Proposed IRS Reg’s Indication of What Non-profits Will Face?

A few days ago the IRS proposed changes to how information concerning non-profit organizations could be disclosed to state agencies and officials. The proposed regulations would amend section 6104(c) of the Internal Revenue Code according to changes made by the Pension Protection Act of 2006.

Section 6104(c) deals with how the IRS may disclose information about 501(c)(3) organizations, organizations that have applied for 501(c)(3) status and other exempt organizations.  Under the proposed changes, the right for state officials to obtain information about non-profit’s would broaden dramatically. For example:

  • The IRS could disclose a denial or revocation before there has  been a hearing or final determination. Before, a final determination was required before most information could be disclosed.
  • The IRS could disclose  returns, or return information, of 501(c)(3)’s to state officials on its own initiative. The IRS could also disclose this information even if it hasn’t initiated an examination (meaning they themselves are not looking into the issue) if the IRS believes the information may serve as evidence that an organization is not in compliance with the laws of the state they’re incorporated in. This is totally new.
  • Information about an organization applying for 501(c)(3) status may be disclosed.
  • The IRS can disclose the names, addresses and taxpayer identification numbers of applicants. Before only information relating to denial could be released on applicants.
  • State officials may at any time request information on  proposed determinations, identifying information and related returns. Before, disclosure required a final determination.
  • And those organizations that aren’t 501(c)(3)’s shouldn’t get to comfortable. Though information about organizations other than 501(c)(1)’s and 501(c)(3)’s could not previously be disclosed, under this section the changes would allow that.
  • Returns and return information may be disclosed in civil administrative and civil judicial proceedings to see to the enforcement of state laws. This is something totally new being added as well.

There are some limitations. For one, disclosures may only be made to ASO’s (Authorized State Officials). People can’t just request your information willy-nilly.  Secondly, for disclosure to be made, a state must have in place certain record-keeping and safeguard procedures.

So what does all this mean? Well, it looks like the IRS is getting serious about cleaning up the non-profit system. These proposed regulations would allow them to work real closely with the various states, at times putting the state on notice of things that an organization may not even know yet.

If you’d like to see the changes yourself, click here.