The IRS has released final rules updating the information reporting requirements for tax-exempt organizations. These final rules adopt the proposed regs that were issued in September 2019 without substantive changes.
Background.
Generally, under Code Sec. 6033(a)(1), every organization exempt from taxation under Code Sec. 501(a) (“tax-exempt organizations”) must file an annual return (“annual return requirement”) stating specifically the items of gross income, receipts and disbursements, and such other information necessary to carry out the internal revenue laws that the IRS requires (“items required in the annual return”).
The annual return requirement also applies to certain political organizations (“section 527 organizations”) that have gross receipts of $25,000 or more for a tax year. (Code Sec. 6033(g)(1))
The IRS has the authority to relieve tax-exempt and section 527 organizations from reporting certain items required in the annual return if the IRS determines such filing is “not necessary to the efficient administration of the internal revenue laws.” (Code Sec. 6033(a)(3)(B) and Code Sec. 6033(g)(4), respectively)
Tax-exempt and section 527 organizations use Form 990, Return of Organization Exempt from Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, to provide the IRS with the items required in the annual return by Code Sec. 6033(a)(1). (Form 990, Instructions)
The IRS has exercised its authority under Code Sec. 6033(a)(3)(B) to relieve tax-exempt organizations of the requirements to include certain items required in the annual return through sub-regulatory guidance such as revenue procedures and annual information return instructions. Consistent with past exercises of this authority, the IRS issued Rev Proc 2018-38, 2018-31 IRB 280, which granted tax-exempt organizations, other than organizations described in Code Sec. 501(c)(3), relief from the requirement to report the names and addresses of contributors on Schedules B, “Schedule of Contributors,” filed with Form 990 or 990-EZ. (Preamble to Prop Reg REG-102508-16)
However, on July 30, 2019, a federal district judge set aside Rev Proc 2018-38 on procedural grounds because, in the court’s view, the notice and comment procedures of the Administrative Procedure Act (APA) applied and Rev Proc 2018-38 had not been subject to the required notice and comment. (Bullock, (DC MT 7/30/2019) 124 AFTR 2d 2019-5354) See District court: exempt org donor Rev Proc invalid; IRS failed notice and comment rule (08/01/2019).
On September 10, 2019, the IRS published proposed regs under Code Sec. 6033 (2019 proposed regs). The 2019 proposed regs included the following changes:
(1) Adding items listed in Code Sec. 6033(b)(10) and Code Sec. 6033(b)(11), as applicable, to the list of items generally required to be reported and adding other statutory reporting requirements for controlling organizations, sponsoring organizations, and supporting organizations;
(2) amending the gross receipts threshold (with an additional requirement for foreign organizations and United States possession organizations) that triggers a filing requirement under Code Sec. 6033 for tax-exempt organizations (other than private foundations and supporting organizations);
(3) clarifying that section 527 organizations with gross receipts greater than $25,000 generally are subject to the reporting requirements under Code Sec. 6033(a)(1) as if they were exempt from taxes under section 501(a); and
(4) specifying that only organizations described in Code Sec. 501(c)(3) and section 527 organizations generally would continue to be required to provide names and addresses of contributors on their Forms 990, Forms 990-EZ, and Forms 990-PF. (Preamble to Prop Reg REG-102508-16)
See Proposed reliance regs provide reporting relief for certain tax-exempt organizations (09/09/2019).
Final regs.
The final regs largely adopt the 2019 proposed regs without substantive changes.
Items required in annual information returns. The final regs adopt without change the provisions in the 2019 proposed regs that (1) amend Reg §1.6033-2(a)(2)(ii) by adding two new provisions to reflect information to be furnished annually that had been added to Code Sec. 6033(b) but that had not yet been added to the regs; and (2) incorporate the statutory reporting requirements found in Code Sec. 6033(h), Code Sec. 6033(k) and Code Sec. 6033(l).
Gross receipts filing threshold. The final regs adopt, without change, the 2019 proposed amendments to Reg §1.6033-2(g)(1)(iii), which (1) increase the gross receipts threshold for all organizations (other than private foundations and supporting organizations) formed in the U.S. to $50,000 (Reg §1.6033-2(g)(1)(iii)); and (2) incorporate the previously granted relief for foreign organizations and organizations formed in a U.S. possession (other than private foundations and supporting organizations) that is reflected in Rev Proc 2011-15, 2011-3 IRB 322. (Reg §1.6030-2(g)(1)(viii))
Reg §1.6033-2(g)(3) provides when the gross receipts of an organization are not more than $50,000.
The final regs, like the proposed regs, also provide the IRS with the authority to provide further relief (including further increases in the gross receipts filing threshold) through forms, instructions to forms, or guidance published in the IRB. (Reg §1.6033-2(g)(6))
Clarifying the treatment of section 527 organizations. The final regs, like the proposed regs, require section 527 organizations (subject to the filing exceptions provided by Code Sec. 6033(g)) to follow the reporting requirements under Code Sec. 6033(a)(1) in the same manner as tax-exempt organizations, except to the extent that the IRS revises those requirements as appropriate to carry out the purposes of Code Sec. 527. (Reg §1.6033-2(a)(5))
Reporting names and addresses of contributors. The final regs adopt the proposed amendments to Reg §1.6033-2(a)(2)(ii)(F). These amendments provide that organizations described in Code Sec. 501(c)(3) generally are required to provide names and addresses of contributors of more than $5,000 on their Forms 990, 990-EZ, and 990-PF. (Reg §1.6033-2(a)(2)(ii)(F))
Similarly, the final regs adopt the amendments to Reg §1.6033-2(a)(2)(iii)(D) that remove the requirement that tax-exempt organizations report the names of contributors who contribute, for a “specific charitable purpose,” over $1,000 to a social club or a fraternal organization. A specific charitable purpose is a religious, educational, scientific, literary, etc., purpose under Code Sec. 501(c)(3).
Section 527 organizations must continue to report the names and addresses of substantial contributors (contributors who contribute more than $5,000 in a tax year). (Reg §1.6033-2(a)(2)(iii)(D)(5))
The final regs also make various technical corrections to conform Reg §1.6033-2 to the paragraph structure in the current Code of Federal Regulations. (TD 9898)
Applicability dates.
Generally, Reg §1.6033-2 applies to returns filed on or after January 30, 2020. (Reg §1.6033-2(l)(1))
However, Reg §1.6033-2(a)(2)(ii)(F), Reg §1.6033-2(a)(2)(iii)(D)(1), Reg §1.6033-2(g)(1)(iii), Reg §1.6033-2(g)(1)(viii), and Reg §1.6033-2(g)(3) apply to returns filed after May 28, 2020, but an organization may choose to apply these sections to returns filed after September 6, 2019. (Reg §1.6033-2(l)(2))
Rev Proc 2018-38 is obsolete as of May 28, 2020. (TD 9898)
To continue your research on tax-exempt organization reporting requirements, see FTC 2d/FIN ¶S-2800 et seq.; United States Tax Reporter ¶60334.
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