Thursday, December 17, 2009

IRS Releases Governance Check Sheet to be Used by EO Exam Agents

The Internal Revenue Service recently released a Governance Check Sheet that its examination agents will use when examining charitable organizations other than private foundations, along with a Guide Sheet providing instructions on how to complete the Check Sheet.  According to the IRS's webpage for tax-exempt organization governance issues, the Check Sheet "will be used by IRS’ Exempt Organizations Examination agents to capture data about governance practices and the related internal controls of organizations being examined. The data will be included in a long-term study to gain a better understanding of the intersection between governance practices and tax compliance."  These materials supplement the governance training materials previously released by the IRS.

It will be interesting to see whether IRS agents understand and communicate to charities under examination that questions relating to the Check Sheet are for data collection purposes and do not (at least as of yet) represent federal tax law requirements.  Among items listed on the Check Sheet are whether certain written documents exist (mission statement, conflict of interest policy, financial reports, independent accountant's report and management letter, document retention policy, and board minutes), whether compensation for board members and senior staff is set through a process that meets the intermediate sanctions (Internal Revenue Code section 4958) rebuttable presumption procedure, and how many family and outside business relationships exist among board members.  The Check Sheet also includes a number of questions relating to board activities, including the number of board meetings and whether the board reviews financial reports, the independent accountant's report and management letter, and the charity's Form 990.


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