An interesting article was published this week regarding the scrutiny of non-profits. The gist of the Article is that Congressional committees, state attorneys general and now the Internal Revenue Service (IRS) are placing nonprofit organizations under scrutiny and sending them scrambling for legal advice on sound governance practices.
The IRS jumped into the governance fray with a good governance practices "discussion draft" earlier this year and proposals for changes to Form 990, an annual financial document that many tax-exempt organizations must file with the IRS. The changes include a new governance section requiring information about an organization's board, governance practices and financial statement practices. The IRS is seeking comment on the proposed changes — which it hopes to roll out for the 2008 tax-reporting season — through Sept. 14.
There's a growing concern about practices in the tax-exempt area and an increased emphasis on how those organizations report activity to the IRS and comply with the law, said IRS spokesman Eric Smith. "The IRS isn't the only player, others have a role too, but we're part of the mix and the 990 filings is a part of it," Smith said. "Our real interest is helping organizations stay within the law." The IRS reporting changes will force nonprofit organizations to become more transparent and even more sensitive to governance issues, Rieman said. "It will compel organizations to be more aware of and more attentive to those new topics that the IRS is forcing organizations to address in more detail on their 990," Rieman said. "It's going to be more work for the organizations and more work for accountants and lawyers." In a June 28 letter to the Senate Finance Committee, the IRS Acting Commissioner Kevin Brown said that the agency is requesting a higher enforcement budget in 2008 to study reporting compliance by the tax-exempt sector and to add 109 staffers to its tax-exempt and government entities division to increase examinations. Smith said the tax-exempt sector's growth is prompting the increased compliance and enforcement efforts. "Any efforts we have in that area are tied toward matching our monitoring efforts with the importance and reach of that important sector," Smith said.