Nonprofit Groups Ordered to Open Their Books

The Wall Street Journal/June 7, 1999
By Tom Herman

Detailed financial information about many nonprofit groups will, soon become easier to get because of new Internal Revenue Service regulations.

The new rules, to be printed today in the Federal Register, will require colleges, universities, hospitals, publicly supported charities and other tax-exempt organizations to provide, on request, copies of their most recent financial filings. These forms, which are filed annually with the IRS, contain information about , executive Salaries and other sensitive details. Currently, tax exempt groups are required only-to make their forms available for public "inspection" at their offices.

"The new rules, backed by significantly increased penalties, will lead to sharply increased scrutiny and a higher level of accountability for the nation's nonprofit organizations," said James J. McGovern, a former assistant IRS commissioner for employee plans and tax-exempt organizations. Mr. McGovern, now a principal at KPMG in Washington, called the rules "big news for the nonprofit community," and for anyone interested in learning more out about many tax-exempt organizations.

These new regulations will implement a 1996 law enacted after widespread complaints that people were having trouble gaining access to Form 990s, which are filed annually by many groups, as well as to applications for tax-exempt status. The regulations, which include stiff penalties for tax-exempt groups that fail to comply, will be effective June 8, an IRS spokesman said.

Expanded Role for Internet

Tax experts who have pored over the new IRS regulations predicted many non-profit groups will react by posting information on the Internet. That would be a major improvement over the current morass, which has effectively allowed secretive groups to shield their operations from public scrutiny. People who have wanted the information often have had to make a personal trek to a nonprofit group's office and, then laboriously hand-copy the information.

"People might have to travel from one part of the country to another to inspect a Form 990, and that caused great inconvenience and cost," said Victoria Bjorklund, a partner at New York law firm Simpson Thacher & Bartlett and a specialist in tax-exempt organizations law.

The new regulations lay out detailed requirements for making copies of the information available to the public. Mr. McGovern of KPMG said these new rules "will require that copies of the three most recent annual returns and the exemption application be provided immediately, upon personal request, or within 30 days of any written request, without charge, other than reasonable fee for reproduction and mailing costs."

Incentive to Post on Web

The new rules will be waived for organizations that post their documents on the Internet in a prescribed way. Once executives become familiar with these rules "they will understand the most cost-effective way to comply is by posting their returns on the Internet," said Mr. McGovern.

There are also special rules to protect groups against harassment campaigns.

The new regulations won't apply to private foundations, at least not yet. Private foundations weren't covered by the 191 law, but they are covered by a 1998 lay The Treasury plans to issue proposed regulations covering private foundations, an final rules won't become effective until 60 days after those regulations are issued in final form.

Lloyd Mayer, a lawyer at Caplin & Drysdale in Washington, said the new regulations provide "an easy process to report failures to provide the information to IRS officials." He added that because of the new regulations, many people, including watch dog organizations and the media, will be able to gain "ready access to recent financial information" about the nonprofit world.

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