Christian Leadership Alliance

2009 National "Economic Outlook Survey" Research Results

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Unraveling IRS Form 990

The IRS is revising Form 990, the annual information return that most non-church ministries (and all other tax-exempt organizations) must file with the IRS. Many larger ministries must begin filing the revised Form 990 in 2009, to report for their fiscal years beginning in 2008.

These changes bring new challenges for governing boards. In the wake of many charity scandals, often traceable to failures of governance, the IRS is adding 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. Exempt organizations (EOs) 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.

Because the new Form 990 requires disclosure of whether the EO has adopted various corporate policies, boards should give attention to these issues before the new form is filed. The fact that the board has thought through an issue and thoughtfully adopted (or reviewed) a policy is more important than the specific provisions of the policy (though the specifics are not unimportant).

governance and transparency

Form 990 Review. The new Form 990 asks whether it (Form 990) was provided to the governing board before it was filed, and requires each EO to describe the process (if any) used to review Form 990. Of all the questions relating to corporate governance, this is the least worthwhile. Preparation of Form 990 is a staff function, and while the officers should be aware of its contents, Form 990 cannot be assembled by the board, nor is that a valuable use of scarce board time. A copy of Form 990 should be provided to each board member when it is filed. However, it is much more important that Form 990 be prepared and reviewed by a knowledgeable accountant and lawyer before it is filed.

Conflict of Interest. Form 990 asks about family and business relationships among officers, directors, and key employees; whether the EO has a written conflict of interest policy; whether the policy requires officers, directors, and key employees to disclose annually interests that could raise conflicts; and whether and how the EO regularly and consistently monitors and enforces compliance with the policy.

Whistleblower Policy. Form 990 asks whether the EO has a written whistleblower policy. Such a policy is important to prevent retaliation against employees who report suspected illegal activities. Retaliation could violate both federal and state law.

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