Tax-Exempt Organizations 101

During this year’s election season, controversy arose regarding disclosure requirements for tax-exempt organizations that spend money on political advertisements. In particular, the Chamber of Commerce and the identity (or lack thereof) of its donors came under scrutiny.

This debate is just the tip of the iceberg in a very important area: government regulation and oversight of tax-exempt organizations. Organizations that are created under Section 501(c)(3) and related provisions of the Internal Revenue Code are generally exempt from paying federal income taxes, and under Massachusetts law, they are also generally exempt from paying state and local taxes. In other words, we have decided as a society that certain types of organizations are worthy of public support and should be excused from paying the taxes they would otherwise owe.

Massachusetts’s regulation and oversight of tax-exempt organizations raises a host of interesting questions that I will be highlighting in a series of posts. As a starting point, I want to describe some of the resources that are available to members of the public who are interested in learning more about the operations of particular organizations.

Tax-exempt organizations are generally required to file Form 990 annually with the IRS. (Organizations that normally have less than $25,000 in annual gross receipts are not required to file but many still do so.) Form 990 provides information about an organization’s income, expenses, and activities for the year, including the compensation of its officers, directors, and highest paid employees. If an organization has more than $1,000 in income from so-called unrelated trade or business in a given year, it is also required to file Form 990-T, which requests detailed information about such income. (The rules governing the taxability of unrelated trade or business income are highly complex; such income is generally taxable but exceptions may apply.)

The most recently filed Forms 990 and 990-T for tax-exempt organizations are made available to the public through a website called Guidestar (which requires a very brief registration process). You can type in the name of an organization (such as “Pioneer Institute”) and view the most recent information that the organization filed with the IRS.

Additionally, the Massachusetts Attorney General requires that charitable organizations operating in the state annually file Form PC, which requests information such as the amount the organization paid its five most highly compensated professional consultants and the banks where it maintains accounts. If an organization received more than $200,000 in gross support and revenue in a given year, the organization also must file reviewed or audited financial statements with the AG’s office. All of the filings that the AG’s office has received from an organization, including copies of its federal Forms 990 and in some cases its articles of incorporation and bylaws, are available to the public on the AG’s website. (Also, the Secretary of State makes available the forms that non-profit corporations are required to file with it, but these filings are less comprehensive than those on the AG’s website.)

I recommend that you incorporate some time on these websites into your daily Internet browsing and would be curious to hear if you discover anything interesting.