On December 9, 2009, the Internal Revenue Service (IRS) posted on its website (www.irs.gov) a “Governance Check Sheet” and a related “Governance Project Guide Sheet for Completing the Project Check Sheet.” The posting states that 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. These Check Sheets will apply to examinations of public charities after September 2009. The data generated from these Check Sheets will be included in a long-term study to gain a better understanding of the intersection between the governance practices and tax compliance of tax-exempt organizations. IRS asserts that good governance is important to increase the likelihood that tax exempt organizations will comply with the tax law, protect their charitable assets and thereby best serve their charitable beneficiaries.
The Governance Check Sheet lists information that the examining agent will seek from tax exempt organizations in the following areas: (1) governing body and management, (2) compensation, (3) organizational control, (4) conflict of interest, (5) financial oversight, and (6) document retention. The questions in the Check Sheet go far beyond those in IRS Form 990 and will require the IRS Examination agents to probe deeply into the practices and procedures of the organizations being examined. Public charities would be well advised to modify their practices and procedures as necessary to conform to the standards implied in the Check Sheet, because those charities with many “wrong” answers are more likely to be subject to intensive audit.