Three Steps to Be Better Prepared for Public Disclosure Requests
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How a nonprofit organization responds to public disclosure requests provides a clear window to its commitment to accountability and transparency. However, many organizations are insufficiently prepared to respond to requests for documents. This can lead to compliance failures and/or inadvertently sharing sensitive information that was not required to be disclosed.
The following three steps will help your organization avoid these errors and be more ready to handle requests for documents:
Step 1 – Make sure your organization’s policies and procedures reflect the applicable public disclosure rules.
As a starting point, it is crucial to become familiar with the tax rules governing public disclosure and reflect these rules in your organization’s policies and procedures, e.g., the record retention and destruction policy. As summarized on the IRS website, tax-exempt organizations are generally required to make available copies of the organization’s most recent Forms 990 as well as the organization’s application for tax-exemption (Form 1023 or Form 1024), and certain related documents. See Internal Revenue Code § 6104 and the Treasury Regulations issued thereunder. Note that merely pointing inquiries to GuideStar or similar public databases does not necessarily satisfy the rules, and that additional requirements may apply at the state level, particularly to membership organizations.
Nonprofits must be aware of the documents they are required to maintain, the applicable deadlines for responding to public requests, options for formats used to provide the documents, and the permissibility of charging for reimbursement of expenses such as printing and mailing costs. Reflecting these requirements in your internal policies and procedures helps to reinforce the rules and avoid compliance failures.
Step 2 – Respond thoughtfully to Part VI, Section C of the Form 990.
Lines 18 and 19 of Part VI, Section C of the Form 990 provide key information to the IRS and the public about what information the organization makes available to the public and how it does so. Many organizations default to answering these questions very broadly, stating that all the documents referenced (including the organization’s governing documents, conflict of interest policy, and financial statements) are provided “upon request” and/or on the organization’s website.
While this high level of transparency is generally considered positive, you may wish to take a more limited approach with respect to documents your organization is not legally obligated to provide to the public. Moreover, failure to adhere to disclosure policies you chose to state in your Form 990 will reflect more poorly on your organization than if you had chosen to take a more limited approach in the first place. Thus, it is important to think through the consequences of these responses before the Form 990 is submitted.
Step 3 – Have a process for responding to requests.
The process of responding to public requests for documents can be surprisingly complicated. Some of the issues that need to be considered include which staff members or organization officials are authorized to respond, which inquiries are referred to the organization’s legal counsel, whether your organization insists on mailing hard copies vs. sending digital files, and (if digital files are sent) which platform is used for transmitting the files and whether the files are image files vs. searchable PDFs. Thinking through these decision points in advance will help your organization avoid the type of rushed and chaotic response that tends to lead to errors.
Planning Tip – Maintain a special digital folder in the organization’s records with the documents that it provides in response to public requests, and make sure that metadata is removed from the files and sensitive information that is not required to be disclosed to the public (for example, identification of donors in the Form 990, Schedule B) is redacted. Having a separately identified public disclosure folder will mitigate the risk of inadvertently sharing internal copies of documents that may have confidential information buried within.
Whether your organization takes a very expansive approach to public disclosures or just provides the minimum required documents upon request, it is important to have thoughtful policies and procedures and think about how they will be implemented in practice.
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