The IRS recently released a Governance Check Sheet that its examination agents will use when examining charitable organizations (other than private foundations), along with a Guide Sheet providing instructions on how to use the Check Sheet.
According to the IRS’s webpage for exempt organization governance issues, the Check Sheet “will be used by IRS’ Exempt Organizations Examination agents to capture data about governance practices and the related internal controls of organizations being examined.
The data will be included in a long-term study to gain a better understanding of the intersection between governance practices and tax compliance.” These materials are in addition to the governance training materials previously released by the IRS.
The Check Sheet inquires whether certain written documents exist (mission statement, conflict of interest policy, financial reports, independent accountant’s report and management letter, document retention policy, and board minutes), whether compensation for board members and senior staff is set through a process that meets the intermediate sanctions rebuttable presumption process, and details regarding family and outside business relationships that exist among board members.
The Check Sheet also incorporates a number of questions regarding the board. These questions include inquiries about the number of board meetings and whether the board reviews financial reports, the independent accountant’s report and management letter, and the charity’s Form 990.
It will be interesting to see whether IRS agents in the field understand that the check sheet does not represent prerequisites for exemption but rather are for information gathering purposes. At least in the context of applying for tax-exempt status, our experience has been that field agents are prone to treating the IRS’ governance best practices as requirements for exempt status.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations. Ellis is licensed to practice in Washington and Arizona and advises nonprofits on federal tax and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.