Books and Records

Church Law and Tax 1989-05-01 Recent Developments

Churches – Books and Records

Churches and religious denominations should be aware that their applications for exemption from federal income taxation (Form 1023) and related materials are now subject to public inspection. The IRS recently released a public notice that clarifies the meaning of this provision (first contained in the “Omnibus Budget Reconciliation Act of 1987”). Generally, exempt organizations (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:

(1) the exemption application form (Form 1023); (2) any supporting documents submitted with the exemption application, including legal briefs or a response to questions from the IRS; and (3) 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). An exempt organization is not required to provide a photocopy of 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 prefers his or her own copy and the organization does not object to making a photocopy to give to the requester, the organization may make the copies on its own equipment and charge the requester $1 for the first page and 15 cents for each additional page plus any actual postage costs. 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.” An organization that fails to comply with a request for inspection may be assessed a penalty of $10 per day up to a maximum of $5,000. A willful failure to comply may result in a penalty of $1,000. The IRS notice also provides that “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.” 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 acquire from the parent organization a copy of those documents that were submitted to the IRS by the parent organization … and make the material available to the requester in a reasonable amount of time.” Alternatively, the requester may obtain the information directly from the parent organization. Finally, 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 be receiving requests for inspection. A high-level IRS spokesperson recently expressed “extreme disappointment that America’s nonprofit community is turning its back on full and free public disclosure, especially at a time when they are under close scrutiny by the Congress.” IRS Notice 88-120.

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