Yes, You Do Have to Show Your Nonprofit Tax Returns to Anyone Who Asks, No Matter What.

Anyone. Without questions or delay. But you knew that already. Right?

Money makes people nervous. Especially tax records. It is no different in the nonprofit arts world now as it was for Al Capone, who was finally imprisoned for tax evasion.

I understand the notion of keeping your finances under wraps. But you can’t, both literally and strategically.

Literally, you have to. According to a fact-checked document from findlaw.com:

Do 501(c)(3) Nonprofit Corporations Have to Make their Financial Statements Available to the Public?

Yes. Nonprofit corporations must submit their financial statements, which include the salaries of directors, officers and key employees to the IRS on Form 990 as mentioned above. Both the IRS and the nonprofit corporation are required to disclose the information they provide on Form 990 to the public. This means that nonprofits must make their records available for public inspection during regular business hours at their principal office.

In addition, a number of websites make these financial statements available including GuideStar and the Foundation Center [author’s note: Guidestar and the Foundation Center have merged into one company called Candid]. Finally, you can request a Form 990 from a specific nonprofit corporation by writing to the IRS, including the name of the organization and the tax year you wish to review:

Commissioner of Internal Revenue / Attn: Freedom of Information Reading Room/ 1111 Constitution Avenue, NW / Washington, DC 20224

So yes, you have to make your financial statements available. For anyone. At any time. Without question. Absolutely, when they come to your offices. And you can’t make them sign anything or return them; in fact, if you do, it raises red flags. If you’re curious, you can ask the requestor why, but you can’t withhold the information, so you might as well not open that particular can of obstructionist worms.

And yes, if you’re a 501(C)(3), you have to disclose your donors as well, regardless of what you may have casually read in the press. This, from The National Law Review:

The Final Regulations largely adhere to the proposed regulations issued in September 2019 (the “Proposed Regulations”) and provide that tax-exempt organizations other than section 501(c)(3) charitable organizations, such as section 501(c)(4) social welfare organizations and section 501(c)(6) trade associations, are no longer required to annually disclose the names and addresses of “substantial contributors” (those contributing $5,000 or more) on Schedule B of their Forms 990 or 990-EZ. The Final Regulations confirm, however, that all tax-exempt organizations must continue to report the amounts of contributions from each substantial contributor and maintain the names and addresses of such contributors in their books and records, should the IRS request this information at a later date. Moreover, the revised disclosure rule does not extend to section 501(c)(3) charitable organizations or section 527 political organizations, and such organizations must continue to disclose the names and addresses of substantial donors on annual information returns.

So you can’t white them out on your tax return, either, even though I’ve seen it done during my research activities on several occasions. Illegal, as far as I can tell, for 501(C)(3) corporations.

Why can anyone see your financials?

Because you’re not the owner of your nonprofit; everyone is. The board is there as representatives of your community, not as owners themselves. And you have to show the books to the owners, don’t you?

In fact, it serves you to show the books.

Be completely transparent to the public. Make the strategic decision to make your most recent 990 (or any of the various forms of the 990) available on your website, even if your company showed a financial loss. It is not an embarrassment or a failure to lose money when you’re a nonprofit. It’s a nonprofit, and money is not the bottom line.

However, the embarrassment or failure of not providing services (and impact) is real. And if your financials reveal a lack of quantifiable impact on your community and its underserved, then you have a bigger problem than your executive director making too much money, your lack of disclosure of any conflicts of interest, or your donors’ gifts.

By questioning anyone who wants/has a right to see your financials, you sound alarm bells about the company’s efficacy, manner of business, integrity, and accountability. So get ahead of it and post it yourself, even if it’s bad news (to you). At the very least, don’t make them have to come to your office; email it upon request. It’s public information.

And don’t get annoyed when someone asks. That person wants to know more about your nonprofit arts organization. That’s a good thing.

Based in Kirkland, Washington, Alan Harrison is a writer and speaker specializing in nonprofit organizations, strategy, the arts, and life politics. His columns appear regularly in ArtsJournal and other major publications. Contact him directly at alan@501c3.guru.

If you’re feeling generous or inspired, just click on the coffee cup above. You don’t have to, of course, but if you can afford it and find some value here, please provide the desperate need for caffeine.

Alan is always looking for good opportunities to write and consult for nonprofits that need a hand. And, of course, that elusive Perfect Opportunity™.

BIG NEWS: Alan’s new book, “Scene Change: Why Today’s Nonprofit Arts Organizations Have to Stop Producing Art and Start Producing Impact” will be published in January. CLICK HERE TO PRE-ORDER IN THE UNITED STATES. If you live in the UK, CLICK HERE. In other countries, just give the bookseller the ISBN: 978-1-80341-446-1. They'll know what to do.

A few advance copies may be made available for those booking conferences, reading engagements, and speaking engagements. Recruit your local bookstore, conference panel, or boardroom to get a visit from Alan. Get on it! (Please.)

Let Alan know if you want bulk copies for your board!