IRS to Continue Enforcement of Nonprofit Governance Issues
06/29/2009Hospitals and other tax exempt organizations can continue to expect the Internal Revenue Service (IRS) to exercise close but balanced oversight of their corporate governance practices under the tenure of new IRS Commissioner Tax Exempt and Government Entities Sarah Hall Ingram.
In remarks made at a recent nonprofit governance conference jointly sponsored by the Georgetown University Law Center, the IRS and Independent Sector, Commissioner Ingram explained why she believes the IRS has a jurisdictional basis under the Internal Revenue Code to stay engaged in nonprofit governance, and how good governance relates to matters of tax compliance. In doing so, the Commissioner stated that the IRS expects to maintain a measured, if vigilant approach, and will not seek to usurp the business judgment of the nonprofit board. In this regard, the IRS will not seek to apply a "one size fits all" approach to governance in the nonprofit sector.
Of particular interest to hospitals and other nonprofit organizations is the addition of a governance training program for IRS determination and examination agents, which will incorporate documents and other guidance prepared by elements of the nonprofit sector (e.g., the Panel on the Nonprofit Sector's "Principles for Good Governance and Ethical Practice"). In addition, IRS agents will be directed, at the end of examinations, to complete a check sheet concerning the examined organization's governance practices and internal controls. The check sheet will be used to identify instances of non-compliance identified during the examination, and to gather information about whether the organization had, and applied governance controls.
The fundamental message from Commissioner Ingram's presentation is that the IRS is not "backing off" of the belief that it has an important role to play in encouraging hospitals and other tax exempt organizations to maintain and effectively apply good governance practices. Accordingly, it is appropriate that such organizations continue to place administrative emphasis on their governance practices, not only as a matter of assisting the board in the exercise of its fiduciary obligations but also, since the IRS has indicated it will be enforcing such area, as a matter of tax compliance.
The entire text of Commissioner Ingram's presentation can be accessed at: http://www.irs.gov/pub/irs-tege/ingram__gtown__governance_062309.pdf.
