Does Your Nonprofit Organization Have All the Proper Policies in Place? - The IRS Is Asking

Does Your Nonprofit Organization Have All the Proper Policies in Place? - The IRS Is Asking
From the November 2009 Riker Danzig Tax and Trusts & Estates UPDATE

The recently revised IRS annual reporting Form (990) for nonprofit organizations asks many new questions about organization policies and practices. This is part of the IRS's effort to encourage good governance by nonprofit organizations, promote their compliance with tax rules and make their activities more transparent to the IRS and the general public (keeping in mind that an organization's Form 990 is a matter of public record).

While the revised form is the one used by public charities to report their activities, we expect that similar inquiries will soon be a part of the Form 990PF (for private foundations) and other types of 990 forms. Thus, we are encouraging all of our nonprofit organization clients to be mindful of the new Form 990 changes and to consider what policies and procedures they should put into effect as a result.

Required: Every nonprofit must have a mission statement that articulates its purpose and the reasons for its existence. While every nonprofit organization that has been granted tax exempt status by the IRS would have a written statement of purpose that complies with the law, in many cases that statement is so general that it should be more "finely tuned" into a clearly articulated mission statement. In the case of a public charity, in particular, the mission statement should inform the public about the organization's guiding principles, values and activities.

Recommended Policies: Although the only mandatory legal requirement for all nonprofit organizations is a mission statement, every nonprofit organization should consider implementing the following policies:

Recommended Procedures:

Other Policies to Consider: Although the policies discussed below may be beyond the scope of a small family-run private foundation or small public charity, nonprofit organizations that receive government funds, send money abroad, provide services and/or engage in business with for-profit organizations should consider these policies as applicable:

All policies (and procedures) should be in writing, and their coverage, application and enforcement should be well documented. Each policy should include a provision that requires a periodic review to confirm the policy is enforced and effective and to determine whether any revisions are necessary. These periodic reviews should actually take place.

While an organization with good governance policies and procedures is more likely to be in compliance with the federal income tax laws, mere adoption of a policy, without more, is worse than no policy at all. Organizations should resist the urge to merely adopt each covered policy. A governing board should be sure to publicize these policies within the organization, to assign responsibilities for carrying out and enforcing them and to monitor the policies for appropriateness and effectiveness.