IRS Disclosure of Tax-Exempt Organization Information to State Officials

Last week, the Treasury and the IRS published final regulations providing guidance to states on how they can obtain certain returns and return information from the IRS for use in administering state laws governing tax-exempt organizations and their activities. The new rules amend the type of information as well as the timing by which the IRS may disclose such information to the states. This information will assist states with enforcement of their own regulations and compliance requirements (specifically those relating to the solicitation of fundraising contributions).

Under the new regulations, which reflect changes made to IRC § 6104(c) by the Pension Protection Act of 2006, the IRS may now disclose information to appropriate state officers, such as the attorney general or tax officers, about its plans to revoke or deny an organization’s tax-exempt status or issue a notice of proposed deficiency before its plans are finalized. Previously, the IRS could only notify states after a final decision was issued. Further, the IRS may now disclose information related to applicants for tax-exempt status, including names, addresses, and taxpayer identification numbers of such entities/organizations. Subject to certain confidentiality and disclosure requirements, this information may be disclosed upon written request from an appropriate state officer or without written request where the IRS determines the information may constitute evidence of noncompliance with state law.

Now that state officers have increased and advance access to information about both applicants for and recipients of tax-exempt status, they will be better positioned to investigate these organizations themselves. We should anticipate an increase in state oversight of tax-exempt organizations in the months/years to follow.

Final regulations: 2022-17574.pdf (federalregister.gov)