Academic journal article Journal of Accountancy

IRS Clarifies Corporate Governance Questions for Tax-Exempt Organizations

Academic journal article Journal of Accountancy

IRS Clarifies Corporate Governance Questions for Tax-Exempt Organizations

Article excerpt

The IRS believes that strong corporate governance leads to increased compliance for tax-exempt organizations. In 2008, the IRS released a redesigned Form 990, Return of Organization Exempt From Income Tax, which requires more comprehensive and in-depth information regarding the organization's governance, structure, policies and disclosure practices. These changes were formalized in final regulations issued Sept. 8 (T.D. 9549). The IRS also recently informally offered guidance on when board officers are considered independent.

The new Form 990 requirements generated a significant amount of discussion and debate among the IRS, tax-exempt organizations and members of the client-serving community Accounting authorities such as the AICPA have increased their involvement in these discussions to try to address the concerns of taxpayers and their preparers.

For example, the redesigned Form 990 instructions ask whether a tax-exempt organization has conflict-of-interest, document-retention and whistleblower policies that had been adopted by the board of directors by the end of the tax year. However, since the boards of many organizations have delegated policy drafting and adoption authority to board committees such as a governance committee, the AICPA recommended to the IRS that the instructions be modified to provide that organizations may answer yes to the policy questions if the policies have been adopted by the board or by a committee that has been authorized by the board to act on such policy matters. The IRS subsequently indicated in answers to frequently asked questions that it will allow organizations to answer yes when policies are adopted at the board-delegated committee level (see tinyurl. …

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