The tax man giveth, and he taketh away. The same 1998 tax changes that permanently reinstated the full deduction for gifts of appreciated stock to private foundations also require foundations to comply with the more extensive public disclosure rules previously applied only to public charities and other tax-exempt organizations. (For a detailed discussion of these rules and the debate over their application to private foundations, see “Public Disclosure Requirements for Private Foundations” in the May-June 1998 issue of Philanthropy.)
Under the old rules, in place since 1969, a private foundation was required only to publish a notice when it filed its Form 990, in a newspaper of general circulation in the county where its principal office is located, then make the return available for public inspection for 180 days. And that was pretty much it. Foundations were not required to honor requests for inspection made after this 180-day period, to disclose any past-year returns, or to provide copies of returns.
The new disclosure rules generally subject private foundations, including nonexempt charitable trusts described in Code section 4947(a)(1), to the same disclosure rules as other exempt organizations.
Specifically, foundations must now provide copies of their applications for tax exemption (Forms 1023) and their three most recent Forms 990-PF without charge (other than a reasonable fee for copying and mailing), within 30 days of a written request—or immediately upon an in-person request. A foundation need not comply with requests (other than from the press) for copies of its application or returns if it has made the documents “widely available,” such as by posting them on a web site. In one significant contrast to the rules for public charities, the 1998 Act requires private foundations to disclose the names and addresses of contributors.
On the plus side, the Act repealed the longstanding requirement that private foundations must annually publish a notice in a newspaper advertising that their information returns (Forms 990-PF) are available for public inspection.
The 1998 Act amendments will become effective for private foundation information returns with due dates falling 60 days after the issuance of implementing regulations, and for document requests made after that date. IRS and Treasury officials have publicly stated that they had hoped to issue the final regulations shortly, but it is anything but clear whether this goal will be met. Still, private foundations should prepare for an increase in the number of requests to review their information returns and exemption applications, and consider ways to ensure that these very public documents present the foundation in the most favorable light.
Richard A. Speizman is a partner, and Vivian Moore is a senior manager, in the Exempt Organizations Tax Practice of KPMG Peat Marwick LLP. For more information on the contents of this article or the services KPMG provides to private foundations, please contact Mr. Speizman at (202)467-3814.