Regulators Say Governance Efforts Increasingly Accepted by Nonprofit Leaders

The Internal Revenue Service has received considerable criticism as it has stepped up its interest in the governance practices of charities.

The federal tax code does not explicitly set out governance standards for the IRS to enforce, but the tax agency has nonetheless been more aggressive in keeping an eye on charities’ practices.

As a result, some nonprofits and legal experts have said the IRS has overstepped its legal authority.

But Lois G. Lerner, director of the IRS’s Exempt Organizations division, says she has noticed that the criticism is starting to die down.

“When we first raised the word ‘governance,’ they came after us with apples, tomatoes, and big frying pans to hit us over the head: You’re the IRS, you have no business in governance,” Ms. Lerner told regulators and charity leaders at the National Association of State Charity Officials conference in Silver Spring, Md.

“No one thinks that anymore,” she said. “Everyone understands this is important to us because it’s an indicator for whether you are following the tax rules.”

The IRS’s revised Form 990 informational tax return, the primary document charities file each year, includes a series of questions about organizations’ governance policies and practices, in part because the tax agency believes good governance increases the likelihood that organizations will comply with tax law and protect their assets. Last year, the IRS released several documents to help its agents as they gather data about the governance practices and related internal controls of charities they are auditing.

Ms. Lerner said she thinks most large charities understand the importance of putting in place strong governance practices.

“I’m worried about the middle-sized organizations and the small organizations,” she said. “And that’s where I say ‘shame on you’ to the larger organizations for not reaching out to your smaller counterparts and helping them with this issue that can be difficult if you don’t understand it. I think the larger organizations have a responsibility to try to help the smaller ones.”