total compensation of officers and directors and the compensation of the five most highly compensated employees.

What's in the New Regulations?


The new regulations implement changes in the law enacted in 1996 and amended in 1999. Congress wanted tax-exempt organizations to operate in the sunshine, just like public-sector entities. Access to information under the old regulations was difficult. The new law provides for easier access, wider dissemination and increased penalties. Congress recently extended these disclosure requirements to private foundations for the first time. Private foundations had been excluded from coverage in the past. The IRS will issue a notice of proposed rulemaking for foundations soon.

The new regulations cover not only the 990 forms, but also forms 1023 and 1024 (Application for Recognition of Exemption).

  • Tax-exempt organizations are required to provide copies of their three most recent 990 forms and their form 1023/24 to anyone requesting them in person or in writing, including via e-mail or fax.
  • Organizations must fulfill requests for copies without charge, other than a reasonable fee for reproduction and postage. A reasonable fee for copying is defined as the amount the IRS itself charges for copies, currently $1.00 for the first page and $0.15 for each additional page.
  • A 990 form is defined as including all forms, schedules, attachments and supporting documents filed with the IRS, including compensation information. The form 1023/24 includes any supporting documents filed by or on behalf of the organization and any letter or document issued by the IRS in connection with the application.
  • Organizations are not required to disclose donor lists.

The regulations are specific about places and times for public inspection. Inspection must be allowed at an organization’s “principal, regional and district offices” during regular business hours. A request for copies made in person must be fulfilled the same day. A request in writing must be answered within 30 days. Monetary penalties have increased. Failure to comply with a request for a 990 form subjects an organization to a $20/day penalty, up to a maximum of $10,000 for any one return. Failure to comply with a request for a 1023/24 form incurs a penalty of $20/day with no maximum. A “willful” violation of the law results in an additional $5,000 penalty with respect to each return or application.

The new regulations provide an incentive for organizations to make their information available on the Internet. If an organization posts its information on the Internet, it does not have to provide copies of the forms. It still must make the forms available for public inspection, however. The web documents must be available in a format that reproduces the image of the paper document and they must be available free of charge. In a separate development, the IRS is considering releasing all 990 forms on CD-ROM.

Consider Your State's Open Records Law

Almost every state has an "open records" law. These laws are similar to the federal Freedom of Information Act, but many of them require more disclosure than the federal law. In some states, the definition of a covered "agency" extends to organizations with government contracts. If your tax-exempt organization (or a for-profit contractor) is operating with public funding, you may be able to obtain extensive information about the contract by using the open records laws. Tapping Official Secrets is an excellent source of information on state laws. The Reporters' Committee on Freedom of the Press has made this publicaiton available on their Web site.

Where else can I get information about my organization?


The Internet provides many sources of information on tax-exempt organizations. Consult the AFSCME Web site for a list of these sources. An AFSCME web publication, Researching the Exempt Organization, can be found on the web site. In addition, many state agencies responsible for regulating charitable solicitations maintain copies of the 990 forms, or the state equivalent. A list of these state offices, with addresses, phone numbers and links to web sites, where available, can be found on the State Charity Regulatory Divisions web page. Some states, like Minnesota, have made searchable databases available on their Web sites.

For more information on tax-exempt organizations, non-profit organizations, for-profit companies and publicly available information, contact the Department of Research and Collective Bargaining Services or call (202) 429-1215.

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