April 27, 2021
New York State requires some exempt organizations to file additional reports by May 15
As a result of changes made to New York's Executive Law, certain nonprofits in the state must file an annual financial report, a funding disclosure report and/or a financial disclosure report by May 15, 2021.
Annual financial reports
Executive Law Section 172-b now requires charitable organizations to file an annual financial report with the New York Department of State if they (1) solicit charitable contributions in New York and are registered with the New York Office of Attorney General, (2) file Form CHAR500 with the Charities Bureau of the Attorney General's Office, and (3) have total revenue and support of $250,000 or more. All required forms and attachments must be included, along with a $25 filing fee.
Although the forms and attachments must be filed online, the filing fee cannot be paid electronically. The state notes that online filing is now available for all financial reports through the New York Department of State's website. Each filer needs a NY.gov account, which may be created through https://my.ny.gov. For more information, taxpayers may review the state's frequently asked questions (FAQs) and applicable proposed regulations (19 NYCRR, Chapter IV, Part 146.1 — 146.10), issued in February 2021. The Department of State website, available here, contains the proposed regulations.
In addition, separate filings for affiliated organizations must be completed, as neither the statute nor the proposed regulations to allow consolidated filings with the New York Department of State. This differs from the filing requirements for the Charities Bureau, where consolidated filings are permitted.
The report is due by the 15th day of the fifth month after the close of the organization's fiscal year. However, neither the new law nor the proposed regulations grant an automatic six-month extension for the New York Department of State filing. The Charities Bureau filing is still permitted to use the automatic extension.
Funding disclosure reports
Under Executive Law Section 172-e, certain IRC Section 501(c)(3) organizations must file a funding disclosure report with the New York Department of State and submit a $25 filing fee if they make in-kind donations over $10,000 (previously $2,500) within a six-month period to certain IRC Section 501(c)(4) social welfare organizations that engage in New York State-specific lobbying activities. The report must be submitted within 30 days of the end of the close of the reporting period, which is January 1 through June 30 or July 1 through December 31.
An IRC Section 501(c)(3) entity must include with the funding disclosure report: (1) the identity of the IRC Section 501(c)(4) entity receiving the in-kind donation; (2) the names of those managing the IRC Section 501(c)(3) entity; (3) the date of the donation; and (4) a description of the donation and any restrictions placed on how the donation may be used. IRS Form 990 Schedule B must also accompany the funding disclosure report, even when the entity is not required to submit the form to the IRS.
If the IRC Section 501(c)(3) entity believes that the requirement to publicly disclose the report will result in harm to the donor (e.g., threats, harassment, reprisals), the exempt organization may assert the relevant facts in a statement submitted to the Department of State.
Financial disclosure reports
Under Executive Law Section 172-f, an IRC Section 501(c)(4) organization must file a financial disclosure report with the New York Department of State and remit a $25 filing fee if its expenditures for communications delivered to 500 or more members of the general public, in the aggregate, exceed a fair market value of $10,000 in a calendar year. The targeted communications include any messaging that either supports or opposes (1) a clearly identified elected official, (2) proposed legislation, or (3) actions by an elected official, executive or administrative body or legislative body. The report must be submitted within 30 days of the close of the reporting period, which is the same as the funding disclosure report, January 1 through June 30 or July 1 through December 31.
Within the financial disclosure report, a qualifying IRC Section 501(c)(4) entity must include: (1) the names of the individuals managing the IRC Section 501(c)(4) entity; (2) a detailed description of the communication used; (3) the amount paid for the communication, to whom the amount was paid, and the date of payment; and (4) details on any restricted donations received for the communication, including donor identification, date and amount of donation, and details regarding the restriction. Again, IRS Form 990 Schedule B must accompany the financial disclosure report whether or not the form must be filed with the IRS.
Similar to the funding disclosure report, the IRC Section 501(c)(4) organization may submit a statement to the Department of State explaining the relevant facts if it has reason to believe that public disclosure of the financial disclosure report will harm a donor.
Statement of relevant facts
If an entity fails to provide the Department of State with a statement of relevant facts explaining why public disclosure of a financial disclosure report or funding disclosure report would cause harm, Part 146.10 in the regulations authorizes the Secretary of State to publish the report on its website, along with the organization's mission statement. The names and addresses of individual donors will not be published, nor will the filing entity's Form 990 Schedule B.
The additional filing requirements signal an intent to scrutinize certain activities, including political messaging aimed at the general public, that certain exempt organizations are generally prohibited from performing. Organizations that derive their exemption under IRC Section 501(c)(3) should take special care with any public-facing messages the organization makes that could be considered political in nature. These additional filing requirements also serve to provide the state government with an expanded database of information that it can use to better identify exempt organizations engaging in these activities. This is especially true for in-kind donations, which are not captured on Form CHAR500.
As it becomes more feasible for state governments to employ big-data techniques to analyze exempt-organization filings, the request for more information from organizations through these filings will continue. Exempt organizations should consider preparing themselves for a greater compliance burden and additional reporting requirements at the state level.
Please contact your EO professional for further information.