Christian Leadership Alliance
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Impact of the New Form 990
There was a day when charities significantly controlled the disclosure of an organization's financial data. There was also a day when the governance of charities was conducted below the radar of the media and the public.
Those days were before issues at the American Red Cross, The Nature Conservancy, American University and the Smithsonian became media fodder. Those days were before Senator Charles Grassley and the Internal Revenue Service became intensely interested in governance issues and greater transparency of charities. Those days are over for most charities!
Yes, there is a select group of 501(c)(3) charities that are exempt from the disclosure and governance limelight. They are religious orders, integrated auxiliaries of churches, "steeple" churches and those "non-steeple" charities that are organized as churches—televangelists and a surprising number of other charities you would not imagine are organized as churches. But most nonprofits are Form 990 filers and subject to the new disclosures.
The new Form 990 significantly expands the reporting requirements. The form continues to offer public relations opportunities for organizations that use it well, but the greater specificity of the form increases the traps for the unwary.
The IRS is seeking more information to reflect the inner works of nonprofits in order to provide better information to the public. "The new Form 990 instructions bring tax compliance in general, and the Form 990, in particular, into the boardroom more than ever before. It requires nonprofits to confront potentially sensitive issues relating to board structure, conflicts management, and disclosure of compensation, as well as business and financial relationships between board members," according to Michael W. Peregrine of McDermott Will & Emery LLP, Chicago.
The governance section of the new form increases the level of due diligence from board members, which ultimately places a larger workload on board members who are typically uncompensated volunteers.
Attorney Chip Watkins with Webster, Chamberlain, and Bean, Washington, D.C., says, "In the wake of many charity scandals, often traceable to failures of governance, the IRS has added a series of 'governance' questions to Form 990 because it rightly believes that a well-governed organization is less likely to have tax or other compliance problems. Nonprofits that demonstrate that they are well-governed, as evidenced by board attention to corporate policies, compensation of key executives, and stewardship of ministry assets, are less likely to be audited."
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