Saturday, June 27, 2009
Sarah Hall Ingram, the new commissioner of the IRS TE/GE (Tax-exempt and Government Entities) division of the IRS, spoke on June 23 at Georgetown's Continuing Legal Education program about the IRS role in nonprofit governance. In the speech, Ingram identified four general principles that she believes are essential to good nonprofit governance:
A foundational principle is that the organization should clearly understand and publicly express its mission. This helps assure that the organization provides a public benefit and does not drift away from a charitable purpose. It helps an organization avoid practices that are inconsistent with tax-exempt status.
Equally important is the principle that the organization’s board should be engaged, informed and independent. The board should have real responsibility and authority. It must, for example, be able to implement, in the life of the organization, the rules against inurement and self-dealing.
Another set of key good governance principles are those relating to the proper use and safeguarding of assets. These principles are supported by policies and practices that address executive compensation, that protect against conflicts of interest, and that support independent financial reviews.
Transparency is another key principle. I believe that board decisions should be reflected in minutes, that records supporting decisions should be retained for reasonable periods, that whistleblowers should be protected, and that each year’s Form 990 should be complete, accurate and prepared in good faith.
Ingram insisted that the IRS would not create a "one size fits all" definition of governance, but strongly reaffirmed the IRS's role in governance issues: "Another principle I will follow isthat the IRS has a clear, unambiguous role to play in governance." While I have some doubts about the extent to which the IRS should be active in governance matters, it is hard to argue with Ingram's view that certain core exemption issues (executive pay, other private inurement, political activity, etc.) do involve governance processes. It will be interesting to see how the IRS's role in governance evolves under Ingram's leadership.