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Private Foundations and Public Notice of the Availability of Annual Returns

Client Advisory

October 16, 2000
by M. Antoinette Thomas
New York State recently amended the Estates, Powers and Trusts Law ("EPTL") and the Not-For-Profit Corporation Law ("N-PCL") to require public notice of the availability for inspection of annual returns of private foundations.(1) Under section 6104(d) of the Internal Revenue Code ("Code"),(2) certain tax-exempt organizations(3) must make their annual returns available for public inspection. The amendments to the EPTL and N-PCL will require private foundations subject to section 6104(d) to also publish notice of the availability of their returns (Forms 990-PF) for inspection. The amendments are effective for all returns filed after January 1, 2001.

These New York amendments reinstate former Code publication requirements which were eliminated earlier this year when expanded federal disclosure requirements were imposed on private foundations. The terms of the new New York statutes are not consistent with the federal requirements.

Current section 6104(d): Publication of notice not required

Current Code section 6104(d), entitled "Public inspection of certain annual returns and applications for exemption," applies to tax-exempt organizations described in Code section 501(c) or (d). In general, it provides that a copy of the organization's annual federal return and all exemption application materials be made available for inspection at the organization's principal office during regular business hours. If the organization regularly maintains regional or district offices with three or more employees, the returns must also be available for inspection at these offices. Upon request, the organization must provide the requesting individual with a copy of the return and any exemption application materials without charge (other than copying and mailing costs). A request to inspect these copies can be made in person, in which case the copies must be provided immediately, or in writing, in which case the copies must be provided within thirty days. Copies need not be provided upon request if the information has been made widely available in accordance with Treasury regulations or if the Secretary determines the request for inspection is part of a harassment campaign and that compliance with the request is not in the public interest. Current section 6104(d) imposes a three-year limitation on the inspection of returns, which means that three years of returns must be available. This Code section was initially applicable only to non-private foundations and private foundations were subject to the requirements stated below. As of March 13, 2000, however, private foundations are now subject to these requirements.

Former section 6104(d): Publication of notice required

Former section 6104(d), entitled "Public inspection of private foundations' annual returns," provided that the annual federal return of any private foundation be made available by the managers of the foundation at the principal office during regular business hours for 180 days after the publication of notice of its availability. A notice of availability had to be published no later than the last day for filing the return in a newspaper of general circulation in the county in which the private foundation had its principal office. The notice had to state that the foundation's return was available for inspection at its principal office during regular business hours by anyone who requested it within 180 days of the publication. The address and telephone number of the foundation's principal office and the name of its principal manager were to be included in the published notice. These publication requirements were eliminated when the expanded disclosure discussed above was extended to private foundations.

Section 8-1.8 of the Estates, Powers & Trusts Law -- "Private Foundations: administration of certain trusts as defined in the United States Internal Revenue Code of 1954"

Under section 8-1.8 of the EPTL, a "trust" is defined as a private foundation in trust form as provided in section 509 of the Code. This section imposes on such private foundations the federal prohibitions against activities that would subject the private foundation to penalty taxes under the Code.

The amendment to section 8-1.8, effective for all returns filed after January 1, 2001, requires private foundations that are mandated by Code section 6104(d) to make their annual returns available for public inspection to publish notice of the availability of the returns for public inspection. According to the amendment, the notice must be published no later than the last day for filing the annual return, taking into consideration any extensions for filing that have been obtained. The clerk of the county in which the private foundation's principal office is located designates a newspaper with general circulation in the county as the newspaper in which the notice must be published. The published notice is required to state that the foundation's annual return is "available at its principal office for inspection during regular business hours by any citizen who requests it within one hundred eighty days after the date of such publication, and shall state the address and telephone number of the [foundation's] principal office and the name of its principal manager."

Section 406 of the Not-For-Profit Corporation Law

Section 406 of N-PCL applies to New York not-for-profit corporations that are also "private foundations" as defined in the Code. It sets forth a number of provisions that are automatically deemed to be included in the certificate of incorporation of every such private foundation in order to qualify for exemption and avoid penalty taxes under the Code.

The amendment to section 406 requires New York corporate private foundations which are mandated by 6104(d) of the Code to make their annual returns available for public inspection to also publish notice of the availability of the returns for public inspection. The terms for publication are the same as for trusts. The notice must be published no later than the last day for filing the annual return. The clerk of the county in which the private foundation's principal office is located designates a newspaper with general circulation in the county as the newspaper in which the notice must be published. The published notice is required to state that the foundation's annual return is "available at its principal office for inspection during regular business hours by any citizen who requests it within one hundred eighty days after the date of such publication, and shall state the address and telephone number of the private foundation's principal office and the name of its principal manager."

As a result of the two New York amendments, private foundations must again arrange and pay for the publication of a notice that their returns are available for inspection for 180 days, even though, under federal law, those returns (and more information) must be made available for three years, and even though nearly all exempt organizations are now subject to federal disclosure requirements. The amendments do not seem to serve a public purpose, and in discussions with a representative of the Attorney General's office, we learned that they were neither proposed nor even reviewed by that office prior to enactment. It is hoped that negative reaction to the amendments may lead to their repeal, but in the meantime, private foundations which are subject to New York law must comply.

Endnotes
. N.Y. Est. Powers & Trusts Law § 8-1.8 (McKinney 2000); N.Y. Not-For-Profit Corp. Law § 406 (McKinney 2000).

. I.R.C. § 6104(d) (1999). This section was amended to no longer require publication of the availability of annual returns for public inspection.

. Organizations described in subsection (c) or (d) of section 501 and exempt from taxation under section 501(a). I.R.C. § 6104(d) (1999).

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2017 Carter Ledyard & Milburn LLP.
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