This past April, Steven Miller, Commissioner of Tax Exempt and Government Entities (TE/GE) for the Internal Revenue Service spoke at Georgetown law school regarding nonprofit governance and management.
Mr. Miller first addressed governance issues, which he believes cuts across virtually everything the IRS sees and does in its work. He stated that every nonprofit should strive for “an active, independent and engaged board of directors overseeing the organization,” and that the Service’s goal has become to educate nonprofit leaders about how to achieve this type of governance.
This year, the Service has revised Form 990, the annual reporting return that certain exempt organizations must file. The "crown jewel" of the revision is the governance section, which "asks about the composition and independence of the governing body, about governance policies and procedures, and how and whether governance and financial information is made available to the public." The Service has included a FAQ section on their website to answer questions about the revised Form. It can be found here.
Indeed, instead of leaving organizations to guess about proper governance and about what is expected of them from Form 990, the Service is striving for better communication and openness. The service would like organizations to know in advance the questions that will be asked on Form 990. This, Mr. Miller stated, will allow organizations to be able to implement beneficial programs (such as a conflict of interest policy or a compensation committee) sooner, not simply a month before tax forms are due.
Mr. Miller addressed skeptic’s questions as to why the Service should play a part in nonprofit governance. He responded that poor governance leads to wasted assets; the Service can help assure that those “assets are used for exempt purposes, and that the billions of dollars of federal tax subsidies Congress has authorized are well spent.”
Moving away from governance, Mr. Miller spoke about efficiency and effectiveness of nonprofit organizations. Several problems lie with enforcement in that area, one being a lack of clear jurisdiction, and the other a lack of resources: the number of nonprofits has nearly doubled over the last ten years but staffing of TE/GE has not changed over the same period. With these two setbacks, tax exempt status may be abused, for example, by spending almost all contributions on compensation and fundraising and almost none on services.
One solution, Mr. Miller stated, is to encourage transparency, and the first step toward this can once again be found in the revised Form 990. The first page of the Form contains “efficiency indicators” such as the amount of fundraising spent per year. This has garnered much criticism, as many pointed out that some new or unpopular organizations sometimes require massive fundraising. Mr. Miller conceded that the revised Form and the climate of transparency is imperfect, but that it is a good starting point that will likely lead to increased effectiveness.
To read Mr. Miller’s remarks, click here.
– Taleen Alexander