Required Disclosures and Duties Owed to Donors as a 501(c)(3) Organization 

For nonprofit organizations operating under §501(c)(3) of the Internal Revenue Code, some records are open for public inspection. This includes:  

1. Annual returns for 3 years after the due date, such as Form 990 and 990-T. 
2. All Form 990 schedules, attachments, and supporting documents except Schedule B.  
3. The application for exemption and all supporting documents. This includes Form 1023 if filed on or before July 15, 1987.
4. The determination letter from the IRS that shows that the organization has tax-exempt status.
   

Typically, it is best to have these documents available to be presented to the requester immediately. However, if that is impossible, it would be acceptable to make the documents available within two weeks of the request. If the requester would like copies made, it is not the responsibility of the nonprofit to cover the cost of the copies. In fact, the nonprofit organization may charge a reasonable fee to the requester of the copies. To avoid any issues with making copies all together, the easiest course of action is to post public documents on the nonprofit’s website. This will allow for inspection anytime, by anyone, without dealing with the hassle of retrieving and presenting the documents.  

Types of Required Disclosures

There are a few documents that a §501(c)(3) organization is not required to share. The list includes: 

1. Portions of Schedule B on Form 990/990 EZ. Here, the nonprofit does not need to identify contributors by name. The only required information regarding contributions is the amounts and natures of the contributions.  
2. Unfavorable Rulings. An example of an unfavorable ruling is an earlier denial of tax-exempt status.  
3. Certain types of information that the IRS allows to be withheld. Among others, this may include trade secrets, patents, processes, styles of work, and national defense material.  

It is incredibly important to be compliant with these rules. In the case of noncompliance,  key person of a nonprofit operating under §501(c)(3) of the Internal Revenue Code may be fined $20 for each day of noncompliance, and up to a maximum of $10,000. If the failure to comply was willful, the key person may face a penalty of $5,000 per return or application.  

Another type of disclosures that must be made by a nonprofit organization are known as quid pro quo disclosures. Here, a donor makes a contribution to the organization, and they receive a good or service in return for their donation. If the donation made is in excess of $75 and the donor is given something in return, the nonprofit must disclose the value of that item or service to the donor. The disclosure to the donor may be in the form of a short letter informing the donor of the value of the item they received, and the subsequent value of their donation.  Quid pro quo donations are important to keep track of and disclose for both the nonprofit receiving the donation and the donor. Donors may only claim a deduction for the amount they contributed above the amount of the goods or services they received. In other words, the value of the item received by the donor must be subtracted from the value of the donation. The amount leftover is the amount that the donor may claim for their charitable contribution. Correct calculations are vital; if a nonprofit gives a donor inaccurate documentation of the value of their donation, they will deduct the wring amount on their tax returns. Additionally, nonprofits will face fines for supplying the wrong documentation. Noncompliance is a lose-lose for all parties involved.  

Required DisclosuresExceptions

Some exceptions to the rule of providing documentation for donations exist. These are: 

1. Tokens. Tokens are insubstantial goods or services that a nonprofit provides to donors in exchange for contributions. Because of their low value, no documentation is not necessary.  
2. Annually recurring rights or privileges provided as membership benefit. Documentation is not necessary so long as the payment is $75 or less.  
3. Religious benefits. Examples include admission to a religious ceremony or small tangible benefits, such as wine used during a religious ceremony.  

If a donor is not given an item or service in exchange for their donation, there is no disclosure requirement. But a donor will not be able to claim a tax deduction for any contribution unless they maintain a record of the contribution in the form of a bank record or a written contribution from the charity. Furthermore, a donor will be unable to claim a tax deduction for any single contribution of $250 or more without a written acknowledgement from the nonprofit organization. For these reasons, it is best practice for a nonprofit organization to provide donors with a written acknowledgement. A written acknowledgement should include the name of the organization, the date of the contribution, the cash contribution amount, and a description of any noncash contributions. It is not necessary to include the value of noncash contributions. An acknowledgment can be in the form of a hard copy or an email. In general, it is best to send a written acknowledgement to donors in time for them to file their individual federal tax return.  

Additionally, as a §501(c)(3) corporation, a written acknowledgement is required for donors if they make a single contribution of $250 or more in the form of unreimbursed contributions. Any amount less than $250 does not require a written acknowledgement to claim a deduction. For unreimbursed expenses, a written acknowledgement letter should include a description of the services provided by the donor and a description and estimate of the value of any goods or services that the organization provided in return for the contribution.  

One final disclosure that a §501(c)(3) corporation should be aware of relates to goods and services that are available free from the government. If the organization offers to sell goods and services that the federal government provides for free, the organization must disclose that fact. The disclosure must be conspicuous and easily recognizable. If the organization operates a website, posting the disclosure there would be appropriate.  

Required Disclosures Records for Public Inspection

For nonprofit organizations operating under §501(c)(3) of the Internal Revenue Code, some records are open for public inspection. This includes:  

1. Annual returns for 3 years after the due date, such as Form 990 and 990-T. 
2. All Form 990 schedules, attachments, and supporting documents except Schedule B.  
3. The application for exemption and all supporting documents. This includes Form 1023 if filed on or before July 15, 1987.
4. The determination letter from the IRS that shows that the organization has tax-exempt status. 
    

Typically, it is best to have these documents available to be presented to the requester immediately. However, if that is impossible, it would be acceptable to make the documents available within two weeks of the request. If the requester would like copies made, it is not the responsibility of the nonprofit to cover the cost of the copies. In fact, the nonprofit organization may charge a reasonable fee to the requester of the copies. To avoid any issues with making copies all together, the easiest course of action is to post public documents on the nonprofit’s website. This will allow for inspection anytime, by anyone, without dealing with the hassle of retrieving and presenting the documents.  

There are a few documents that a §501(c)(3) organization is not required to share. The list includes: 

1. Portions of Schedule B on Form 990/990 EZ. Here, the nonprofit does not need to identify contributors by name. The only required information regarding contributions is the amounts and natures of the contributions.  
2. Unfavorable Rulings. An example of an unfavorable ruling is an earlier denial of tax-exempt status.  
3. Certain types of information that the IRS allows to be withheld. Among others, this may include trade secrets, patents, processes, styles of work, and national defense material.  

It is incredibly important to be compliant with the required disclosure rules. In the case of noncompliance,  key person of a nonprofit operating under §501(c)(3) of the Internal Revenue Code may be fined $20 for each day of noncompliance, and up to a maximum of $10,000. If the failure to comply was willful, the key person may face a penalty of $5,000 per return or application.  

Another type of required disclosures for a nonprofit organization are known as quid pro quo disclosures. Here, a donor makes a contribution to the organization, and they receive a good or service in return for their donation. If the donation made is in excess of $75 and the donor is given something in return, the nonprofit must disclose the value of that item or service to the donor. The disclosure to the donor may be in the form of a short letter informing the donor of the value of the item they received, and the subsequent value of their donation.  Quid pro quo donations are important to keep track of and disclose for both the nonprofit receiving the donation and the donor. Donors may only claim a deduction for the amount they contributed above the amount of the goods or services they received. In other words, the value of the item received by the donor must be subtracted from the value of the donation. The amount leftover is the amount that the donor may claim for their charitable contribution. Correct calculations are vital; if a nonprofit gives a donor inaccurate documentation of the value of their donation, they will deduct the wring amount on their tax returns. Additionally, nonprofits will face fines for supplying the wrong documentation. Noncompliance is a lose-lose for all parties involved.  

Some exceptions to the Required Disclosures rule of providing documentation for donations exist. These are: 

1. Tokens. Tokens are insubstantial goods or services that a nonprofit provides to donors in exchange for contributions. Because of their low value, no documentation is not necessary.  
2. Annually recurring rights or privileges provided as membership benefit. Documentation is not necessary so long as the payment is $75 or less.  
3. Religious benefits. Examples include admission to a religious ceremony or small tangible benefits, such as wine used during a religious ceremony.  

If a donor is not given an item or service in exchange for their donation, there is no disclosure requirement. But a donor will not be able to claim a tax deduction for any contribution unless they maintain a record of the contribution in the form of a bank record or a written contribution from the charity. Furthermore, a donor will be unable to claim a tax deduction for any single contribution of $250 or more without a written acknowledgement from the nonprofit organization. For these reasons, it is best practice for a nonprofit organization to provide donors with a written acknowledgement. A written acknowledgement should include the name of the organization, the date of the contribution, the cash contribution amount, and a description of any noncash contributions. It is not necessary to include the value of noncash contributions. An acknowledgment can be in the form of a hard copy or an email. In general, it is best to send a written acknowledgement to donors in time for them to file their individual federal tax return.  

Additionally, as a §501(c)(3) corporation, a written acknowledgement is required for donors if they make a single contribution of $250 or more in the form of unreimbursed contributions. Any amount less than $250 does not require a written acknowledgement to claim a deduction. For unreimbursed expenses, a written acknowledgement letter should include a description of the services provided by the donor and a description and estimate of the value of any goods or services that the organization provided in return for the contribution.  

One final required disclosure that a §501(c)(3) corporation should be aware of relates to goods and services that are available free from the government. If the organization offers to sell goods and services that the federal government provides for free, the organization must disclose that fact. The disclosure must be conspicuous and easily recognizable. If the organization operates a website, posting the disclosure there would be appropriate.  

Contact Hedgeman Law with any questions about required disclosures.