Key point 6-03.03. Federal law requires tax-exempt organizations to provide a copy of their application for exemption (and supporting materials) upon request. There is no exemption for churches, although many churches have not applied for recognition of tax-exempt status and therefore will have no documents to provide in response to such a request. Many churches are covered by a denominational agency’s “group exemption” ruling. Such churches must provide a copy of the group ruling in response to a request for a copy of their tax exemption application.
Any organization that is exempt from federal income taxation (including churches and religious denominations) must make available a copy of the following materials in response to a request from a member of the public:
- the exemption application form (Form 1023) submitted to the IRS;
- any supporting documents submitted with the exemption application, including legal briefs or a response to questions from the IRS; and
- any letter or document issued by the IRS with respect to the exemption application (such as a favorable determination letter or a list of questions from the IRS about the application). 111 IRS Notice 88-120, 1988-2 C.B. 4541.
The exemption application must be made available for inspection, without charge, at the organization’s principal office during regular business hours. The organization may have an employee present during inspection, but must allow the individual to take notes freely and to photocopy at no charge if the individual provides the photocopying equipment.
An exempt organization also must provide a copy of its exemption application to anyone who requests a copy either in person or in writing at its principal office during regular business hours. If the individual made the request in person, the copy must be provided on the same business day the request is made unless there are unusual circumstances. The organization must honor a written request for a copy of documents or specific parts or schedules of documents that are required to be disclosed. However, this rule only applies if the request (1) is addressed to the exempt organization’s principal office; (2) is sent to that address by mail, electronic mail (e-mail), facsimile (fax), or a private delivery service approved by the IRS; and (3) gives the address to where the copy of the document should be sent. The organization must mail the copy within 30 days from the date it receives the request. The organization may request payment in advance and must then provide the copies within 30 days from the date it receives payment.
The organization may charge a reasonable fee for providing copies. It can charge no more for the copies than the per page rate the IRS charges for providing copies.
Many churches never filed an exemption application with the IRS because they are covered by a “group exemption” obtained by their denomination. If such a church receives a request for inspection of its exemption application, it must make available for public inspection, or provide copies of: (1) The application submitted to the IRS by the central or parent organization to obtain the group exemption letter, and (2) those documents which were submitted by the central or parent organization to include the local or subordinate organization in the group exemption letter. However, if the central or parent organization submits to the IRS a list or directory of local or subordinate organizations covered by the group exemption letter, the local or subordinate organization is required to provide only the application for the group exemption ruling and the pages of the list or directory that specifically refer to it.
In lieu of allowing an inspection, the local or subordinate organization may mail a copy of the applicable documents to the person requesting inspection within the same time period. In this case, the organization can charge the requester for copying and actual postage costs only if the requester consents to the charge. If the local or subordinate organization receives a written request for a copy of its annual information return, it must fulfill the request by providing a copy of the group return in the time and manner specified earlier. The requester has the option of requesting from the central or parent organization, at its principal office, inspection or copies of group returns filed by the central or parent organization. The central or parent organization must fulfill such requests in the time and manner specified earlier.
If an exempt organization maintains one or more “regional or district offices,” the exemption application (and related materials) “shall be made available at each such district or regional office as well as at the principal office.” This rule will be relevant to many religious denominations. Churches and religious denominations should be aware of these new requirements, since some undoubtedly will receive requests for inspection.
The penalty for failure to allow public inspection of exemption applications is $20 for each day the failure continues. The penalty for willful failure to allow public inspection of an exemption application is $5,000 for each return or application. The penalty also applies to a willful failure to provide copies.