Certain exempt organizations must disclose to the IRS or the public certain information about their activities. Generally, an organization discloses this information by entering it on the appropriate lines of its annual return. In addition, there are disclosure requirements for:
- Solicitation of nondeductible contributions,
- Sales of information or services that are available free from the government,
- Dues paid to the organization that are not deductible because they are used for lobbying or political activities, and
- Prohibited tax shelter transactions.
Solicitations for contributions or other payments by certain exempt organizations (including lobbying groups and political action committees) must include a statement that payments to those organizations are not deductible as charitable contributions for federal income tax purposes. The statement must be included in the fund-raising solicitation and be conspicuous and easily recognizable. taxmap/pubs/p557-014.htm#TXMP56b3b247
An organization must follow these disclosure requirements if it is exempt under section 501(c), other than section 501(c)(1), or under section 501(d), unless the organization is eligible to receive tax deductible charitable contributions under section 170(c). These requirements must be followed by, among others:
- Social welfare organizations (section 501(c)(4)),
- Labor unions (section 501(c)(5)),
- Trade associations (section 501(c)(6)),
- Social clubs (section 501(c)(7)),
- Fraternal organizations (section 501(c)(8) and 501 (c)(10)) (however, fraternal organizations described in section 170(c)(4) must follow these requirements only for solicitations for funds that are to be used for noncharitable purposes not described in section 170(c)(4)),
- Any political organization described in section 527(e), including political campaign committees and political action committees, and
- Any organization not eligible to receive tax-deductible contributions if the organization or a predecessor organization was, at any time during the 5-year period ending on the date of the fund-raising solicitation, an organization of the type to which this disclosure requirement applies.
This disclosure requirement applies to a fund-raising solicitation if all of the following are true.
- The organization soliciting the funds normally has gross receipts over $100,000 per year.
- The solicitation is part of a coordinated fund-raising campaign that is soliciting more than 10 persons during the year.
- The solicitation is made in written or printed form, by television or radio, or by telephone.
Failure by an organization to make the required statement will result in a penalty of $1,000 for each day the failure occurred, up to a maximum penalty of $10,000 for a calendar year. No penalty will be imposed if it is shown that the failure was due to reasonable cause. If the failure was due to intentional disregard of the requirements, the penalty may be higher and is not subject to a maximum amount. taxmap/pubs/p557-014.htm#TXMP7225d713
Certain organizations that offer to sell to individuals (or solicit money for) information or routine services that could be readily obtained free (or for a nominal fee) from the federal government must include a statement that the information or service can be so obtained. The statement must be made in a conspicuous and easily recognized format when the organization makes an offer or solicitation to sell the information or service. Organizations affected are those exempt under section 501(c) or 501(d) and political organizations defined in section 527(e). taxmap/pubs/p557-014.htm#TXMP564e6e18
A penalty is provided for failure to comply with this requirement if the failure is due to intentional disregard of the requirement. The penalty is the greater of $1,000 for each day the failure occurred, or 50% of the total cost of all offers and solicitations that were made by the organization the same day that it fails to meet the requirement. taxmap/pubs/p557-014.htm#TXMP6b8a58b6
Certain exempt organizations must notify anyone paying dues to the organization whether any part of the dues is not deductible because it is related to lobbying or political activities.
An organization must provide the notice if it is exempt from tax under section 501(a) and is one of the following.
- A social welfare organization described in section 501(c)(4) that is not a veterans' organization.
- An agricultural or horticultural organization described in section 501(c)(5).
- A business league, chamber of commerce, real estate board, or other organization described in section 501(c)(6).
However, an organization described in (1), (2), or (3) does not have to provide the notice if it establishes that substantially all the dues paid to it are not deductible anyway or if certain other conditions are met. For more information, see Revenue Procedure 98-19 in Cumulative Bulletin 1998-1 or later update.
If the organization does not provide the required notice, it may have to pay a tax that is reported on Form 990-T. But the tax does not apply to any amount on which the section 527 tax has been paid on Form 1120-POL. See Political Organization Income Tax Return, earlier.
For more information about nondeductible dues, see Deduction not allowed for dues used for political or legislative activities under 501(c)(6) - Business Leagues, etc.taxmap/pubs/p557-014.htm#TXMP4b46b999
Every exempt organization (as defined in section 4965(c)) that is a party to a prohibited tax shelter transaction is required to disclose to the IRS the following information:
- Whether such organization is a party to the prohibited tax shelter transaction (as defined in section 4965(e); and
- The identity of any other party to the transaction that is known to the exempt organization.
An exempt organization is a party to a prohibited tax shelter transaction if the organization:
- Facilitates a prohibited tax shelter transaction by reason if its tax-exempt, tax indifferent, or tax-favored status;
- Enters into a listed transaction and the exempt organization's tax return (whether an original or amended return) reflects a reduction or elimination of its tax liability for applicable federal employment, excise, or unrelated business income taxes that is derived directly or indirectly from tax consequences or tax strategy described in the published guidance that lists the transaction; or
- Is identified in published guidance, by type, class, or role as a party to a prohibited tax shelter transaction.
A single disclosure is made by the organization for each prohibited tax shelter transaction. The disclosure is made on Form 8886–T.taxmap/pubs/p557-014.htm#TXMP5301ec9d
Generally, for exempt organizations described in 1 above, the disclosure is due on or before May 15 of the calendar year following the close of the calendar year that the exempt organization entered into the prohibited tax shelter transaction. However, the disclosure for subsequently listed transactions (as defined in section 4965(e)(2)) is due on or before May 15 of the calendar year following the close of the calendar year that the transaction was identified by the Secretary as a listed transaction.
The disclosure for exempt organizations described in 2 above is due on or before the date the first tax return (whether original or amended return) is filed that reflects a reduction or elimination of the exempt organization's liability for applicable federal employment, excise, or unrelated business income taxes that is derived directly or indirectly from tax consequences or tax strategy described in the published guidance that lists the transaction.taxmap/pubs/p557-014.htm#TXMP33ebd2ab
Exempt organizations that fail to file the required disclosure are subject to a nondisclosure penalty of $100 for each day the failure continues with a maximum penalty for any one disclosure of $50,000.
Also, if the IRS makes a written demand on any exempt organization subject to this penalty, giving the organization a reasonable date to make the disclosure and the organization fails to make the disclosure by that date, the organization is subject to a penalty of $100 for each day after the date specified by the IRS until disclosure is made (with a maximum penalty for any one disclosure of $10,000).