Transcript Slide 1

Welcome
Pacific NW Assoc of Independent Schools (PNAIS)
Business Officers Conference
Governance Aspects
of the Redesigned Form 990
and What are Best Practices?
presented by
Howard Donkin, CPA
[email protected]
April 27, 2009
A sustaining resource to the not-for-profit community
Biographical Information
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Partner, Jacobson Jarvis CPA’s
BA – Accounting - U of W, Seattle
WSCPA - NFP Committee
AICPA EO Tax Resource Panel
AICPA 990 Redesign Task Force
Executive Alliance Public Policy Group
EO Tax Review – Advisory Board
Recent Articles
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“IRS Asks Governance Questions on the New
Form 990, JJCo Communiqué.
• “IRS releases revised Instructions for Redesigned
Form 990”, JJCo Communiqué
2006 Predictions
• 90% chance your 990 will
ask you to gather new
information.
• 75% chance you will adopt a
conflict of interest policy.
• 35% chance you will file
electronically.
#9
Today’s Topics
• What are the Governance Aspects in the
Redesigned Form 990?
• How will they impact your school?
• What are Best Practices?
• What can you do to prepare?
• Your questions?
Optional Topics
(if time allows)
• Property tax exemption update
• UPMIFA comes to Washington
• FAS 117-1
• Proposed legislation in Olympia
How did we get here?
2004 Grassley white paper and hearings
2005 Independent Sector panel on
accountability
2007 Independent Sector report
“Principles for Good Governance and
Ethical Practice: Guide for Charities”
2008 ACT Report “IRS Role in Good
Governance Issues”
Recent Quotes from IRS Officials
A well-governed charity is more likely to
obey the tax laws, safeguard
charitable assets, and serve
charitable interests than one with
poor or lax governance.
The IRS has no interest in telling charities
how to run their organizations.
The question is no longer whether the IRS
has a role to play in this area, but
rather, what the role will be.
Timeline
Another Recent Quote
• “If a governing board tolerates
a climate of secrecy or neglect,
we are concerned that
charitable assets are more likely
to be diverted to benefit the
private interests of insiders at
the expense of public and
charitable interests.”
IRS 2/4/08
Another Recent Quote
• “While the tax law generally does
not mandate particular management
structures, operational policies, or
administrative practices, it is
important that each charity be
thoughtful about the governance
practices …..As a measure of our
interest in this area, we ask about
an organization’s governance.”
IRS 2/4/08
Another Recent Quote
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“Because there is no
precedential federal tax law
guidance that prescribes the
appropriate standards for
nonprofit governance, a number
of my clients have raised
questions about how to comply
with the new IRS initiatives.”
Mark Owens, a DC lawyer specializing in
nonprofit issues. 1/14/09
How do we comply?
That’s why you are here !
3 things you need to know:
• What are the Governance
Requirements?
• What are Best Practices?
• How do you prepare?
What “New” Form 990 ?
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Redesigned Form 990
11- Page “Core” Form
16 Schedules (A-R)
(Old Sch. A = New Sch. E)
Redesigned Form 990
Some are not new, just
same questions in
different places,
like……
(Old Sch. A = New Sch. E)
Where are the Governance
Questions?
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Handouts
990 Part IV (Core, page 3&4)
Checklist of Required
Schedules
Q27 – Grants or assistance to directors?
Q28 – Business relationships?
If yes, complete Schedule L,
“Transactions with Interested Parties”.
1,2,3
990 Part VI (Core, page 6)
Governance Questions
Section A: Governing Body & Management
Section B: Policies
Section C: Disclosure
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990 Part VI (Core, page 6)
Governance Question #1
What is the number of voting
& “independent” board
members?
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Section A
990 Part VI (Core,page 6)
Governance Question #1
How do you determine
Independence?
Section A
IRS Says….
IRS: The organization must make a
“reasonable effort” to obtain the necessary
information to determine the
independence…
For instance, the organization may rely on
information it obtains in response to a
“questionnaire” sent annually to each
member, containing instructions and
definitions.
See sample questionnaire
Questionnaire
Purpose: To make a
“reasonable effort” to gather
information needed to answer
questions about conflicts of
interest and independence.
Is your board independent?
What is “IRS” Independence?
1. Not a School employee or of a
related organization.
2. Didn’t get over $10,000 of pay or
other payments, and
3. Wasn’t involved in a transaction
reportable on Schedule L
(Interested Party)
Independence
Case study: You are a voting member of the
board and a partner (more than 5%) in a law
firm that charged $120,000 for legal services
in a court case? What if you were not a
partner?
Answer: Schedule L instructions say greater than
5% ownership and $10,000.
5-6
990 Part VI (Core,page 6)
Governance Question #2
Did any officer, director, trustee or
key employee have a family or
business relationship?
How do you determine this?
Section A
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Governance
What is an officer, director, trustee or
key employee?
Handout defines TDOKE’s
8-9
Family or Business Relationship
What is a “family” relationship?
What is a “business” relationship?
See Questionnaire for definitions.
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Horizontal Relationship
Case Study: Bob & Steve are board members of
the school. Bob owns a car dealership and
sells Steve a $45,000 car. Did they have a
business relationship?
Answer: It is not a reportable relationship
because it was in the ordinary course of
business at same terms as public.
10, 11
990 Part VI (Core,page 6)
Governance Question #10
Question 10 – Describe the process used to
review the Form 990 before it was filed?
Schedule O.
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Section A
Washington State Law
(has a similar requirement)
Washington State Charitable Solicitations Act
(RCW 19.09)
Currently in rulemaking (effective 2010).
Issue – Tier 2 independent reviewer must be a
person familiar with reviewing 990’s but
can’t be a board member.
990 Part VI (Core,page 6)
Policy Question #12
Do you have a Written Conflict Policy?
Do you ask directors each year?
Do you monitor and enforce compliance?
(Describe on Sch. O )
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Section B
What’s in a Conflict Policy?
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Define conflicts,
Identify who is covered,
Facilitate disclosure, and
Specify procedures for
managing a conflict.
IRS model in the instructions for the Form 1023
application. See Handout.
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990 Part VI (Core,page 6)
Policy Question #13
Do you have a written
Whistleblower Policy?
Was the policy in place as of the last day
of your tax year?
See IRS instructions page 18-19.
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Section B
990 Part VI (Core,page 6)
Policy Question #14
Do you have a written
Document retention and
destruction Policy?
See instructions page 18-19.
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Section B
990 Part VI (Core,page 6)
Policy Question #15
Do Compensation Decisions
include three things?
- Advance approval (independent)
- Comparable data
- Written decision
Describe Process on Schedule “O”.
Section B
Rebuttable Presumption
Of Reasonableness
1. Compensation is presumed reasonable
by the IRS if you follow the three rules
listed above.
2. Use a Checklist
3. Think about a Compensation Committee
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Section B
990 Part VI (Core,page 6)
Policy Question #16(b)
Do you have (need) Joint Venture
Policy?
Only if you answer yes to 16(a).
If yes, is it written?
See IRS instructions page 19
16
Section B
Conclusions
• A series of events have come
together and changed our
world.
• More changes are ahead
• Here are my predictions for
you in 2010
#9
2010 Predictions
• 90% chance the IRS 990
instructions will be revised.
• 95% chance your Endowment
footnote will be longer.
• 99% chance some of these Best
Practices will not be appropriate
for your school.
#9
What can you do to prepare?
• Find resources & stay informed
• Evaluate “Best Practices”
• Make a cost-benefit analysis of
Best Practices
• Make Policies that fit your needs
• Keep your board informed
#9
Thanks!
Questions?
Email [email protected] or call (206) 628-8990
Links to Reading
• “Principles for Good Governance – A Guide for
Charities” www.nonprofitpanel.org
• “Advisory Committee on Tax – Report on IRS Good
Governance Issues” June 11, 2008
www.irs/charities/article/0,,id=98353,00.html
• “IRS Form 990 Instructions” www.irs.gov
• “IRS Asks Governance Questions” www.jjco.com
• Sample policies at Board Source”
www.boardsource.org