The latest Form 990 includes an entirely new section on corporate governance (in Part VI), which probes how a nonprofit manages critical issues such as the independence of its board and the resolution of conflicts of interest among key players in the organization. Although the IRS has very little authority to investigate corporate matters (these are generally left to state agencies), this section allows it to explore the relationship between good corporate governance and compliance with the tax code.
Within the new corporate governance section, your organization will have to answer questions about:
For example, some of the questions include:
Your organization will need to fill out a new table and section with information on compensation for its officers, directors, key employees, highest compensated employees, and independent contractors. All filing organizations -- not just charities -- must now complete this section. Because the definitions of the persons covered in this section have changed, be sure to read the instructions carefully.
Schedule A, which most 501(c)(3) organizations will be required to file, now focuses exclusively on proving that your organization is getting public support and deserves public charity status. (Other issues addressed in the old Form 990 Schedule A have been moved to either the core form or to additional schedules in the new 990.)
Being well-prepared will make it easy to submit the new Form 990. The first steps you should take include:
After obtaining an overview of the form and instructions, your committee can determine whether your nonprofit needs more advanced preparation for the particular questions within the 990. Among other areas to explore, your committee should definitely take a hard look at your nonprofit's governance procedures by following these next steps:
Review the corporate governance section. Hold a board meeting to review key policies already in place at your nonprofit and discuss whether adopting new policies will be helpful. For example, having a conflict-of-interest policy is considered good corporate governance, but whether your nonprofit needs to adopt policies regarding joint ventures, executive compensation, or whistleblowers depends on its particular activities. In a situation where your nonprofit is run entirely by volunteers and performs all of its functions without partnering with a for-profit business, your board probably wouldn't need these extra policies.
Prepare questionnaires. Prepare questionnaires for your officers, directors, and key employees. The directors' questionnaire should draw out information about their voting independence. Another important questionnaire topic concerns the family and business relationships among your organization's officers, board, and key employees.
Even if you feel like you know the answers, distributing these questionnaires serves a protective function: According to the instructions to the revised Form 990, circulating such questionnaires annually constitutes "reasonable efforts" to obtain this information.
Review your nonprofit's meeting records. Do this to ensure that your board is keeping accurate and contemporaneous records or "minutes" of its key decisions.
Review your nonprofit's procedures for filing Form 990. Your organization will have to disclose how it approves the Form 990 before sending it to the IRS. Make sure you have procedures in place providing adequate oversight by your board or other governing body.
For more information on filing nonprofit tax returns, see Every Nonprofit's Tax Guide: How to Keep Your Nonprofit's Tax Exempt Status and Avoid IRS Problems, by Attorney Stephen Fishman (Nolo).
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