You asked: (1) if federal or state law authorizes individuals to inspect a charitable organization's books, (2) what information charities must be file with the federal Internal Revenue Service and the state Public Charities Unit, and (3) if state law could require organizations to allow donors to inspect their records and recover any donation used inappropriately.

SUMMARY

Donors do not have a blanket right to inspect the records of a charitable organization under either federal or state law. But both federal and state laws give the right to inspect required annual informational reports about a charity. The reports describe a charity's finances, including income, expenditures, assets, and liabilities. The law exempts some types of charities from the informational reporting requirement and from the law requiring charities to register with the state.

We cannot identify any legal reason why the legislature could not require charities to allow donors to inspect their books and return donations that were spent inappropriately. There are different ways this could be accomplished.

ANNUAL FINANCIAL INFORMATION REPORTING

Federal and state law both require charities to make detailed annual reports about their income, expenses, and assets. These annual reports are available for a copying fee from the charity, the federal Internal Revenue Service, and the state Public Charities Unit, jointly operated by the Office of the Attorney General and the Department of Consumer Protection.

Federal Requirements

Federal law generally requires charities, in order to maintain their tax-exempt status, to file an annual information return (Form 990). An organization that normally expects to receive less than $ 25,000 annually is exempt. Charities must report revenue, including: direct public contributions, indirect public contributions, government grants, program service revenue, interest and dividend income, and revenue from asset sales and events. They must report expenses, including: rent paid, program costs, management costs, fundraising costs, and payments to affiliates. Further, charities must give an accounting of their assets, including cash, grants and pledges receivable, fund balances, inventories for sale or use, investments, and real property. Similarly, charities must account for their debts, including accounts and grants payable, loans, mortgages, and dedicated support and revenue. In addition, charities must report the compensation paid to its five highest paid employees. Form 990 states that it is available for public inspection and can serve as the primary or sole source of information about a particular organization.

Federal law requires, with limited exceptions, charities exempt from taxation under Section 501 of the Internal Revenue Code to make their application for exemption and their annual information return available for public inspection at no charge. Further, they must provide copies of both documents without charge, except for a reasonable copying fee and actual postage (26 CFR § 301. 6104(d)-1(a).

State Requirements

State law requires charities, with a few exemptions, to register with the Department of Consumer Protection and requires registered charities to file an annual financial report. The law authorizes the consumer protection commissioner to accept a copy of the financial statements, reports, or returned filed with the Internal Revenue Service (CGS § 21a-

190c). Charities with gross revenues over $ 200,000 in the reporting year must file an audit report prepared by a certified public accountant with its financial statement.

The law exempts from registration and financial disclosure requirements charities that are:

1. duly organized religious organizations,

2. educational institutions or parent-teacher associations,

3. nonprofit hospitals,

4. governmental instrumentalities, or

5. organizations that normally receive less than $ 50,000 annually (CGS § 21a-190d).

RECORD INSPECTION AND INAPPROPRIATELY SPENT DONATIONS

We know of no legal reason why the legislature could not require charities to open their books to donors and to return any donation used inappropriately. There are different ways this could be accomplished. The law could establish a private right of action if a charity failed to open its books or to return a donation. This may approach may help only those donors whose donation was large enough to make a lawsuit worthwhile.

Another approach may be to make failing to return an amount equal to an inappropriately spent donation a violation of the Solicitation of Charitable Funds Act. The act already prohibits charities from doing similar activities. These are, among other prohibited activities:

1. misrepresenting the purpose of the charity or beneficiary of the solicitation,

2. engaging in a financial transaction that is unrelated or interferes with the accomplishment of the purpose of the charity, and

3. spending an unreasonable amount for solicitation or management (CGS § 21a-190h).

A charity that violates the act is subject to registration revocation or suspension. The law authorizes the consumer protection commissioner to accept a written assurance of compliance in lieu of taking a disciplinary action if he believes doing so would serve the public interest (CGS § 21a-190l).

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