Do You Have to Show Financial Records?

A question I am often asked by nonprofits is whether or not you have to show people your financial or other nonprofit records when asked. While you may have to share some items, you don’t have to share everything. Read Chisholm Law Firm’s blog to learn more.

The Public Disclosure Rule

The Public Disclosure Rule is a rule promulgated by the IRS that tells you when you need to share your nonprofit’s information with someone that asks from the general public. The rules say that when someone asks, tax-exempt organizations must make certain documents available to the public for inspection.

Here are the documents that you have to make available:

1. Application for Tax-exemption
2. IRS Determination letter
3. Last 3 filed nonprofit annual returns

You can only charge the person that asks to see the records for copies – but you cannot charge them for the right to inspect. You don’t have to provide the actual information that you used to prepare the documents, just the documents you filed.

What You Must Share

Since there are three documents that you must make available to the public if someone asks, let’s go over what those three documents are.

Application for Tax-Exemption

You must provide the actual application you filed with the IRS to obtain tax-exempt status. You will need to provide this paperwork in addition to any addendum you submitted or letters received from the IRS.

IRS Determination Letter

The IRS determination letter is what the IRS provides you with once your nonprofit is approved, stating that you officially have tax-exempt status. It’s best practice to keep this on file for public requests and since most grants and funding opportunities require a copy of it.

Filed Nonprofit Annual Returns

An annual return is the paperwork you file with the IRS, and at the federal level, it refers to your tax returns. On the state level, you may have to renew your tax-exempt registration, fundraising registration, and an annual report. You can learn more from reading our blog. 

The Importance of Transparency

Transparency is vital when it comes to your nonprofit. Sharing these documents with the public preserves the trust and relationship between you and your donors. It holds you accountable to the people you serve.

Your staff and volunteers will also appreciate the transparency with regards to your nonprofit’s finances. Being honest and accountable to the people around you will create a positive work environment that is crucial to your success and nonprofit’s reputation.

Opening yourself up for public requests of your records will help solidify your nonprofit’s place in the community. People will be more likely to come to you for assistance if they know that you are open to being held accountable. You can find an example of a Public Reporting and Transparency Policy at the National Counsel of Nonprofit’s website.

More Ways to Be Transparent

Your transparency should not stop with providing any requested documents. By going above and beyond in building trust with your donors and community, you can get closer to reaching your nonprofit’s goals.

Here are some more ways you can demonstrate transparency:

• Be honest when soliciting donations
• Communicate clearly with donors about how their gifts will be or have been used
• Adopt a conflict of interest policy 
• Implement sound financial management policies
• State your tax-exempt status on your website
• Appropriately respond to people who request to see 

Being transparent about your nonprofit and its finances allows for others to hold you accountable if your organization starts to drift from its original purpose. Accountability is ultimately a welcome necessity for growing your nonprofit.

Speak to an Expert

When looking at public requests for information and the documents you are required to share, it’s crucial to ensure that everything is set up the way it should be. For that reason, you should speak with an expert who can help you get all your ducks in a row.

Chisholm Law Firm has helped thousands of people start and grow nonprofits that impact the world. If you want the best for your nonprofit, look no further than Chisholm Law Firm. Our clients have a 100% success rate for nonprofit and trademark filings*.

You can rest assured that your nonprofit is in the best hands and that we’ll get everything done right the first time. Call us today to schedule your free consultation.

It shouldn’t be this hard to be a superhero. 

*Past results do not determine future outcomes.