Exempt Organizations Update: What's Hot In Washington June, 1998 James J. McGovern KPMG Peat Marwick LLP Exempt Organizations Tax Practice (EXOTAX) c 1998 KPMG Peat Marwick LLP Where are the Regs? The exempt organizations community is anxiously awaiting proposed regulations on the intermediate sanctions provisions and final regulations on the public disclosure provisions. Word has it that the intermediate sanctions regulations will be issued this summer -- most likely in time for the American Bar Association Tax Section meeting on July 30. The final public disclosure regulations are expected to follow in the fall. The proposed regulations require that copies of the annual return and exemption application be provided immediately upon personal request or within 30 days of any written request, without charge other than a reasonable fee for reproduction and mailing costs. They are backed by significantly increased penalties. The new disclosure rules will not become effective until 60 days after final regs are published. Ogden Service Center Tightens Form 990 Compliance Oversight Penalties for failure to file a timely or complete Form 990 return were significantly increased in the same legislation that amended the public disclosure rules. The penalty is now $20 a day, with a maximum penalty of the lesser of $10,000, or 5 percent of the organization's gross receipts. The penalty for organizations with annual gross receipts exceeding $1 million was increased to $100 a day, with a maximum penalty of $50,000. These increased penalties became effective on July 30, 1996. Subsequent to the increase in penalties, the IRS consolidated the processing of Form 990 returns from seven different Service Centers to the Service Center at Ogden, Utah. The consolidation is enabling the IRS to build expertise with respect to Form 990 processing, oversee compliance, and generate revenue by penalizing those who fail to comply with the new rules. In this context, an IRS official recently stated that full-time exempt organizations revenue agents will be assigned to Ogden to assist in handling exempt organizations returns processing and other matters, such as claims for refunds, that are currently sent to the key district offices for consideration. There are early indications that Ogden officials are far more conservatively construing the "reasonable cause" exception from the late filing penalties than their brethren previously did. This, combined with penalty increases, means that some exempts are currently facing significant penalties for failing to file or for filing late returns. The information contained herein is general in nature and based on authorities that are subject to change. Applicability to specific situations is to be determined through consultation with your tax advisor.