Form 990 Governance Questions: What’s the IRS Really After?
If you’ve worked at all with the 2008 Form 990, or if you’ve talked with any nonprofit accountant about it, you know that it’s been greatly rearranged, redesigned, and made much longer. While the balance sheet and statement of activities haven’t changed all that much, there are new sections full of questions that seem to be causing a great deal of worry and flurry, and this seems to be true most of all of Part VI: Governance, Management and Disclosure. If management hasn’t gotten around to passing and instituting a whistle-blower protection policy, a conflict of interest policy, or a document retention and destruction policy, they feel concern at answering “no” to those questions.
I offer you some soothing words about this section. First, remember that your organization will only need to file the full-length Form 990 for 2008 if its gross receipts hit $1,000,000 in the fiscal year that began sometime in that year and its total assets exceed $2.5 million on the last day of the year. The alternate form for smaller organizations, the 990 EZ, doesn’t include the section on Governance, Management and Disclosure, which is not to say that it won’t in the future. (Remember, though, that the filing threshold drops next year to $500,000 and again the year after, to $200,000 where it stays. The total asset threshold drops, too.)
Secondly, in its 2009 Work Plan, IRS explains that it is conducting five compliance initiatives, and Governance is one of them. Form 990 Part VI makes it very clear that the policies being asked about are not required by the Internal Revenue Code – it says so in parentheses right after the title. So why is IRS asking about them?
In the description of their “compliance initiative”, they say they “will begin identifying Form 990 governance questions that could be used in conjunction with other Form 990 information in possible compliance initiatives, such as those involving executive compensation, transactions with interested persons, solicitations of noncash contributions, or diversion or misuse of exempt assets.” I understand that to mean they are gathering information about the best questions they could ask to uncover abuse in these arenas. They have made it clear that there will be no negative consequences to organizations that answer “no” to these questions when it seems that “yes” should be the only acceptable answer. At least for the time being.
That said, the advice I heard from more than one presenter at the Not-for-Profit Conference I attended earlier this month is that each and every organization should take these issues seriously, putting the policies and practices in place in the coming year. For some organizations, this will not be easy due to lack of interest on the part of management or to understaffing or to board meetings spaced months apart, so I encourage you to read Part VI Sections A & B and make a work plan now to address each issue.
Two issues that will require more than simply passing a policy are conflict of interest and the process for setting executive compensation. Line 12a asks about a written conflict of interest policy and 12b asks “Are officers, directors or trustees, and key employees required to disclose annually interests that could give rise to conflicts?” Further, 12c asks “Does the organization regularly and consistently monitor and enforce compliance with the policy? If yes, describe in Schedule O how this is done.” Questions about the process for setting executive compensation are in 15 – 15b and they are equally specific.
Start now to get these policies and procedures in place, if you haven’t already. The effort of getting any needed changes underway will bear fruit soon and leave you feeling good after filing your next 990 rather than wishing you could hide under your desk.
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