Update on Management and Governance
By Laura Kalick
Although there is no specific Internal Revenue Code section that grants IRS authority to ask management and governance questions on the new Form 990, IRS takes the position that a well-governed organization is more likely to be tax compliant. In fact, the IRS has agent training materials on its website and will produce a post-audit checklist to see if an organization has fewer adjustments to an audit if the organization has used best management and governance practices.
Because there has been so much controversy regarding IRS’ authority to ask the management and governance questions, Senator Charles Grassley had recently introduced an amendment to healthcare legislation that would have given IRS specific statutory authority to ask for the information and quell any potential law suits that could seemingly arise where organizations did not provide the information and were penalized for not providing information or correct information on the Form 990. Grassley also had introduced an amendment that would have eliminated the Rebuttable Presumption of Reasonableness, a methodology, which if followed, could shift the burden to the IRS to prove that compensation is not reasonable. The basis for elimination of the rebuttable presumption of reasonableness appears to be a perceived increase in overall nonprofit executive compensation by constantly raising the bar when comparing one organization to another. For example, every organization believes that its executives, when compared to the executives of other organizations should be in the 95th percentile of the compensation survey which could then make the 95% the new average.
Grassley ultimately withdrew both amendments from the healthcare legislation but has indicated that the amendments could be added to future tax legislation. We will keep you updated on these future legislative initiatives.
For more information please contact our Nonprofit Services Group at 440-449 6800 or Laura Kalick, Tax Consulting Director in BDO Seidman’s Institute for Nonprofit Excellence located in the Greater Washington, D.C. office at lkalick@bdo.com.
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