Enhancing Governance--The Need for More Outreach
As I discussed above, stronger governance procedures are needed for exempt organizations. The sanctions for serious lapses in governance are clear. There is the possibility of revocation of exemption, along with the various excise taxes against individuals that I mentioned before. But sanctions are a last resort. We need to publicize practices that will help and encourage these organizations and their officers to prevent abuses in the first place.
To help tax-exempt organizations, we are developing a plain-language brochure to set forth certain practices we believe will be useful in promoting good governance, ethics, and internal oversight. This brochure will be available this fall.
The publication will explore practices that are not necessarily required by law but that may elevate the standards, conduct, and workings of exempt organizations. Although the IRS does not have authority to require organizations to follow specific practices, organizations without effective governance controls are more likely to have compliance problems. The publication is intended to provide exempt organizations, and in particular public charities, with a list of practices that will help guard against abuses involving, among other things, inappropriate financial transactions and operations. Among the topics we expect to cover are standards of integrity; the role, selection and duties of the governing board; conflict of interest policies; record-keeping; checks and balances that help prevent abuses; and fundraising practices, to name a few.
We also are developing forms changes to focus more specifically on governance questions. We have asked for and received comments from the public on whether the annual information return for exempt organizations (Form 990) should require disclosure of whether the organization has a conflict of interest policy or an independent audit committee, and whether additional disclosure should be required concerning certain financial transactions or insider relationships. Our Form 990 revision team is working on a comprehensive overhaul of the form to provide better compliance information about these organizations to the IRS, the states, and the public.
In addition, we are revising Form 1023, Application for Recognition of Exemption, to provide new focus on governance issues, both in terms of questions that explore compensation setting practices and arrangements, and on conflict of interest questions. We are expanding the form instructions to include a sample conflict of interest policy, and other materials to help filers better understand good governance practices. We expect the revised Form 1023 to be available by the end of the calendar year.