Thursday, May 1, 2008

IRS Plans to Continue Expansion into "Non-Tax" Oversight of Charities

The Chronicle of Philanthropy reports that Steven T. Miller, Commissioner of the IRS' Tax-exempt and Government Entities Division, stated at a recent conference that the IRS will continue to inquire about management and governance policies and also plans to be more aggressive in monitoring the efficiency and effectiveness of charitable organizations.  While acknowledging that both areas are not expressly within the IRS' jurisdiction, he cited congressional and public interest that at a minimum supports an IRS push for increased transparency and disclosure with respect to these issues by expanding the information sought on the Form 990 annual return.  This expanded scope is illustrated by many new questions on the revised Form 990 that will be effective for tax year 2008 (to be filed in 2009 and later years).  He also said the IRS plans to re-energize the application of the commensurate test to create a standard for spending by charitable organizations based on their resources, including assets such as endowments.

The IRS released written copies of Mr. Miller's comments on April 23rd and April 24th at the annual Georgetown University conference on tax-exempt organizations.  His April 23rd comments focused on governance, which he stated matters to the IRS because "a well-governed organization is more likely to be compliant, while poor governance can easily lead to trouble."  He noted that efforts to date have focused on disclosure on the Form 990, particularly with respect to board composition, but stated that future efforts will also extend to education about governance not only through education programs but also through both the initial determination process and the examination process.  With respect to the latter, the IRS also hopes to develop further data about the relationship of good governance practices and legal compliance.

In his April 24th comments, Mr. Miller reiterated the governance points he had made the day before but also discussed the IRS role in encouraging efficiency and effectiveness.  He stated that transparency and disclosure is the main IRS approach to this area currently, but also that the IRS is looking at the commensurate test as a legal standard that it can invoke in this area.  He noted that the IRS plans both to develop a program initiative focusing on the commensurate issue over the next 18 months and to consider this issue as part of its study of colleges and universities that it will begin later this year.


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