Governance and Tax-Exempt Organizations

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Because of some behaviors of some nonprofit organizations, the IRS has published new guidelines for nonprofit organizations and new documents for examiners in the case you are being examined by the IRS. Take a look at those here. 

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IRS Offers Tips for Year-End Donations

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Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. You can read more about that at the IRS website here. 

And here is a video:



And in Spanish:



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Exectuive Compensation and the Board of Directors

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At our workshop I pointed to new IRS reporting requirements and California Nonprofit Accountability Law requiring boards of directors of nonprofit organizations to set executive compensation and monitor that expense. In the context of smaller nonprofits we often don't worry about overpaying. But is can be and is a problem. The recent corporate scandals involving the financial sector demonstrates that and the Wall Street Journal says nonprofits need to watch out too!

". . . the IRS has signaled more aggressive oversight of charities as various compensation scandals crop up among nonprofits." Wall Street Journal, Pay at Nonprofits Gets a second look

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Transparency and Accountability

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The IRS has been in the process of updating its reporting requirements for nonprofit organizations. Specifically, on the filing of Form 990. We had thought that by now the process of changing the form and pubic comment would have been completed. However, they seem to still be in the process of revision and completion of that work. They do have some new items posted for nonprofit including this, on transparency and accountability:

By making full and accurate information about its mission, activities, finance, and governance publicly available, a charity encourages transparency and accountability to its constituents. The Internal Revenue Code requires a charity to make its Form 1023 exemption application, Form 990, and Form 990-T, available for public inspection. The Internal Revenue Service encourages every charity to adopt and monitor procedures to ensure that its Form 1023, Form 990, Form 990-T, annual reports, and financial statements, are complete and accurate, are posted on its public website, and are made available to the public upon request. Organizations that file Form 990 will find that Part VI, Section C, Lines 18 and 19, ask whether and how an organization makes its Form 1023, Form 990 and Form 990-T, governing documents, conflict of interest policy, and financial statements available to the public.

--Governance and Related Topics - 501(c)(3) Organizations, Posted February 4, 2008. irs.gov

For a board that uses the Policy Governance system, the board level policy document will nicely serve as one of the governance process documents to be made publicly available.

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IRS information on the new Form 990

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The IRS website has a summary of the changes we are anticipating for the Form 990 for the 2008 tax year. You can read that information here.

There will be some new reporting requirements including disclosure of business or family relationships on the board of directors. There will also be a requirement to describe the board's role in reviewing the the board's responsibility for the information on the Form 990.

I will post more about the changes when the new instructions are released and after I hear from other clients about their concerns and thoughts.

Previous CPG clients will already have satisfactory conflict of interest policies to regulate and monitor related individuals and self-serving.

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New Annual Electronic Filing Requirement for Small Exempt Organizations

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Beginning in 2008, small tax-exempt organizations that previously were not required to file returns may be required to file an annual electronic notice, Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ. This filing requirement applies to tax periods beginning after December 31, 2006. Organizations that do not file the notice will lose their tax-exempt status.

Click here to read more from the IRS website on this topic. Your ideas matter here! Please leave a comment.

New IRS Compliance Requirement for Small Nonprofits

Starting January 1, 2008, all public charities, regardless of size, are required to file with the IRS. For organizations that do not currently file a “regular” Form 990 because their annual revenues are normally less than $25,000, there is a new, simple online form (Form 990-N) that must be filed. The new form asks a few basic questions about the organization, such as name, mailing address, website address, EIN, name and address of an officer, fiscal year, size of budget, and whether or not the organization is still active. Unfortunately, the form is not available yet because the IRS is still finalizing the online system.
The form must be filed 4 1/2 months after the close of an organization’s fiscal year. Failure to file the form for three consecutive years will result in termination of an organization’s tax exemption. To reinstate tax-exempt status, an organization must reapply (and pay a hefty “user fee”) and provide a good reason why it did not file earlier.
For more information, visit the IRS web site. Keep up-to-date with all IRS charity and exempt organization issues on their website here.


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