The tax returns filed by virtually all individuals and organizations are kept confidential by the IRS, with one exception: the information returns filed by nonprofits. The latest three years of Forms 990 or 990-EZ filed by all nonprofits must be made available for public inspection and copying. Each year’s return must be made available by the date it is required to be filed (not counting extensions). This date is May 15 if your nonprofit uses the calendar year as its tax year. Your application for IRS recognition of your tax-exempt status, IRS Form 1023, must also be made available under these rules.
The requirements differ depending on whether the forms are inspected or copied.
Public Inspection of Returns
You must make copies of your original and amended annual information returns for the previous three tax years available for public inspection without charge. “Public inspection” is just what it sounds like: an individual comes to your office and looks at the returns. Any member of the public may inspect your returns. You may not require that someone asking to see your returns give you his or her name or address, or explain the reason for inspecting the returns. You may have an employee present during an inspection, but must allow the individual to take notes freely.
If your nonprofit has a principal office with regular business hours, you must permit members of the public to come to your office to inspect your returns at regular working hours. In-person requests for inspections must be allowed on the same day the request is made. Inspections must also be allowed at any regional or district offices with at least three employees.
If your nonprofit doesn’t have a permanent office, you have two options:
- you can make the returns available for inspection at a reasonable location of your choice within a reasonable time after receiving the request for inspection (normally not more than 2 weeks) and at a reasonable time of day, or
- mail, within 2 weeks of receiving the request, copies of the returns to the requester instead of allowing an inspection (you can charge for copying and postage only if the requester agrees).
If your nonprofit has an office, but has no regular business hours or very limited hours during certain times of the year, you must make your returns available during those periods when office hours are limited or not available as though you had no permanent office.
Furnishing Copies of Returns
In addition to making your returns available for public inspection, you must furnish copies to any person who asks for them. There are two ways to do this—the easy way, and the hard way.
The Easy Way--Post Your Returns on Your Website
The copying requirement is automatically deemed satisfied if your returns are “made widely available” to the public. You can do this by posting your returns on your website. In other words, if your returns are freely available to the public on your website, you need not honor requests to provide photocopies of them. Instead, you can tell the requester to download digital copies of the returns from the website.
The IRS has detailed regulations regarding the format of such posted returns. The format must exactly reproduce the image of the original document and allow an Internet user to access, download, and print the posted document without paying a fee. One format that currently meets the criteria is Portable Document Format (.pdf). You must advise requesters how to access the forms—a note on your website should do.
The Hard Way—Provide Hard Copies
If, for some reason, you don’t want to post your information returns on the Internet, you don’t have to. Instead, you can provide hard copies to any individual who requests them. Photocopies usually must be provided immediately for in-person requests, and within 30 days for written requests (a request that is emailed is considered a written request). You may charge a reasonable copying fee plus actual postage, if any. The IRS says a reasonable copying fee is 20 cents per page. You may require payment before providing the copies, but must advise requesters of the total cost of the copies requested if adequate payment is not included with the initial request. The rules allow you up to seven days to mail a notice of pre-payment after you receive the initial request. Individuals must also be allowed to make copies themselves without charge at your office if they provide their own photocopying equipment.
Penalties for Failure to Comply
Failure to comply with the disclosure rules can result in monetary penalties being imposed by the IRS. The normal penalty for noncompliance is $20 for each day that inspection was not permitted, up to a maximum of $10,000 for each return. However, if the IRS determines that the noncompliance was willful, it may impose an additional penalty of $5,000.
For more on tax and nonprofits, see Nolo's book, Every Nonprofit's Tax Guide.