March 19, 2008
IRS Publishes Its Views On Nonprofit Governance
In a new publication available through the IRS web site, the IRS offers its opinion on what governance practices nonprofits should follow.
The publication begins with the following thesis: “The IRS believes that a well-governed charity is more likely to obey tax laws, safeguard charitable assets, and serve charitable interests than one with poor or lax governance.” The IRS goes on to explain that while tax law generally does not mandate any particular governance practices, the IRS has an interest in ensuring that both donors and charities are in compliance with the law, and therefore, the new IRS Form 990 asks specific questions about a nonprofit’s governance practices which will be used in IRS investigations of nonprofit organizations.
In particular, the IRS will be looking for whether an organization reports on its annual Form 990 that is has adopted formal written policies on: executive compensation, conflicts of interest, investments, fundraising, how governance decisions are documented, document retention and destruction, and handling whistleblower claims.
Need help developing appropriate governance policies? The Nonprofit Risk Management Center offers affordable consulting services such as review of bylaws and existing policies. Our staff experts can recommend where your organization’s governance practices should be strengthened and suggest appropriate policy language for your board’s consideration. For more information, please contact Melanie Herman at 202-785-3891.
Would your board appreciate some guidance on good governance? Here’s a favorite book on governance issues written by the Center’s Executive Director, Melanie Herman: Get a copy for all your board members!
Pillars of Accountability: A Risk Management Guide for Nonprofit Boards
The Center is offering three upcoming Webinars specifically focused on strengthening a nonprofit’s governance practices. Our Webinar series meets the first Wednesday of every month.All webinars are 2-3 pm EST – registration is available on-line:
Your Questions Answered by the Center’s Staff
Our Favorite Recent TA Question — We’ve selected our favorite recent technical assistance question (and our answer) to feature in this and future editions of the Center’s eNews. If you have a question, just go to our web site, www.nonprofitrisk.org, click on the ADVICE tab and select “Technical Assistance.” A simple form allows you to submit your question to our staff experts. We’ll respond within 48 hours and you can look for your question in a future eNews!
Q: Do we need a Code of Ethics?
A: There is no legal requirement to have a Code of Ethics unless your nonprofit is a party to a contract, or subject to accreditation or similar standards that require the nonprofit to have one. The public increasingly will expect nonprofits to have one in place. Many nonprofits publish their Codes of Ethics on their web sites. Note that for some government contractors, there is a new rule as of 12/24/2007requiring the adoption of a “Business Ethics Code.” Nonprofits that have a contract with the federal government expected to exceed $5 million, with a performance period of 120 or more days, must now comply with a new requirement to adopt and distribute a written “Contractor Code of Business Ethics and Conduct” to all employees. The nonprofit must also display the fraud hotline poster issued by the Office of the Inspector General. Failure to comply with the new regulations could result in the withholding of the contract payment and loss of the contract reward fees. These new rules are effective for contracts issued after December 24, 2007, but do not apply to existing contracts. The rules contain some exemptions for smaller organizations that nevertheless meet the $5 million threshold. For more information contact the Nonprofit Risk Management Center via email at email@example.com.