IRS recommends guidelines for nonprofit governance
By Steven L.F. Ho
THE INTERNAL Revenue Service recently released a staff discussion draft of good governance practices for charitable organizations. The IRS believes that the implementation of good governance practices will help ensure that directors understand their roles and responsibilities. The governance practices cited by the IRS include these:
- A clearly articulated mission statement.
- Adoption of a code of ethics and whistleblower policies.
- Exercise of due diligence consistent with the duty of care.
- Avoidance of conflicts of interest consistent with the duty of loyalty.
- Transparency through full and accurate disclosure of information.
- Adoption of fundraising policies.
- Financial stewardship through audits and reviews.
- Payment of no more than reasonable compensation for services.
- Adoption of a document retention policy.
Click here to see a complete copy of the governance guidelines on the IRS website.
The recommended practices are derived from a variety of sources. Those for the adoption of code of ethics, whistleblower and document retention policies are based on provisions contained in the Sarbanes-Oxley Act. The practices relating to the duty of care, the duty of loyalty and fundraising are founded on state nonprofit laws (i.e., the Hawaii Nonprofit Corporations Act and Hawaii’s charitable solicitation laws). Other recommendations such as an organization’s compensation practices are consistent with recent initiatives by the IRS, such as its Executive Compensation Compliance Initiative.
While the recommended practices are only preliminary, it is an indication of areas that are, and will continue to be, of interest to the IRS. Accordingly, it is prudent for charitable organizations to use these recommendations as a guideline when reviewing and developing their own governance policies.
Steven L.F. Ho is an attorney with the Honolulu firm of Torkildson, Katz, Fonseca, Moore & Hetherington and a member of the HANO Board of Directors.
