The IRS’ redesigned Form 990 dramatically increases the number of questions dedicated to the corporate governance of the responding tax-exempt organization. This increased focus reflects the IRS’ close scrutiny of corporate governance, and its perspective that a well-governed organization is likely to be a tax-compliant organization.
The core of the IRS’ Form 990 governance emphasis is found at Part VI (page 6), “Governance, Management, and Disclosure.” It contains 20 separate questions, relating to (a) governing body and management; (b) policies; and (c) disclosure, respectively.
Within these 20 questions are references to whether the organization maintains certain specific corporate governance-related policies and procedures. The IRS has repeatedly indicated that an organization’s adoption of these particular policies is not a prerequisite for maintaining federal tax-exempt status. Indeed, these policies are not legally required. However, such adoption will most certainly reflect favorably on the organization, the effectiveness of its corporate governance system and the good faith of its board. This would have positive benefits from both tax-exempt status and non-profit law/prevention of director liability perspectives.
The failure of an organization to adopt the referenced governance policies will not have an immediate, negative effect. It would manifest itself unfavorably, however, in the event of a tax controversy with the IRS (e.g., audit, examination). The IRS would likely view the absence of such policies as an indicator of potentially poor governance, and take that into consideration in determining the scope of the examination, its position on governance-related compliance issues, and any applicable penalties. A state attorney general or other charity official would likely take a similar view when called upon to address a governance controversy under state non-profit corporate law.
The specific policies are referenced, directly or indirectly, in Part VI of the Form 990 (used for fiscal years beginning in and after 2008). They do not represent the totality of recognized corporate governance policies and procedures (see, for example, The Panel on the Nonprofit Sector), but they constitute a good start. Further, there is no “one size fits all” approach to these policies; no specific form or template that has the IRS’s “seal of approval.” It is thus incumbent upon a non-profit organization to adopt polices that its board has determined to be appropriate given its particular circumstances, and after consideration of applicable state law.
To provide members with assistance in this effort, The Governance Institute has commissioned the preparation of template governance policies, intended to be responsive to each of the related Part VI Form 990 questions. They were prepared by The Governance Institute’s long-time friends, Michael W. Peregrine and Ralph E. DeJong of McDermott Will & Emery, LLP. Michael and Ralph caution our members, as they consider these templates, to take into consideration their particular local requirements. Non-profit organizations would be well advised to view these templates as a starting point, and to work with their general counsel to tailor and adopt the templates to comply with applicable state law and other facts and circumstances unique to the organization.
The template forms, and their Form 990/Part VI reference locator, are listed below. Click on the policy name to open up the Word Document template. (You must be logged in with your member username and password to access these templates.)