Association Law: Legal Issues for Management
Monday, December 29th, 2008
Association Policies Beneficial When Filing the New IRS Form 990
by Michael A. Williams, Esq.
December 2008
Trade associations, foundations and other non-profit organizations will want to consider adopting several non-mandatory policies before the end of their current fiscal year as a result of new governance policy and other questions they will be required to answer when they file the new IRS Form 990. Answers to the new questions indicating the association does not have the policies certainly will not automatically result in an audit, but answering “Yes” to the questions should decrease the chances of an audit.
The IRS spent many months preparing the most substantial revisions to the Form 990 information tax return in over 15 years. The new form covers calendar year 2008 and fiscal years that began during 2008. The new 990 is an important event for Section 501(c)(3) and 501(c)(6) organizations and all others in the non-profit community.
The new form contains many more questions than before and has several new schedules. The additional questions and revised schedules will allow the IRS, generally, to monitor some tax-exempt organization issues in much more detail than before. Congress held hearings over the last few years related to abuses by a few high profile non-profits and in certain areas (compensation, hospitals, donated easements, etc.)
Among the new Form 990 questions are whether a non-profit association has the following governance policies (2008 Form 990, Part VI, Lines 12, 13, 14, 15 and 16):
1. Conflict of Interest Policy;
2. Whistleblower Policy;
3. Document Retention and Destruction Policy;
4. Compensation Policy (for setting the compensation of the highest paid officers); and
5. Joint Venture Policy.
In addition, the Form asks if the non-profit requires the Board and Board Committees to keep written minutes of their meetings, so I would add a sixth policy:
6. Policy requiring that the Board of Directors and Committees of the Board keep written Minutes of their meetings.
These policies are not required, however, adoption of several or all of them should lessen an association’s odds of being audited.
In order for the tax-exempt organization to answer yes to the questions, its Board must adopt the policies no later than the end of its first fiscal year that began during 2008 and ends during 2009. Adoption after the end of the fiscal year will not allow the association to answer yes to the questions on the 2008 Form 990.
I have developed documents suitable for each of the policies. The format of each policy is fairly short and meets the minimum IRS requirements. If your association wants a more elaborate policy on any of these issues, it can expand the policy now or adopt the policy and revise it later.
I urge any exempt organization and its Board to consider these policies by or before the last Board meeting of the fiscal year ending during 2009 or use a unanimous written consent in lieu of a meeting to adopt them.