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The New Form 990 for Tax-Exempt Organizations Asks Governance Questions

3.3.2009

Commencing with tax filings for the taxable year 2008, the Internal Revenue Service ("IRS") has completely revised the Form 990 (the "Form"), which many tax-exempt organizations are required to file. Among the changes is a new section that asks significant questions about how your organization is governed and managed. The IRS takes the view that although these new questions concern areas that are not directly covered by the Internal Revenue Code, good governance affects whether tax issues are dealt with properly. Because this new section of the Form brings governance questions to the forefront, this is a good time for tax-exempt organizations to review their governance and management policies. Areas of focus in the new Form include the following.

  1. Conflict of Interest Policy. The Form asks whether the organization has a conflict of interest policy, and if so, whether officers, directors or trustees and key employees are required to disclose interests that could give rise to conflicts. Also, the Form asks whether the organization regularly and consistently monitors and enforces compliance with the conflicts policy, and if so, how this is done. For the past few years, new tax-exempt organizations have been required to have a conflict of interest policy. The new Form's questions help to bring conformity to this area for existing tax-exempt organizations. If a tax-exempt organization has not previously adopted a conflict of interest policy, we recommend that it now do so. If it has such a policy in place, we recommend that the organization now review it and the organization's compliance with it.
  2. Whistleblower Policy. The Form asks whether the organization has a whistleblower policy. The Sarbanes-Oxley Act, enacted in 2002 to mandate better governance for corporations, makes it a crime for a nonprofit organization to retaliate against a whistleblower. Although it has been a good idea for nonprofit organizations to adopt a whistle blower policy, Sarbanes-Oxley did not mandate this. In light of this new question asked by the IRS, however, we recommend that tax-exempt organizations should now adopt a whistleblower policy if they have not already done so, or review any such existing policy.
  3. Document Retention and Destruction Policy. The Form asks whether the organization has a document retention and destruction policy. The Sarbanes-Oxley Act made it a crime for nonprofit organizations to knowingly alter, destroy, conceal or falsify any record or document with intent to impede, obstruct, or influence a federal investigation or the administration of any other federal matter. Again in light of this new question on the Form, we recommend that tax-exempt organizations adopt a document retention policy if they do not have one, or review any such existing policy.

The IRS is phasing in the new Form 990 over a three-year period to allow organizations to adjust to its requirements. The phase-in is determined by the level of income and assets of an organization. Eventually, for the taxable year 2010, tax-exempt organizations with gross receipts equal to or greater than $200,000, or assets of $500,000 or more, will be required to file the Form 990 rather than the simpler Form 990-EZ.

Craig Dalton, an attorney no longer with Poyner Spruill, was the original author of this article.

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