On December 10, the IRS released a new exempt organizations governance check sheet likely to assist agents in asking new questions about tax-exempt organizations’ governance practices. The guide sheet directs agents to determine if the organization complies with a number of governance practices the IRS believes lead to compliance with IRS rules on tax exemption. The 20 substantive questions provided in the guide sheet include the following:
1) Whether the organization has a written mission statement that reflects its current tax code 501(c)(3) purposes;
2) Whether compensation arrangements for all officers, directors, trustees and key employees are approved in advance by an authorized body of the organization composed of individuals with no conflict of interest;
3) Whether the organization’s Form 990 is reviewed prior to filing by either the full board or a designated committee; and
4) Whether a management letter was prepared by an independent accountant during the primary year under examination (when auditors perform an audit, they now are required to issue a management letter that identifies problems in the accounting system, and IRS agents now have a check sheet requiring that they ask questions about the letter).
Other important questions on the check sheet relate to compensation and organizational control, as well as a request that the agent take a close look at the source of any comparable information used in setting salaries. Finally, the sheet mandates that the agent look beyond the Form 990, including determining whether there are individuals or small groups to whom the board of directors defers.