Member groups of the Internal Revenue Service's (IRS's) Advisory Committee on Tax Exempt and Government Entities (ACT) met on June 11, 2008, and made recommendations that would affect the administration of exempt organizations, as well as other topics that fall under the Tax Exempt and Government Entities Division's regulatory umbrella.
The ACT Exempt Organizations group recommended that the IRS proceed cautiously on the issue of corporate governance by IRC §501(c)(3) charities. Bonnie Brier, General Counsel of The Children's Hospital of Philadelphia and co-project leader for ACT's Exempt Organizations group, commented that good governance was more a factor of the organization's individual leadership, not its governance policies. She also said it was unclear whether prescribing specific requirements results in greater tax compliance, noting that studies of for-profit organizations were inconclusive.
While it was clear that the IRS would be involved in best practices for exempt organizations, Brier said that the agency must strike a balance between forging requirements and supporting a unique, diverse, vibrant, and flexible charitable sector. Brier recommended that the IRS support the actions of an organization's board of directors and provide a framework for action in the governance area.
Steve Miller, Commissioner of the Tax Exempt and Government Entities Division, said it was not the IRS's intent to mandate governance standards, and it certainly was not its intent to crush vibrancy or innovation in the tax-exempt sector. The IRS's goal is to provoke discussion by the sector and boards of directors.
Discussing the revised Exempt Organizations Form 990 annual return, Brier said that the questions on governance are “attenuated” to the tax law, but on balance the form's questions are neutral and appropriate. She pointed out that “Part VI of the Form says that a particular response to governance questions is not required.” Other Form 990 questions, however, lack this disclaimer, she noted. The IRS's merely asking about governance creates pressure on the organization, has the potential to usurp the governing board's own ideas, and may discourage board membership. This can lead to bad policies and divert the exempt organization from good governance practices to mere form or process.
CCH Washington Bureau, June 11, 2008.
Visit our News Library to read more news stories.