Nonprofit Organizations 101…a/k/a 990
Thursday, February 11, 2010
Contributed by: Thomas R. Dixon, Jr.
Nonprofit organizations that are exempt from taxation under the United States Internal Revenue Code are required to file an annual Form 990 with the United States Internal Revenue Service (IRS). In 2008, the IRS substantially amended Form 990 to seek more information from exempt organizations.1 Some of the most important new information requested by the IRS involves management of the nonprofit organization on the theory that “a well-governed organization is more likely to be in compliance with the tax laws.”2
Part VI., Section B of the “new” Form 990 asks exempt organizations whether they have a written conflict of interest policy and whether officers, directors and key employees are required to annually disclose any interests that could give rise to conflicts. The form also asks whether the organization “regularly monitors and enforces compliance” with its conflict of interest policy. Section B also asks the organization whether it has written whistleblower and document retention policies.
The IRS clearly expects exempt organizations to answer “yes” to these questions on Form 990 while recognizing that these policies will be more complex for the Red Cross than for a small, community-based nonprofit organization with only a few employees.3
Since the IRS expects nonprofits to affirmatively answer these important questions, it is time and money well spent for all nonprofits, regardless of size, to draft, implement, and enforce these policies. For small nonprofits, this undertaking may mean drafting simple policies consisting of only a few paragraphs. Large nonprofits could well have multi-page policies or manuals dealing with these issues. All nonprofits, again regardless of size, should have officers, directors, and key employees complete a conflict of interest disclosure form at least annually and encourage their officers, directors, and key employees to comply with all of these written policies.
In short, a wise nonprofit seeks the guidance of legal counsel and tax professionals to make sure that its answers to the governance questions on Form 990 are what the IRS expects. It then governs itself in a manner consistent with those written policies.
1 Blazek and Rozenberg, The New Form 990 One Year Later, 27th Annual University of Texas Nonprofit Organizations Institute, January 14, 2010.
2 IRS Update on Nonprofit Organizations: A View from Washington, 27th Annual University of Texas Nonprofit Organizations Institute, January 14, 2010.
3IRS Update on Nonprofit Organizations: A View from Washington, 27th Annual University of Texas Nonprofit Organizations Institute, January 14, 2010.
This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.
