Are You Aware of the New NonProfit Governance Requirements?

10/28/2009

The Internal Revenue Service redesigned Form 990 in 2008 and added a new “Governance, Management, and Disclosure” section. We have recently received a significant number of questions from clients concerning this redesigned form, what it means and whether the client should take any action in response. Let me address those concerns.

The IRS has provided transitional relief to small and mid-sized organizations, allowing many to file Form 990-EZ for 2008 and 2009 instead of Form 990, and providing them time to become familiar with the new form and its requirements. The following schedule sets forth the modified thresholds for filing Form 990-EZ (instead of Form 990) during this transition period:

May File 990-EZ:	Gross Receipts/Less Than:	And Assets/Less Than:
2008 Form (generally filed in 2009)	$1,000,000	< $2,500,000
2009 Form (generally filed in 2010)	$500,000	< $1,250,000
2010 and later Forms	$200,000	< $500,000

The IRS is phasing in the redesigned Form 990 in over three years beginning with the 2008 tax year. Form 990-EZ does not have governance inquiries. Form 990 carries with it a certain in terrorem mien as the failure to properly respond to the questions in this new section may lead to IRS audits.


The IRS now requires certain nonprofit corporations to respond to the following governance questions:

• How many members of the Board of Directors are independent?
• What is the process by which the Board of Directors reviews the organization’s tax filings?
• Does the organization have a written Conflict of Interest Policy?
• Does the organization require regular disclosure of potential conflicts of interest?
• Does the organization have a written Whistleblower Policy?
• Has the organization identified persons to whom whistleblowers may voice concerns?
• Does the organization have a written Document Retention and Destruction Policy?
• Does the organization have a process to determine compensation for its chief personnel?
• How does the organization make its tax filings available to the public?
• How does the organization make its governing documents (e.g., Articles of Incorporation and Bylaws), Conflict of Interest Policy and financial statements available to the public?

We recommend that all nonprofit corporations begin preparing and adopting these policies. Nonprofit corporations should first focus on the specific policies addressed by Form 990 (a Conflict of Interest Policy, a Whistleblower Policy, and a Document Retention and Destruction Policy) and then the other forms and policies.

The nonprofit corporation should also consider making its tax returns, governing documents, conflict of interest policy, and financial statements available for public inspection on its web site. The nonprofit corporation should also provide on its web site the name, physical address and telephone number of the person who possesses the books and records of the organization.

The redesigned Form 990 provides basic standards for these types of policies.

1. Conflict of Interest Policy. A conflict of interest arises when a person in a position of authority within an organization, such as an officer, director or manager, may benefit financially from a decision that he or she could make in the position. Included are indirect benefits to family members or to other entities with which the person is affiliated. Organizations should have a Conflict of Interest Policy that (a) defines conflict of interest (b) identifies the classes of individuals within the organization covered by the policy, (c) facilitates disclosure of information that may help identify conflicts of interest and (d) specifies procedures to be followed in managing conflicts of interest.
2. Whistleblower Policy. A Whistleblower Policy encourages employees and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect persons who do so from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported.
3. Document Retention and Destruction Policy. A Document Retention and Destruction Policy identifies the responsibilities of employees, volunteers, board members and outsiders for maintaining and documenting the storage and destruction of the organization’s documents and records.

Contact Us
We are available to help you design and install appropriate policies and procedures including a Conflict of Interest Policy, Whistleblower Policy and Document Retention and Destruction Policy to meet the new IRS Governance Requirements. We can also help you evaluate your other areas of operation which we have found are of interest to not only the IRS but the state attorney generals. Please contact Thomas F. Dougherty at Lommen, Abdo, Cole, King & Stageberg, P.A. at 612-339-8131 or thomas.dougherty@lommen.com.