June 26, 2008 | Read Time: 1 minute
A committee of nonprofit experts that advises the Internal Revenue Service is urging the tax agency to be cautious in its stepped-up efforts to promote good governance by charities. Such efforts “are fraught with complexity,” said the Advisory Committee on Tax Exempt and Government Entities in a 112-page report.
The IRS’s new version of its Form 990 informational tax return includes questions about groups’ governance policies and practices, even though the federal tax code does not explicitly set out specific governance standards for the tax agency to enforce.
Effective governance practices among charities “will vary depending on numerous factors, including size, sophistication, location, available resources, and activities,” the committee said. “Moreover, while we may all agree that governance matters, it is not at all clear that requiring specific governance practices results in greater compliance with the tax law. In fact, superior board governance may have much more to do with the values, active engagement, and accountability of those in charge than with the adoption of procedures and policies.”
The committee said it acknowledged “the IRS’s longstanding stake and legitimate interest in governance issues as they relate directly to compliance with the laws under its jurisdiction.”
But, the committee said, “the IRS is a powerful force that can drive behavior merely by asking about specific governance practices. Charities can feel pressured to adopt the specific practices, even where it is inadvisable in their situation, because they believe the IRS or others will consider them poorly governed if they fail to do so.”
The report is available on the IRS’s Web site.
