Q&A #134 – Are pending applications for tax-exempt status subject to public disclosure requirements?

Question: I am the founder of a new nonprofit organization that recently submitted its Form 1023 application for 501(c)(3) status, and we are currently awaiting approval by the IRS. We recently received a request to see a copy of our Form 1023 application from an individual we do not know. Are we required to honor this request?

Answer: A tax-exempt organization is generally required, upon request, to make its application for tax-exempt status available for public inspection and copying (this includes the Form 1023, Form 1023-EZ, Form 1024, or Form 1024-A, as well as all supporting documents and related correspondence with the IRS). However, this requirement does not apply to applications that have not yet been approved by the IRS, so applications in “pending” status are not required to be disclosed.

Pending applications are explicitly carved out from the public disclosure requirements in Treas. Reg. § 301.6104(d)-1(b)(3)(iii), which provides an exception for applications for tax-exempt status made “by an organization that the Internal Revenue Service has not yet recognized, on the basis of the application, as exempt from taxation under section 501 for any taxable year.”

Notice that this treatment differs from the requirement to make three years of Forms 990 and certain related federal tax filings available for public inspection and copying, which applies immediately as soon as the organization files these documents with the IRS, without regard to when the IRS processes the filings.

Planning Tip – When responding to requests for documents from the public, it is important that a nonprofit organization have a policy for the selection and approval of the documents that it provides in response to these requests. Consider requiring two levels of approval within the organization (including the approval of the Executive Director, Chief Operating Officer, or similar high-level management position) before providing any documents that are not already made publicly available on the organization’s website. It is easy to mistakenly disclose donor information or other sensitive materials, whether inadvertently or due to lack of familiarity with the documents and/or the relevant compliance rules. These mistakes are more likely when an organization relies on a single staff member or volunteer Board member to respond to these requests.

You may wish to voluntarily provide a copy of your organization’s Form 1023 to potential grantors, fiscal sponsors, donors, and others in a position to help the organization while it is awaiting approval of 501(c)(3) status, and there is no restriction on your choice to do so. If you do, it would be advisable to clearly mark each page as “submitted to IRS and pending approval” or with some other similar notice. However, public disclosure of your application for tax-exempt status is not required until you have received an official approval letter from the IRS.

If you have a question you would like to submit to SE4N, send it to us using the contact form and we will consider answering it in a future post. Please do not send confidential information.

You might also be interested in:

Three Steps to Be Better Prepared for Public Disclosure Requests

What I Look For When Deciding to Donate: An Attorney’s Perspective