By TOM HERMAN
Staff Reporter of THE WALL STREET JOURNAL
April 9, 1999
Detailed financial information about many
nonprofit groups will soon become easier to get because of new
Internal Revenue Service regulations.
The new rules, to be printed Friday in the
Federal Register, will require colleges, universities, hospitals,
publicly supported charities and other tax-exempt organizations
to provide, on request, copies of their most recent financial
filings. These forms, which are filed annually with the IRS, contain
information about executive salaries and other sensitive details.
Currently, tax-exempt groups are required only to make their forms
available for public "inspection" at their offices.
"The new rules, backed by significantly
increased penalties, will lead to sharply increased scrutiny and
a higher level of accountability for the nation's nonprofit organizations,"
said James J. McGovern, a former assistant IRS commissioner for
employee plans and tax-exempt organizations. Mr. McGovern, now
a principal at KPMG in Washington, called the rules "big
news for the nonprofit community," and for anyone interested
in learning more out about many tax-exempt organizations.
These new regulations will implement a 1996
law enacted after widespread complaints that people were having
trouble gaining access to Form 990s, which are filed annually
by many groups, as well as to applications for tax-exempt status.
The regulations, which include stiff penalties for tax-exempt
groups that fail to comply, will be effective June 8, an IRS spokesman
Tax experts who have pored over the new IRS
regulations predicted many nonprofit groups will react by posting
the information on the Internet. That would be a major improvement
over the current morass, which has effectively allowed secretive
groups to shield their operations from public scrutiny. People
who have wanted the information often have had to make a personal
trek to a nonprofit group's office and then laboriously hand-copy
"People might have to travel from one
part of the country to another to inspect a Form 990, and that
caused great inconvenience and cost," said Victoria Bjorklund,
a partner at New York law firm Simpson Thacher & Bartlett
and a specialist in tax-exempt organizations law.
The new regulations lay out detailed requirements
for making copies of the information available to the public.
Mr. McGovern of KPMG said these new rules "will require that
copies of the three most recent annual returns and the exemption
application be provided immediately, upon personal request, or
within 30 days of any written request, without charge, other than
a reasonable fee for reproduction and mailing costs."
The new rules will be waived for organizations
that post their documents on the Internet in a prescribed way.
Once executives become familiar with these rules, "they will
understand the most cost-effective way to comply is by posting
their returns on the Internet," said Mr. McGovern.
There are also special rules to protect groups
against harassment campaigns.
The new regulations won't apply to private
foundations, at least not yet. Private foundations weren't covered
by the 1996 law, but they are covered by a 1998 law. The Treasury
plans to issue proposed regulations covering private foundations,
and final rules won't become effective until 60 days after those
regulations are issued in final form.
Lloyd Mayer, a lawyer at Caplin & Drysdale
in Washington, said the new regulations provide "an easy
process to report failures to provide the information to IRS officials."
He added that because of the new regulations, many people, including
watchdog organizations and the media, will be able to gain "ready
access to recent financial information" about the nonprofit
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