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Mar4

Charitable 501(c)(3) Organizations – Inspection and Disclosure Requirements

Inspection of Corporate Documents:

Business FocusCharitable organizations enjoy significant benefits, such as receiving tax deductible contributions and not having to pay taxes on income. In return, Congress allows the public to inspect documents (such as the Form 990 or 990-EZ) that these organizations file with the IRS. These forms – which report gross receipts, expenses, etc. – are information returns and do not report paying taxes.

In addition, the public can review an organization’s original application for recognition of tax-exempt status, any documents filed with the application (i.e. the articles of incorporation and Bylaws), and any correspondence between the organization and the IRS regarding the application. The public can also inspect a charitable organization’s Form 990-T, the tax return filed by organizations that receive unrelated business income of more than $1,000 annually.

In order to satisfy the disclosure requirements, nonprofit organizations should maintain a Public Inspection Binder. This binder contains all of the materials listed above (regarding Form 990 Information Returns it should contain the three most-recent returns) and should be placed in a location that makes it easy to comply with requests to see the documents.

The typical table of contents for a Public Inspection Binder reads as follows:

  1. Articles of Incorporation
  2. Bylaws
  3. Form 1023 Application for Tax Exemption (and related attachments)
  4. Federal Determination Letter
  5. Most current Form 990, Return of Organization Exempt from Income Tax.
  6. Second most current Form 990.
  7. Third most current Form 990.
  8. Three most recent Form 990-T (Unrelated Business Income Tax) Returns, if any.

It should be noted that copies of the minutes of the meetings of the Board of Directors are not included on the inspection list. Contrary to popular perception, the public does not have a right to review the minutes of Board meetings[1]

Disclosures To Donors Re: Quid Pro Quo

Furthermore, 501(c)(3) organizations must also make certain disclosures to donors to whom something has been given in return for their contributions. This is called a quid pro quo contribution, which in Latin means “something for something.” For example, suppose a donor gives a charitable organization $100. As an incentive or thank-you, the organization sends the person a concert ticket with a fair market value of $40. The donor’s tax deduction in this transaction may not exceed $60. In this case, the donor’s payment exceeds $75, requiring the charitable organization to furnish a disclosure statement to the donor, even though the deductible amount does not exceed $75.

The disclosure must:

  1. Be in a written statement that is likely to come to the attention of the donor;
  2. Be provided at the time the contribution is solicited or when the payment is received;
  3. Inform the donor that the amount of the contribution deductible for federal income tax purposes is limited to the excess of the amount of money and the value of any property contributed by the donor over the value of goods or services provided by the organization; and
  4. Provide the donor with an estimate of the fair market value of the goods or services provided by the organization.

If an organization fails to meet the written disclosure requirement, a penalty of $10 per contribution, up to $5,000 per fundraising event or mailing, may be assessed.

In addition to the public inspection and quid pro quo contribution disclosure requirements, if a charity offers to sell goods or services that are available free from the federal government, it must disclose that fact in a recognized format.


[1] This statement may not apply if the organization is subject to the Ralph M. Brown Act (California Government Code Section 54950 et seq), which prescribes open meeting rules for legislative and other bodies meeting certain criteria.