The 501 S(c)ene

The latest view on not-for-profit accounting issues

Board Governance = Tax Compliance?

The revised Form 990 is now old news since it came out back in 2008.  One of the significant changes to the form back then was the addition of the board governance section.  By adding that section, the IRS obviously was communicating their idea of what best practices should be followed by the Board of a nonprofit organization.  But the IRS also had future planned uses for this section.  Does good board governance lead to better tax compliance? That is one question the IRS is hoping to be able to answer by comparing the answers to this board governance section of the Form 990 to information obtained while performing IRS public charity examinations.  A preliminary analysis has recently been done on 1300 of these examinations started back in 2009 with the results showing a definite correlation between certain best practices and tax compliance.  At a recent conference, the IRS Exempt Organizations Division Director, Lois Lerner, reported that tax compliance is better when the organization has a written mission statement; uses comparability data when making compensation decisions, has procedures to properly use charitable assets, and provides a copy of the Form 990 to the entire Board of Directors before filing.  The IRS intends to use certain information obtained from the board governance section of the Form 990 to make plans for where their oversight projects are focused, so stay tuned!

By Colette Kamps, CPA