[Federal Register Volume 87, Number 157 (Tuesday, August 16, 2022)]
[Rules and Regulations]
[Pages 50240-50246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17574]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9964]
RIN 1545-BI29


Disclosure of Information to State Officials Regarding Tax-Exempt 
Organizations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: These final regulations provide guidance to states regarding 
the process by which they may obtain or inspect certain returns and 
return information (including information about final and proposed 
denials and revocations of tax-exempt status) for the purpose of 
administering State laws governing certain tax-exempt organizations and 
their activities. The final regulations amend existing regulations to 
reflect changes to the Internal Revenue Code (Code) made by the Pension 
Protection Act of 2006 (PPA). The final regulations will affect the 
states choosing to obtain information from the IRS under these rules, 
as well as the organizations and taxable persons whose tax information 
is disclosed.

DATES: 
    Effective date: August 16, 2022.
    Applicability date: For the date of applicability, see Sec.  
301.6104(c)-1(k).

[[Page 50241]]


FOR FURTHER INFORMATION CONTACT: Seth Groman, (202) 317-5640 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

1. Overview

    This document contains amendments to 26 CFR part 301 under section 
6104(c), which replace current Sec.  301.6104(c)-1, which was issued in 
1971, amended in 1973 and 1981, and redesignated in 1982, in its 
entirety. Section 6104(c) was added to the Code by section 101(e) of 
the Tax Reform Act of 1969 (Pub. L. 91-172, 83 Stat. 523) and amended 
by section 1224(a) of the PPA of 2006 (Pub. L. 109-280, 120 Stat. 
1091). Section 6104(c), as amended by the PPA, governs the 
circumstances under which the IRS may disclose to State officials 
certain information about organizations described in section 501(c)(3) 
of the Code, including private foundations (charitable organizations), 
organizations that have applied for recognition as organizations 
described in section 501(c)(3) (applicants), certain other exempt 
organizations, and taxable persons.
    On March 15, 2011, the Department of the Treasury (Treasury 
Department) and the IRS published a notice of proposed rulemaking 
(NPRM) (REG-140108-08) in the Federal Register (76 FR 13932). No public 
hearing was requested or held. One comment letter on the NPRM was 
received. This Treasury decision adopts the NPRM with certain changes 
explained in the Summary of Comments and Explanation of Provisions.

2. PPA Amendments to Section 6104(c)

    Prior to the passage of the PPA, the IRS was authorized to share 
certain information with appropriate State officers (ASOs). Section 
6104(c)(1), which is unchanged by the PPA, directs the IRS to notify 
the ASO of (1) a refusal to recognize an entity as a charitable 
organization; (2) the operation of a charitable organization in a 
manner not meeting, or no longer meeting, the requirements of its 
exemption; and (3) the mailing of a notice of deficiency for any tax 
imposed under section 507 or chapter 41 or 42 of the Code. The 
directive to notify the ASO of an organization no longer meeting the 
requirements for exemption under section 501(c)(3) includes not only 
providing the ASO notice of a revocation of exemption, but also notice 
(when the IRS is so informed) that a charitable organization is 
terminating or has dissolved in accordance with its governing 
documents. In addition, an ASO, upon request, may inspect and copy the 
returns, filed statements, records, reports, and other information 
relating to a final determination as are relevant to any determination 
under State law.
    The PPA added section 6104(c)(2) through (6) of the Code, which 
expanded the IRS's ability to disclose information to an ASO. With 
respect to charitable organizations and applicants, the IRS now is 
authorized under section 6104(c)(2) to disclose information about 
certain proposed revocations and proposed denials before an 
administrative appeal has been made and a final revocation or denial 
has been issued.
    Specifically, section 6104(c)(2)(A)(i) and (ii) provides that the 
IRS may disclose to an ASO proposed refusals to recognize organizations 
as charitable organizations, proposed revocations of such recognition, 
and notices of proposed deficiency of excise taxes imposed by section 
507 or chapter 41 or 42 of the Code relating to charitable 
organizations. Previously, only final determinations of these kinds 
(denials of recognition, revocations, and notices of deficiency) could 
be disclosed under section 6104(c).
    Section 6104(c)(2)(A)(iii) provides that the IRS may disclose to an 
ASO the names, addresses, and taxpayer identification numbers of 
applicants. Previously, information on applicants, other than 
information relating to a final denial of recognition, could not be 
disclosed under section 6104(c).
    Section 6104(c)(2)(B) provides that the IRS may disclose to an ASO 
the returns and return information of organizations with respect to 
which information is disclosed under section 6104(c)(2)(A) (proposed 
determinations and applicant identifying information). Prior law 
allowed for disclosure under section 6104(c) only of returns and return 
information of organizations related to their receipt of final 
determinations.
    Section 6104(c)(2)(C) provides that proposed determinations, 
applicant identifying information, and the related returns and return 
information with respect to charitable organizations and applicants 
under sections 6104(c)(2)(A) or (B) may be disclosed to an ASO only 
upon the ASO's written request and only as necessary to administer 
State laws regulating charitable organizations. Prior law provided for 
automatic disclosure--with no requirement for a disclosure request--but 
only of final determinations.
    Under section 6104(c)(2)(D), the IRS may disclose to an ASO, on its 
own initiative and without a written request, returns and return 
information with respect to charitable organizations and applicants if 
the IRS determines that this information may constitute evidence of 
noncompliance with the laws under the jurisdiction of the ASO. Thus, if 
the IRS determines these conditions to be met, it may, for example, 
disclose to an ASO a proposed revocation of exemption for a charitable 
organization that does not have a determination letter. There was no 
such provision under section 6104(c) previously.
    Section 6104(c)(3) provides that the IRS may disclose returns and 
return information of organizations described in section 501(c), other 
than those described in section 501(c)(1) or (3) (such as section 
501(c)(4) social welfare organizations, section 501(c)(5) labor 
organizations, and section 501(c)(6) business leagues), to an ASO upon 
the ASO's written request, but only for the purpose of, and to the 
extent necessary in, administering State laws regulating the 
solicitation or administration of charitable funds or charitable assets 
of such organizations. Previously, only information relating to 
charitable organizations or applicants was disclosed under section 
6104(c).
    Section 6104(c)(4) generally provides that returns and return 
information of organizations and taxable persons disclosed under 
section 6104(c) may be disclosed in civil administrative and civil 
judicial proceedings pertaining to the enforcement of State laws 
regulating such organizations, under procedures prescribed by the IRS 
similar to those under section 6103(h)(4). There was no such provision 
under section 6104(c) previously.
    Section 6104(c)(5) generally provides that no return or return 
information may be disclosed under section 6104(c) to the extent the 
IRS determines that such disclosure would seriously impair Federal tax 
administration. This disclosure prohibition, though new in the Code, 
was provided previously by regulation. See former Sec.  301.6104(c)-
1(b)(3)(ii) (replaced by these final regulations).
    Section 6104(c)(2)(C) (flush language) and (c)(3) provides that the 
IRS may disclose returns and return information under section 6104(c) 
to a State officer or employee designated by the ASO to receive such 
information on the ASO's behalf. Prior law did not provide for IRS 
disclosures to persons other than ASOs.
    Section 6104(c)(6)(B) defines an ASO as the State attorney general, 
the State tax officer, any State official charged with overseeing 
charitable organizations (in the case of charitable organizations and 
applicants), and the head of the State agency designated by the State

[[Page 50242]]

attorney general as having the primary responsibility for overseeing 
the solicitation of funds for charitable purposes (in the case of 
section 501(c) organizations other than Federal instrumentalities and 
charitable organizations). Before its amendment by the PPA, section 
6104(c)(2) defined ASO as the State attorney general, the State tax 
officer, or any State official charged with overseeing organizations of 
the type described in section 501(c)(3).

3. PPA Amendments to Related Code Provisions

    The PPA also amended section 6103 to make section 6104(c), in its 
entirety, subject to its confidentiality and disclosure provisions.
    Section 6103(a)(2) provides the general rule that returns and 
return information are confidential and that an officer or employee of 
a State who receives returns or return information from the IRS under 
section 6104(c) must not disclose such information, except as 
authorized by Title 26 of the United States Code.
    Section 6103(p)(3) requires the IRS to maintain permanent 
standardized records of all requests for inspection or disclosure of 
returns or return information under section 6104(c) and of all such 
information inspected or disclosed pursuant to those requests.
    Section 6103(p)(4) requires an ASO, as a condition for receiving 
returns or return information under section 6104(c), to establish and 
maintain certain safeguards, such as keeping permanent standardized 
records of all requests and disclosures, maintaining a secure 
information storage area, restricting access to the information, and 
providing whatever other safeguards the IRS deems necessary to protect 
the confidentiality of the information. See Sec.  301.6103(p)(4)-1 and 
IRS Publication 1075, ``Tax Information Security Guidelines for 
Federal, State and Local Agencies''. Publication 1075 is available at 
http://www.irs.gov/formspubs.
    The PPA also amended sections 7213, 7213A, and 7431 to impose civil 
and criminal penalties for the unauthorized disclosure or inspection of 
section 6104(c) information.

4. IRS Disclosure Procedures

    Under section 6103(p)(4)(E), before a Federal or State agency may 
receive returns and return information from the IRS under section 6103 
or section 6104, it must file with the IRS a report detailing the 
physical, administrative, and technical safeguards implemented by the 
agency to protect this information from unauthorized inspection or 
disclosure. Only upon approval of these safeguards by the IRS, as well 
as satisfaction of any other statutory requirements (such as submission 
of a written request), may an agency receive the information to which 
it is entitled under the Code, and then only for the use specified by 
the relevant statute.
    Under various disclosure programs, the IRS and other Federal and 
State agencies often execute disclosure agreements detailing the 
responsibilities of the parties and the terms and parameters of the 
disclosure arrangement. For example, under section 6103(d), the IRS 
executes a disclosure agreement with each State tax agency to which it 
discloses information. This agreement, which serves as the written 
request required by section 6103(d), has been the foundation of the 
State tax disclosure program under this provision since the Tax Reform 
Act of 1976.
    After the enactment of the PPA, the IRS revised its disclosure 
procedures under section 6104(c), as set forth in the Internal Revenue 
Manual, to model them after the section 6103(d) program. Accordingly, 
the section 6104(c) program uses a disclosure agreement patterned after 
the section 6103(d) agreement but tailored to the specific requirements 
and restrictions of section 6104(c).

Summary of Comments and Explanation of Provisions

    As noted in the Background, one commenter submitted a letter 
commenting on the NPRM. After considering the comments in the letter, 
the NPRM is adopted by this Treasury decision with one clarifying 
substantive change to Sec.  301.6104(c)-1(h) of the proposed 
regulations (proposed Sec.  301.6104(c)-1(h)) and various non-
substantive clarifying changes.

1. Security, Confidentiality, and Use Restrictions

    The commenter's primary concern is the requirement that all 
disclosures under section 6104(c) must be made pursuant to an agreement 
committing the ASO to the security, confidentiality, and use 
restrictions of section 6103(p)(4), which the commenter characterizes 
as onerous. The commenter acknowledges, however, that the changes it 
seeks require legislative action by Congress. The Treasury Department 
and the IRS agree that the proposed regulations implement the statutory 
regime enacted by Congress. Thus, these final regulations adopt the 
safeguard requirements as proposed.
    As a threshold matter, the commenter asserts that only a few states 
have entered into disclosure agreements due to what the commenter 
characterizes as the cumbersome nature of the safeguard requirements of 
section 6103(p) and the resources needed to adhere to them. In the 
commenter's view, the reluctance of states to commit themselves to the 
safeguard requirements of section 6103 means that the PPA actually 
decreased the disclosure of information to the states because non-
participating states no longer receive the pre-PPA notifications of 
final denials, revocations, and notices of tax deficiencies.
    The Treasury Department and the IRS do not agree with the 
proposition that few states are willing to participate in IRS 
information-sharing programs because of the safeguard requirements. As 
noted in the Background, the section 6104(c) agreement, under which the 
IRS discloses certain information to the ASO who is charged with the 
administration of the State's laws regulating charitable organizations 
or the solicitation or administration of charitable funds or assets, is 
based on the section 6103(d) agreement, under which the IRS discloses 
certain information to the State office charged with the responsibility 
for administering the State's tax laws. Under both section 6104(c) and 
section 6103(d), the receipt of information from the IRS is conditioned 
on the recipient agency or official implementing and adhering to the 
applicable provisions of section 6103(p), as amended by the PPA, to 
protect the information from unauthorized inspection or disclosure.
    The IRS currently has a section 6103(d) agreement in each of the 50 
states and the District of Columbia with the agency or official 
responsible for administering that jurisdiction's tax laws. In 
addition, the IRS currently has section 6104(c) agreements with 9 ASOs, 
all of whom are State tax officers responsible for administering State 
tax laws. For sample disclosure agreements, see Internal Revenue Manual 
Exhibit 7.28.2-2 (Sample Disclosure Agreement under section 6104(c) for 
State Tax Officer) and Exhibit 7.28.2-1 (Sample Disclosure Agreement 
under section 6104(c) for Attorney General's Office). In view of the 
current participation in the section 6104(c) disclosure program, and 
considering the potential for increased participation by other ASOs, 
the Treasury Department and the IRS consider the publication of these 
final regulations important in fulfilling the mandate under section 
6104(c) to facilitate the enforcement of State law

[[Page 50243]]

regarding exempt organizations consistent with statutory requirements.

2. Information Shared Without a Disclosure Agreement

    The commenter, citing proposed Sec.  301.6104(c)-1(b), which 
provides that the IRS may require an ASO to execute a disclosure 
agreement or similar document, states that it is not clear what, if any 
information--other than that available to the general public--would be 
disclosed to ASOs without an agreement.
    Under section 6104(c) before its amendment by the PPA, the IRS was 
required to disclose to ASOs certain final determinations, with no 
requirement that the ASO request such disclosure in writing. The PPA 
changed this procedure, making all of section 6104(c) subject to the 
confidentiality provisions of section 6103. These final regulations 
provide that the IRS may not disclose information under section 6104(c) 
unless the State receiving the information follows the applicable 
disclosure, recordkeeping, and safeguard procedures of section 
6103(p)(4). To give effect to the confidentiality restrictions mandated 
by Congress, the IRS's disclosure program requires an ASO to enter into 
a disclosure agreement with the IRS stipulating the procedures for 
disclosure under section 6104(c), as well as the restrictions on use 
and redisclosure. Because of these statutory requirements, without such 
an agreement, an ASO may receive only information otherwise available 
to the public.

3. Use of Disclosed Information

    The commenter objects to proposed Sec.  301.6104(c)-1(h)(1), which 
requires an ASO intending to use any disclosed information in a State 
administrative or judicial proceeding to notify the IRS of this 
intention before such use. Under this provision, an ASO may use the 
information as intended only in accordance with any conditions the IRS 
might impose, and only to the extent that the IRS determines that the 
disclosure would not seriously impair Federal tax administration. The 
commenter states that by disclosing taxpayer information initially to 
an ASO, the IRS already has determined under proposed Sec.  
301.6104(c)-1(e) that this information will not seriously impair 
Federal tax administration and that requiring the same determination 
again after the initial disclosure would place an ASO at risk of 
spending time and resources on developing a State law case, only to be 
told by the IRS that the ASO cannot proceed. The commenter asserts 
that, in an environment of scarce resources, this restriction is likely 
to discourage ASOs from taking that risk.
    Section 6104(c)(5) prohibits the disclosure under section 
6104(c)(1) through (3) of returns and return information to an ASO, or 
redisclosure of such information by an ASO in a State proceeding 
described in section 6104(c)(4), if the IRS determines that such 
disclosure or redisclosure would seriously impair Federal tax 
administration. Section 6104(c)(5) addresses two separate actions or 
events, requiring in most circumstances two separate determinations by 
the IRS. Because the facts and circumstances surrounding a particular 
administrative or judicial proceeding typically would not be known to 
the IRS at the time of the initial disclosure of taxpayer information 
to an ASO, it would not be possible during the initial disclosure to 
the ASO for the IRS to determine whether the use of that information in 
a subsequent State proceeding would seriously impair Federal tax 
administration (such as identifying a confidential informant or 
compromising a civil or criminal tax investigation). It is possible 
that the IRS could determine that the disclosure to an ASO would not 
seriously impair Federal tax administration but that disclosure by an 
ASO in a State proceeding would. To fulfill its statutory duties, the 
IRS must evaluate the effect of the use of disclosed information in a 
State proceeding before authorizing any such redisclosure.

4. Restrictions on Redisclosure

    The commenter states that the prohibition in proposed Sec.  
301.6104(c)-1(h)(2) on the redisclosure of return information to an 
ASO's agent or contractor appears to include persons such as expert 
witnesses, court reporters, and other litigation support service 
providers often necessary to conduct civil and judicial proceedings 
within the ambit of proposed Sec.  301.6104(c)-1(g)(2), as limited by 
proposed Sec.  301.6104(c)-1(h)(1), which is discussed in the prior 
section of this Summary of Comments and Explanation of Provisions. The 
commenter contends that this restriction is ``simply untenable'' and 
serves to ``further undercut any rational basis'' for ASOs to obtain 
returns and return information under section 6104(c).
    The requirement in proposed Sec.  301.6104(c)-1(h)(1) that an ASO 
notify the IRS before using any disclosed information in a State 
proceeding is a limit on the authority of the ASO under proposed Sec.  
301.6104(c)-1(g)(2) to make such use of disclosed information under 
rules similar to those in section 6103(h)(4), as provided in section 
6104(c)(4). With respect to section 6103(h)(4), the IRS construes 
``disclosure in judicial and administrative proceedings'' to include 
the disclosure of returns and return information in court during a 
trial (whether or not some of those present might be considered an 
agent or contractor, such as a court reporter or expert witness); in 
formal or informal discovery, including depositions; in settlement 
negotiations; and in mediation or arbitration proceedings. Disclosure 
of returns and return information is permitted to participants in, or 
parties to, a judicial or administrative proceeding (including expert 
witnesses) under practices and procedures generally applicable to the 
proceeding, and subject to rules governing the proceeding. The 
prohibition in proposed Sec.  301.6104(c)-1(h)(2) on the redisclosure 
of return information to an ASO's agent or contractor was not intended 
to hinder a State's ability to conduct investigations or civil 
litigation under its statutory authority.
    In considering this comment regarding the interaction of the two 
redisclosure limitations of proposed Sec.  301.6104(c)-1(h), however, 
it became apparent that, by identifying the agent-contractor disclosure 
prohibition as one of two limitations on the redisclosure of returns 
and return information by an ASO, proposed Sec.  301.6104(c)-1(h)(2) 
might be read as limiting the application of such a restriction solely 
to redisclosures. The prohibition on disclosing to agents and 
contractors, however, is a broader rule, applying both to initial 
disclosures by the IRS as well as to subsequent redisclosures by an 
ASO. With respect to disclosures by the IRS, proposed Sec.  
301.6104(c)-1(f)(1)(ii) provides that the IRS may disclose return 
information to someone other than the ASO only if that person is a 
State officer or employee designated by the ASO. With respect to 
redisclosures by an ASO, proposed Sec.  301-6104(c)-1(g)(1) provides 
that an ASO who receives information from the IRS under section 6104(c) 
may redisclose that information for certain purposes to another State 
officer or employee. The legislative history of section 6104(c) 
provides that the term ``officer or employee'' does not include agents 
and contractors, and the final regulations apply this agent-contractor 
disclosure prohibition equally to the IRS and the ASO.
    Consequently, these final regulations clarify the proper 
application of the prohibition against disclosure to agents and 
contractors by eliminating proposed

[[Page 50244]]

Sec.  301.6104(c)-1(h)(2) and adding definitional clauses to proposed 
Sec.  301.6104(c)-1(f)(1)(ii) and (g)(1) and (2) emphasizing that the 
agent-contractor disclosure prohibition applies both to IRS disclosures 
and to ASO redisclosures.

5. Application of Document Retention and Freedom-of-Information Laws

    The commenter notes that many states have document retention and 
freedom-of-information laws that might be implicated whenever an ASO 
receives or acts upon tax return information acquired from the IRS. 
According to the commenter, nothing in the PPA or regulations addresses 
what portions of tax return information may become a part of the ASO's 
own records or work product.
    This issue, however, is addressed by section 6103, made applicable 
to section 6104(c) by the PPA. Among the disclosure, recordkeeping, and 
safeguard provisions of section 6103, section 6103(p)(4) requires an 
ASO, as a condition for receiving returns or return information under 
section 6104(c), to establish and maintain certain safeguards, such as 
keeping permanent standardized records of all requests and disclosures, 
maintaining a secure information storage area, restricting access to 
the information, and providing whatever other safeguards the IRS deems 
necessary to protect the confidentiality of the information. Upon 
completion of the ASO's use of the returns or return information it 
receives under section 6104(c), section 6103(p)(4)(F) requires the ASO 
to return the information, along with any copies, to the IRS, or to 
render it undisclosable and report to the IRS how it was so rendered. 
Rendering returns and return information undisclosable requires the ASO 
to physically destroy the information. Thus, after its use, any 
information an ASO receives from the IRS under section 6104(c) should 
no longer be in the ASO's possession and, so, will not become part of 
the ASO's own records or work product.

6. Designation by Attorney General

    Referring to the definition of an ASO in section 6104(c)(6)(B)(iv) 
(in the case of tax-exempt entities other than charitable organizations 
or Federal instrumentalities), the commenter states that it is not 
clear in what circumstances an attorney general would designate the 
agency responsible for overseeing charitable solicitation. If, for 
example, the authority to designate the head of the agency responsible 
for overseeing charitable solicitation is vested in the secretary of 
state, the agency head referred to in the statute and the regulations 
would not be able to meet the definition of an ASO in proposed Sec.  
301.6104(c)-1(i)(1)(iv).
    In light of the variations in State laws, it is doubtful that 
Congress used the term ``designate'' in section 6104(c)(6)(B)(iv) to 
mean a delegation of legal authority (and there is no indication in the 
legislative history of the PPA that such a meaning was intended). In 
contrast to how the term is used in section 6104(c)(2)(C) (dealing with 
the procedures for disclosure), where it does mean to delegate 
authority, the term ``designate'' in section 6104(c)(6)(B)(iv) is a 
generic one, meaning the ability to specify, identify, or acknowledge 
the head of the agency in a particular State who is responsible for 
overseeing charitable solicitation. The attorney general, as an ASO 
under Sec.  301.6104(c)-1(i)(1)(i), should be able to identify such an 
agency head, whether or not the attorney general is able to confer the 
requisite authority on any particular State official.

Special Analyses

    This regulation is not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Department of the Treasury and the Office of 
Management and Budget regarding review of tax regulations.
    Pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 
6), it is hereby certified that these final regulations will not have a 
significant economic impact on a substantial number of small entities 
within the meaning of section 601(6) of the Regulatory Flexibility Act. 
The analysis requirements of the RFA do not apply because states are 
not considered small entities for purposes of the RFA. Therefore, a 
regulatory flexibility analysis is not required. Accordingly, the 
Secretary of the Treasury's delegate certifies that these regulations 
will not have a significant economic impact on a substantial number of 
small entities.
    Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking preceding these final regulations was submitted to the Chief 
Counsel for the Office of Advocacy of the Small Business Administration 
for comment on its impact on small business. No comments were received 
from the Chief Counsel for the Office of Advocacy of the Small Business 
Administration.

Drafting Information

    The principal author of these regulations is Seth Groman of the 
Office of Associate Chief Counsel (Tax Exempt and Government Entities), 
though other persons in the Treasury Department and the IRS 
participated in their development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 is amended by adding 
an entry for Sec.  301.6104(c)-1 in numerical order to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 301.6104(c)-1 also issued under 26 U.S.C. 6104(c).
* * * * *

0
Par. 2. Section 301.6104(c)-1 is revised to read as follows:


Sec.  301.6104(c)-1  Disclosure of certain information to State 
officials.

    (a) In general--(1) Charitable organizations and applicants. 
Subject to the disclosure, recordkeeping, and safeguard provisions of 
section 6103 of the Internal Revenue Code (Code), and only as necessary 
to administer State laws regulating charitable organizations, upon 
written request by an appropriate State officer (ASO, as defined in 
paragraph (i)(1) of this section), the Internal Revenue Service (IRS) 
may, under section 6104(c)(1) and (2), disclose or make available to 
the ASO (or to a person designated by the ASO as provided in paragraph 
(f)(1)(ii) of this section) the returns and return information 
described in paragraph (c) of this section with respect to--
    (i) Any organization described or formerly described in section 
501(c)(3) and exempt or formerly exempt from taxation under section 
501(a) (a charitable organization); or
    (ii) Any organization that has applied for recognition as an 
organization described in section 501(c)(3) (an applicant).
    (2) Section 501(c) organizations not described in section 501(c)(1) 
or (3). Subject to the disclosure, recordkeeping, and safeguard 
provisions of section

[[Page 50245]]

6103, and upon written request by an ASO, the IRS may disclose or make 
available to the ASO (or to a person designated by the ASO as provided 
in paragraph (f)(1)(ii) of this section) under section 6104(c)(3) 
returns and return information regarding any organization described or 
formerly described in section 501(c) other than section 501(c)(1) or 
(3). Such information will be disclosed or made available only as 
necessary to administer State laws regulating the solicitation or 
administration of the charitable funds or charitable assets of these 
organizations.
    (b) Disclosure agreement. The IRS may require an ASO to execute a 
disclosure agreement or similar document specifying the procedures, 
terms, and conditions for the disclosure or inspection of information 
under section 6104(c), including compliance with the safeguards 
prescribed by section 6103(p)(4), as well as specifying the information 
to be disclosed. Such an agreement or similar document constitutes the 
request for disclosure required by section 6104(c)(1)(C), as well as 
the written request required by section 6104(c)(2)(C)(i) and (c)(3).
    (c) Disclosures regarding charitable organizations and applicants--
(1) In general. With respect to any organization described in paragraph 
(d) of this section, the IRS may disclose or make available for 
inspection under section 6104(c)(1) and (2) and paragraph (a)(1) of 
this section to an ASO the following returns and return information 
with respect to a charitable organization or applicant:
    (i) A refusal or proposed refusal to recognize an organization's 
exemption as a charitable organization (a final or proposed denial 
letter).
    (ii) Return information regarding a grant of exemption following a 
proposed denial.
    (iii) A revocation of exemption as a charitable organization (a 
final revocation letter), including a notice of termination or 
dissolution.
    (iv) A proposed revocation of recognition of exemption as a 
charitable organization (a proposed revocation letter).
    (v) Return information regarding the final disposition of a 
proposed revocation of recognition other than by final revocation.
    (vi) A notice of deficiency or proposed notice of deficiency of tax 
imposed under section 507 or chapter 41 or 42 of the Code on the 
organization or on a taxable person (as described in paragraph (i)(4) 
of this section).
    (vii) Returns and return information regarding the final 
disposition of a proposed notice of deficiency of tax imposed under 
section 507 or chapter 41 or 42 of the Code on the organization other 
than by issuance of a notice of deficiency.
    (viii) The names, addresses, and taxpayer identification numbers of 
applicants for charitable status, provided on an applicant-by-applicant 
basis or by periodic lists of applicants. Under this paragraph 
(c)(1)(viii), the IRS may respond to inquiries from an ASO as to 
whether a particular organization has applied for recognition of 
exemption as a charitable organization.
    (ix) Return information regarding the final disposition of an 
application for recognition of exemption where no proposed denial 
letter is issued, including whether the application was withdrawn or 
whether the applicant failed to establish its exemption.
    (x) Returns and return information relating to the return 
information described in paragraph (c)(1) of this section, except for 
returns and return information relating to proposed notices of 
deficiency described in paragraph (c)(1)(vi) of this section with 
respect to taxable persons.
    (2) Disclosure of evidence of noncompliance with certain State 
laws. With respect to any organization described in paragraph (d) of 
this section, the IRS may disclose to the ASO or make available for the 
ASO's inspection under section 6104(c)(1) and (2) and paragraph (a)(1) 
of this section the returns and return information of a charitable 
organization or applicant, as listed in paragraph (c)(1) of this 
section, if the IRS determines that such information might constitute 
evidence of noncompliance with the laws under the jurisdiction of the 
ASO regulating charitable organizations and applicants. Such 
information may be disclosed on the IRS's own initiative, subject to 
the disclosure, recordkeeping, and safeguard provisions of section 
6103. Disclosures under this paragraph (c)(2) may be made before the 
IRS issues a proposed determination (denial of recognition, revocation, 
or notice of deficiency) or any other action by the IRS described in 
this section.
    (d) Organizations to which disclosure applies. Regarding the 
information described in paragraphs (a)(1) and (2) of this section, the 
IRS will disclose or make available for inspection to an ASO such 
information only with respect to--
    (1) An organization formed under the laws of the ASO's State;
    (2) An organization, the principal office of which is located in 
the ASO's State;
    (3) An organization that, as determined by the IRS, is or might be 
subject to the laws of the ASO's State regulating charitable 
organizations or the solicitation or administration of charitable funds 
or charitable assets; or
    (4) A private foundation required by Sec.  1.6033-2(a)(iv) of this 
chapter to list the ASO's State on any of the foundation's returns 
filed for its last five taxable years.
    (e) Disclosure limitations. Notwithstanding any other provision of 
this section, the IRS will not disclose or make available for 
inspection under section 6104(c) any information, the disclosure of 
which it determines would seriously impair Federal tax administration, 
including, but not limited to--
    (1) Identification of a confidential informant or interference with 
a civil or criminal tax investigation; and
    (2) Information obtained pursuant to a tax convention, as defined 
in section 6105(c)(2), between the United States and a foreign 
government.
    (f) Disclosure recipients--(1) In general. The IRS may disclose 
returns and return information under section 6104(c) to, or make it 
available for inspection by--
    (i) An ASO, as defined in paragraph (i)(1) of this section, or
    (ii) A person other than an ASO, but only if that person is a State 
officer or employee (which excludes an agent or contractor) designated 
by the ASO to receive information under section 6104(c) on behalf of 
the ASO, as specified in paragraph (f)(2) of this section.
    (2) Designation by ASO. An ASO may designate State officers or 
employees to receive information under section 6104(c) on the ASO's 
behalf by specifying in writing each person's name and job title, and 
the name and address of the person's office. The ASO must promptly 
notify the IRS in writing of any additions, deletions, or other changes 
to the list of designated persons.
    (g) Redisclosure--(1) In general. An ASO to whom a return or return 
information has been disclosed may thereafter disclose such information 
to another State officer or employee (which excludes an agent or 
contractor) only as necessary to administer State laws governing 
charitable organizations or State laws regulating the solicitation or 
administration of charitable funds or charitable assets of 
noncharitable exempt organizations.
    (2) Civil administrative or judicial proceedings. Except as 
provided in paragraph (h) of this section, an ASO to whom a return or 
return information has been disclosed may thereafter disclose such 
information to another State officer or employee (which excludes an 
agent

[[Page 50246]]

or contractor) who is personally and directly preparing for a civil 
proceeding before a State administrative body or court in a matter 
involving the enforcement of State laws regulating organizations with 
respect to which information can be disclosed under this section, 
solely for use in such a proceeding, but only if--
    (i) The organization or a taxable person is a party to the 
proceeding, or the proceeding arose out of, or in connection with, 
determining the civil liability of the organization or a taxable 
person, or collecting such civil liability, under State laws governing 
organizations with respect to which information can be disclosed under 
this subsection;
    (ii) The treatment of an item reflected on such a return is 
directly related to the resolution of an issue in the proceeding; or
    (iii) The return or return information directly relates to a 
transactional relationship between the organization or a taxable person 
and a person who is a party to the proceeding that directly affects the 
resolution of an issue in the proceeding.
    (h) Redisclosure limitation. Before disclosing any return or return 
information received under section 6104(c) in a proceeding described in 
paragraph (g)(2) of this section, the ASO must notify the IRS of the 
intention to make such a disclosure. No State officer or employee may 
make such a disclosure except in accordance with any conditions the IRS 
might impose in response to the ASO's notice of intent. No such 
disclosure may be made if the IRS determines that the disclosure would 
seriously impair Federal tax administration.
    (i) Definitions. For purposes of section 6104(c) and this section--
    (1) Appropriate State officer or ASO means--
    (i) The State attorney general;
    (ii) The State tax officer;
    (iii) With respect to a charitable organization or applicant, any 
State officer other than the attorney general or tax officer charged 
with overseeing charitable organizations, provided that the officer 
shows the IRS that the officer is an ASO by presenting a letter from 
the State attorney general describing the functions and authority of 
the officer under State law, with sufficient facts for the IRS to 
determine that the officer is an ASO; and
    (iv) With respect to a section 501(c) organization that is not 
described in section 501(c)(1) or (c)(3), the head of the agency 
designated by the State attorney general as having primary 
responsibility for overseeing the solicitation of funds for charitable 
purposes, provided that the officer shows the IRS that the officer is 
an ASO by presenting a letter from the State attorney general 
describing the functions and authority of the officer under State law, 
with sufficient facts for the IRS to determine that the officer is an 
ASO.
    (2) Return has the same meaning as in section 6103(b)(1).
    (3) Return information has the same meaning as in section 
6103(b)(2).
    (4) Taxable person means any person who is liable or potentially 
liable for excise taxes under chapter 41 or 42 of the Code. Such a 
person includes--
    (i) A disqualified person described in section 4946(a)(1), 
4951(e)(4), or 4958(f);
    (ii) A foundation manager described in section 4946(b);
    (iii) An organization manager described in section 4955(f)(2) or 
4958(f)(2);
    (iv) A person described in section 4958(c)(3)(B);
    (v) An entity manager described in section 4965(d); and
    (vi) A fund manager described in section 4966(d)(3).
    (j) Failure to comply. Upon a determination that an ASO has failed 
to comply with the requirements of section 6103(p)(4), the IRS may take 
the actions it deems necessary to ensure compliance, including the 
refusal to disclose any further returns or return information to the 
ASO until the IRS determines that the requirements of section 
6103(p)(4) have been met. For procedures for the administrative review 
of a determination that an authorized recipient has failed to safeguard 
returns or return information, see Sec.  301.6103(p)(7)-1.
    (k) Applicability date. The rules of this section apply on and 
after August 16, 2022.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
    Approved: June 7, 2022.
Lily Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2022-17574 Filed 8-15-22; 8:45 am]
BILLING CODE 4830-01-P