Transcript TITLE OF PRESENTATION - Wake Forest University

The Institute for Public
Engagement
The IRS’ Corporate Governance Regime
September 13, 2012
History
• After several high profile scandals, such as:
– Smithsonian
– Getty Museum
– Nature Conservancy
• Senate Finance Committee and House Ways and
Means Committee sponsored bills that ultimately
became the Pension Protection Act of 2006.
IRS Vision
• “The Internal Revenue Service believes that a wellgoverned charity is more likely to obey the tax laws,
safeguard charitable assets, and serve charitable
interests than one with poor or lax governance. A
charity that has … sound management practices is
more likely to operate effectively and consistent with
tax law requirements.”
The Charitable Nonprofit & 501(c)(3)
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IRC 501(c)(3) Corporations, and any community chest, fund, or foundation,
organized and operated exclusively for religious, charitable, scientific, testing
for public safety, literary, or educational purposes, or to foster national or
international amateur sports competition (but only if no part of its activities
involve the provision of athletic facilities or equipment), or for the prevention of
cruelty to children or animals, no part of the net earnings of which inures to the
benefit of any private shareholder or individual, no substantial part of the
activities of which is carrying on propaganda, or otherwise attempting, to
influence legislation (except as otherwise provided in subsection (h)), and
which does not participate in, or intervene in (including the publishing or
distributing of statements), any political campaign on behalf of (or in
opposition to) any candidate for public office.
The Relevant Parts of 501(c)(3)
•
organized and operated exclusively
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no part of the net earnings of which inures to the benefit of any private
shareholder or individual,
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no substantial part of the activities of which is carrying on propaganda, or
otherwise attempting, to influence legislation (except as otherwise provided in
subsection (h)),
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and which does not participate in, or intervene in (including the publishing or
distributing of statements), any political campaign on behalf of (or in
opposition to) any candidate for public office.
Traditional Regulation of Nonprofit
Governance
The State:
• Nonprofit corporations are creatures of state law, so
state law has traditionally regulated the governance
of nonprofit corporations.
Laissez faire approach
•
Beyond certain fundamental
mandates, state nonprofit
statutes did not prescribe
specific corporate governance
approaches.
•
IRS governance mandates
proceed from a different frame.
Regulation at state: Attorney General
• Regulation of nonprofit corporations has
traditionally been assigned to the state attorney’s
general.
• Responsible for:
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Promoting accountability
Maintaining a supervisory interest
Maintaining a registration of charities
Acts as an interested party in all
proceedings affecting charitable trusts,
uses and estates.
The Role of the IRS
• Primary point of contact with the federal government
• Police function serves to regulate charities – their
board members and employees
“The power to tax involves the power to destroy.
The power to exempt from tax presents the
opportunity to intimidate, harass and bully.”
Chief Justice John Marshall
Points of Contact
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Creating standards for exemption
Determining Exemption
Examining exempt organizations & compliance
Form 990
Education and outreach
Form 1023 and Governance
• Form 1023 contains questions regarding the
applicants governance “best practices”, including
compensation and conflict of interest provisions.
– Not required under state law
– At the outset, new organizations are asked
to adhere to governance regimes that are
not state specific
Form 990 and Governance
• All organizations that file the Form 990 must
complete Part VI Governance, Management and
Disclosure along with Schedule O.
• Discloses information regarding
– Governing body and management
– Governance policies
– Disclosure practices
Governance Questions and Form 1023
• Whether the organization engaged in or discovered
an excess benefit transaction during the reporting
year.
• Whether the organization became aware during the
year of a material diversion of organization assets.
• Whether the process for determining compensation
of top management includes a review and approval
by independent persons.
• Whether a compensation committee is used.
• Whether the organization has a gift acceptance
policy for non-standard contributions.
Disclosure
• Organizations are required to provide public access
to certain documents, including Form 1023, Forms
990 and 990-T.
– Note: disclosure of governing documents is
not required under Form 990.
Form 990 & Interested Person
• “Interested person” – transactions with interested
persons must be disclosed on Schedule L of Form
990.
• Therefore, organization must have a conflict of
interest policy in place, with annual conflict
disclosure forms.
• Impact on smaller organizations may be
unwarranted.
Form 990 and Independent Directors
• Three tests for independence:
– Member was not compensated as an
officer or director
– Total compensation did not exceed
$10,000
– Member did not take part in transaction
with organization that must be disclosed
under Schedule L
Documentation
• Form 990 seeks contemporaneous documentation of
board meetings and committee meetings.
– Does not include advisory meetings
– Significant impact on staff
– Form 990, Part VI, Question 8
Document Retention Policy
• Sarbanes Oxley inspired requirement
• Appendix 7 to Form 990 provides guidance on
retention and destruction policies.
Board Review of the Form 990
• Form 990 asks what board process is used to review
the Form 990.
• Implies that Form 990 in final form must be provided
to each voting board member.
Whistleblower Policies
• Policy is intended to identify those staff or board
members to whom an individual employee can
report misconduct.
Conclusion