November 25, 1988 Tax-Exempt Organizations -- (1) Disclosure of Nondeductibility of Contributions; (2) Public Inspection of Annual Returns and Applications for Tax-Exempt Status; and (3) Disclosure of the Availability of Material Free or at Nominal Charge from the Federal Government This notice provides guidance, including "safe harbors," on several aspects of Title X, Subtitle G -- "Lobbying and Political Activities of Tax-Exempt Organizations" of the Omnibus Budget Reconciliation Act of 1987 (OBRA). This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the Income Tax Regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure. DISCLOSURE OF NONDEDUCTIBILITY OF CONTRIBUTIONS Section 10701 of OBRA added new sections 6113 and 6710 to the Internal Revenue Code (IRC). Section 6113 requires certain tax-exempt organizations that are ineligible to receive tax deductible charitable contributions to disclose, in "an express statement (in a conspicuous and easily recognizable format)," the nondeductibility of contributions during fundraising solicitations. Section 6710 provides penalties for failure to comply with section 6113 without reasonable cause. Organizations whose annual gross receipts do not normally exceed $100,000 are excepted from this disclosure requirement. 1. Format of Disclosure Statement -- Safe Harbor. For purposes of section 6113, a fundraising solicitation will be considered to include "an express statement (in a conspicuous and easily recognizable format) that contributions or gifts to such organization are not deductible as charitable contributions for Federal income tax purposes" if it satisfies the following requirements: A. Print Medium. In the case of a solicitation by mail, leaflet, or advertisement in a newspaper, magazine or other print medium, the following four requirements are met: The solicitation includes whichever of the following statements the organization deems appropriate: "Contributions or gifts to [name of organization] are not deductible as charitable contributions for Federal income tax purposes," "Contributions or gifts to [name of organization] are not tax deductible," or "Contributions or gifts to [name of organization] are not tax deductible as charitable contributions;" The statement is in at least the same size type as the primary message stated in the body of the letter, leaflet or ad; The statement is included on the message side of any card or tear off section that the contributor returns with the contribution; and The statement is either the first sentence in a paragraph or itself constitutes a paragraph. B. Telephone. In the case of a solicitation by telephone the following three requirements are met: The solicitation includes whichever of the following statements the organization deems appropriate: "Contributions or gifts to [name of organization] are not deductible as charitable contributions for Federal income tax purposes." "Contributions or gifts to [name of organization] are not tax deductible," or "Contributions or gifts to [name of organization] are not tax deductible as charitable contributions;" The statement is made in close proximity to the request for contributions, during the same telephone call, by the telephone solicitor; and Any written confirmation or billing sent to a person pledging to contribute during the telephone solicitation complies with the requirements under section A (Print Medium Solicitations). C. Television. In the case of a solicitation by television the following two requirements are met: The solicitation includes whichever of the following statements the organization deems appropriate: "Contributions or gifts to [name of organization] are not deductible as charitable contributions for Federal income tax purposes," "Contributions or gifts to [name of organization] are not tax deductible," or "Contributions or gifts to [name of organization] are not tax deductible as charitable contributions;" and If the statement is spoken, it is in close proximity to the request for contributions; if the statement appears on the television screen, it is in large easily readable type appearing on the screen for at least five seconds. D. Radio. In the case of a solicitation by radio the following two requirements are met: The solicitation includes whichever of the following statements the organization deems appropriate: "Contributions or gifts to [name of organization] are not deductible as charitable contributions for Federal income tax purposes," "Contributions or gifts to [name of organization] are not tax deductible," or "Contributions or gifts to [name of organization] are not tax deductible as charitable contributions;" and The statement is made in close proximity to the request for contributions during the same radio solicitation announcement. These safe harbors will remain in effect until further notice. II. Format of Disclosure Statement -- Additional Safe Harbor for Membership Dues of Section 501(c)(5) and (c)(6) Organizations. In the case of a solicitation addressed in IA, IB, IC, or ID above, if the solicitation involves membership dues of a section 501(c)(5) labor or agricultural organization or section 501(c)(6) business league that are normally deductible as business expenses under another section of the Internal Revenue Code, any of the following may be substituted for the first requirement in IA, IB, IC, and ID above: "Contributions or gifts to [name of organization] are not tax deductible as charitable contributions. However, they may be tax deductible as ordinary and necessary business expenses." "Contributions or gifts to [name of organization] are not tax deductible as charitable contributions for Federal income tax purposes. However, they may be tax deductible under other provisions of the Internal Revenue Code." "While contributions or gifts to [name of organization] are not tax deductible as charitable contributions for Federal income tax purposes, they may be tax deductible under other provisions of the Internal Revenue Code." This safe harbor will remain in effect until further notice. III. Format of Disclosure Statement -- Other Facts and Circumstances. If an organization makes a solicitation to which section 6113 applies and the solicitation does not comply with the above safe harbors, the Service will evaluate all the facts and circumstances to determine whether the solicitation contained "an express statement (in a conspicuous and easily recognizable format) that contributions or gifts to such organization are not deductible as charitable contributions for Federal income tax purposes." A good faith effort to comply with the requirements of section 6113 will be an important factor in the evaluation of the facts and circumstances. However, disclosure statements made in fine print will not be considered to be in compliance with the statutory requirement. IV. Scope of Requirement. Section 6113 generally applies to all fundraising solicitations by tax-exempt organizations contributions to which are not tax deductible as charitable contributions under section 170(c). Section 6113 also applies to fundraising solicitations by political organizations described in section 527(e), such as political action committees and campaign committees. Section 6113 does not apply, however, to organizations described in section 170(c), such as charities, schools and churches. Where all parties being solicited are tax exempt organizations, a solicitation need not include the section 6113 disclosure statement. Thus, if all members of an organization are tax-exempt organizations, solicitations of members need not include the section 6113 disclosure of nondeductibility of contributions. As previously mentioned, solicitations by organizations with annual gross receipts that do not normally exceed $100,000 are also excluded from the requirements of section 6113. Furthermore, section 6113 does not apply to solicitations by letter or telephone call if the letter or call is not part of a coordinated fundraising campaign soliciting more than 10 persons during the calendar year. A. Examples of Included Solicitations. Solicitations for all voluntary contributions as well as solicitations for attendance at testimonials and other fundraising events must include the disclosure statement. For example, solicitations for contributions to a Congressional campaign committee or political action committee (PAC) must include the disclosure statement. Solicitations for memberships and annual dues, as well as solicitations for membership and dues renewals, are also subject to the disclosure of nondeductibility of contributions requirements of section 6113. Although a membership or dues payment may be deductible under an IRC section other than section 170(c), solicitation of such payment nonetheless must include a statement that a contribution to the organization is not deductible as a charitable contribution. If a labor union and an employer have a system in which the employer will, upon the employee's request, withhold union dues from the employee's paycheck for an indefinite period, the solicitation requiring the disclosure statement occurs when the check-off card is given to the employee. Another disclosure statement is not necessary until the employee is required to affirmatively act at a later time to continue the withholding from the employee's paycheck. B. Examples of Excluded Solicitations. Examples of situations that do not require the section 6113 disclosure statement include: billing advertisers in an organization's publications; billing members and nonmembers for food and beverages at a social club; billing attendees of a conference conducted by the organization (as distinct from a testimonial or fundraising event); billing for insurance premiums of an insurance program operated or sponsored by the organization; billing members of a community association for mandatory payments for police and fire, etc. protection; or billing for payments to a voluntary employees' beneficiary association described in section 501(c)(9) as well as similar payments to a trust for pension and/or health benefits. General material discussing the benefits of membership in an exempt organization, such as a trade association or labor union, need not include the required disclosure statement unless the material both requests payment and specifies the amount requested as membership dues. However, if a person responds to the general material discussing the benefits of membership, the follow-up material requesting the payment of a specific amount in membership dues (such as a union check-off card or trade association billing statement for a new member) must include the disclosure statement. General material discussing a political candidacy and requesting persons to vote for the candidate or "support" the candidate need not include the disclosure statement unless the material specifically requests either a financial contribution or a contribution of volunteer services in support of the candidate. C. $100,000 Minimum. In determining whether an organization has annual gross receipts that do not normally exceed $100,000, the Service will generally follow the principles set forth in Treas. Reg. 1.6033-2(g) and Rev. Proc. 83-23, 1983-1 CB 687, which set forth rules for determining annual gross receipts with respect to the similar exception from the filing of annual information returns for small organizations. In general, these rules set out a three year average as the basic rule. The organization must include the required disclosure statement on all solicitations made more than 30 days after reaching $300,000 in gross receipts for the three year period of the calculation. For example, if on July 1 of the third year of a calculation (for an organization with a calendar year accounting period) the organization reaches $300,000 in total gross receipts for the prior two years and the first six months of the third year, it must include the required disclosure statement on all solicitations no later than August 1. A local, regional or state chapter of an organization with gross receipts under $100,000 must include the disclosure statement in its solicitations if at least 25 percent of the money solicited will go to the national, or other, unit of the organization that has annual gross receipts over $100,000 because the solicitation is considered as being in part on behalf of such unit of the organization. Also, if a trade association or labor union, with over $100,000 in annual gross receipts, solicits funds that will pass through to a political action committee with less than $100,000 in annual gross receipts, the solicitation must include the required disclosure statement. V. Penalties. The failure to include the required disclosure of the nondeductibility of contributions in fundraising solicitations to which section 6113 is applicable could result in a penalty of $1,000 for each day on which such a failure occurs, up to a maximum annual penalty of $10,000. No penalty will be imposed if the failure is due to reasonable cause. In cases where the failure to make the required disclosure is due to intentional disregard of the law, the $10,000 per year limitation on the penalty does not apply and more severe penalties based on up to 50 percent of the aggregate cost of the solicitations are applicable. For purposes of determining the penalty, "each day on which a failure occurs" means the day that a solicitation is mailed, distributed, published, broadcast, or spoken by telephone. For example, if an organization mails 500 noncomplying solicitations on March 30 and 50 noncomplying solicitations on April 5, the penalty would be $2,000, so long as the violation did not involve intentional disregard of the disclosure requirement. PUBLIC INSPECTION OF ANNUAL RETURNS AND APPLICATIONS FOR TAX-EXEMPT STATUS Section 10702 of OBRA amends section 6104 of the IRC by adding a new subsection (e) requiring exempt organizations (other than private foundations covered under section 6104(d)) to make available for public inspection a copy of their annual information returns on Form 990, Return of Organization Exempt from Tax, for years beginning after December 31, 1986. The returns must be made available for a three year period beginning with the due date for the return (including any extension of time for filing). Section 6104(e) also requires exempt organizations to make available for public inspection a copy of their application for recognition of Federal tax exemption on Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, or Form 1024, Application for Recognition of Exemption Under Section 501(a). Section 6104(e) also requires the organization to make available for public inspection a copy of any papers submitted in support of such application and any letter or other document issued by the Internal Revenue Service with respect to such application. If an organization filed its application before July 15, 1987, it is required to make available a copy of its application only if it had a copy of the application on July 15, 1987. I. Content of Required Disclosure. The required disclosure of the annual return applies to an exact copy of the original Form 990 and all schedules and attachments filed with the Internal Revenue Service except that the required disclosure does not include the names and addresses of contributors to the organization. For example, the required disclosure must include Schedule A of Form 990 containing supplementary information on section 501(c)(3) organizations. Specifically, therefore, the compensation of specific individuals required in Part VI of Form 990 and Parts I and II of Schedule A attached to Form 990, and any attachments and amendments, must be made available for public inspection. The required disclosure does not include Form 990-T, Exempt Organization Business Income Tax Return, relating to unrelated business income tax, or Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, relating to taxes on political organizations. If an organization that does not file its own Form 990 (because it is a subordinate organization that is included in a group return) receives a request for inspection, the subordinate organization must acquire a copy of the group return from the parent organization and make the material available to the requester in a reasonable amount of time. Also, the requester has the option of requesting from the parent organization inspection of the group return at the principal office of the parent organization. With respect to a request for the application for exemption and related materials, the exempt organization must make available a copy of: the application (such as the Form 1023 or 1024); any supporting documents, including papers filed by the organization in support of its application (such as a legal brief or a response to questions from the Service during the application process); and any letter or other document issued by the Service with respect to the application (such as a favorable determination letter or list of questions from the Service about the application). If an organization that did not file its own application for exemption (because it is a subordinate organization covered by a group ruling) receives a request for inspection of its application for exemption and supporting materials, the subordinate organization must acquire from the parent organization a copy of those documents that were submitted to the Internal Revenue Service by the parent organization to include the subordinate in the group ruling, and make the material available to the requester in a reasonable amount of time. Also, the requester has the option of requesting from the parent organization, at the principal office of the parent organization, inspection of the material submitted by the parent organization in connection with including a subordinate organization in the group ruling. II. Method of Inspection. An organization is not required to provide or distribute a photocopy of its annual returns and its exemption application to a requester, but is required to have on hand a copy available for inspection. The organization may have an employee present in the room during the inspection, but must allow the requester to take notes freely during the inspection or must allow the requester to photocopy the document on the requester's own photocopying equipment within reasonable constraints of time and place. Alternatively, if a requester (without his or her own photocopying equipment) prefers his or her own copy and the organization does not object to making a photocopy to give to the requester, the organization may charge the requester up to the per page copying charge stated in section 601.702(f)(5)(iv)(B) of the Internal Revenue Service's Statement of Procedural Rules (currently $1.00 for the first page and $.15 for each subsequent page), plus actual postage costs. The organization may require a written request in order to provide copies. III. Place of Inspection. If the organization does not maintain a permanent office and receives a request to inspect its annual returns and application for exemption, it must provide the requester with an opportunity to inspect the material at a reasonable location of the organization's choice. At the organization's option, it may mail the information to the requester in lieu of an inspection, but the organization may charge the requester for copying and postage costs only if the requester voluntarily agrees to forgo the right to an inspection free of charge. if an organization regularly maintains 1 or more regional or district offices (in addition to its principal office), the documents shall be made available at each such district and regional office as well as at the principal office. An office of an organization must have three or more paid full-time employees (or paid part-time employees whose total number of paid hours per week is at least 120) to be considered a regional or district office required to make available the pertinent information. If the organization maintains employees at a site where service provider activities (such as day care or health care) occur and that site does not serve as offices of management staff (other than managers involved solely in managing the specific service of that service provider office), it need not maintain the required material for inspection at that service provider site. IV. Time of Inspection. The required information should normally be available on the day of the request for inspection and during the normal business hours of the organization's office. In the exceptional circumstances where an organization has no office, or where the office has very limited hours during certain times of the year, the required information should be made available within a reasonable amount of time (normally not more than 2 weeks) and at a reasonable time of day. V. Penalties. Any person who fails to comply with the public inspection requirement for annual returns and applications for exemption may be assessed a penalty of $10 per day for each day during which the failure to comply continues. The maximum penalty on all persons for failures to comply with respect to any one annual return is $5,000. No penalty will be imposed if the failure is due to reasonable cause. Any person who willfully fails to comply with the public inspection requirement for any return or application shall pay a penalty of $1,000 with respect to each such return or application. DISCLOSURE OF THE AVAILABILITY OF MATERIAL FREE OR AT NOMINAL CHARGE FROM THE FEDERAL GOVERNMENT Section 10705 of OBRA adds a new section 6711 to the IRC. Section 6711 provides that when a tax-exempt organization offers to sell (or solicits money for) specific information or offers to provide a routine service for any individual that could be readily obtained by such individual free of charge (or for a nominal charge) from an agency of the Federal Government, the tax-exempt organization must, when making such offer or solicitation, make "an express statement (in a conspicuous and easily recognizable format)" that the information can be so obtained from the Federal Government. I. Nominal Charge. If material and/or services are available from the Federal Government for less than $2.50 (including postage and handling costs), the material will be considered as being available from the Federal Government at a nominal charge. II. Scope of Requirement. The section 6711 requirement applies only if the information to be provided involves the specific individual solicited. For example, the requirement applies with respect to obtaining the social security earnings record or the social security identification number of an individual solicited. Section 6711 does not apply to the sale of, or solicitation of money for, compilations of material that is available to the public at free or nominal charge from the Federal Government if the material does not relate to the specific individual solicited. For example, the requirement does not apply with respect to furnishing copies of newsletters issued by Federal Agencies or providing copies of or descriptive material on pending legislation. Also, section 6711 does not apply to the providing of professional services (such as tax return preparation, grant application preparation, or medical services), as opposed to routine information retrieval services, to an individual even if they may be available from the Federal Government free or at nominal charge. III. Format of Disclosure Statement. In determining whether a solicitation makes "an express statement (in a conspicuous and easily recognizable format)" the Service will apply the same standards as those under section 6113 discussed above. The necessary statement for meeting the "safe harbor" requirements would be: "This material is available free or at nominal charge from (name of Federal Government agency)." IV. Penalties. The penalty for an intentional disregard of this disclosure requirement is, for any day on which there was a solicitation failing to comply through intentional disregard of the disclosure requirement, the greater of $1,000 or 50 percent of the aggregate cost of the noncomplying offers or solicitations on such day. DRAFTING INFORMATION The principal author of this notice is Paul G. Accettura of the Office of the Assistant Chief Counsel (Employee Benefits and Exempt Organizations). For further information regarding this notice, contact Paul G. Accettura on (202) 566-3567 (not a toll-free call).