Advisory Committee on Tax Exempt and Government Entities (ACT ...

More documents

Recommendations

Info

The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance IssuesThere are, however, occasional cases that are public. The required public release ofthe Hermann Hospital closing agreement, discussed in Appendix 3, is one example.Perhaps the best-known instance of the IRS requiring governance changes as acondition of continued exemption is the Kamehameha Schools / Bishop Estate matter,as described in the book Broken Trust. 127 In that matter, which has come to be knownas the Bishop Estate, the IRS required the wholesale removal of a charity’s governingbody as a condition of not revoking the charity’s tax-exempt status. 128 The closingagreement between the Bishop Estate and the IRS required the charity to agree toadopt and implement a number of significant governance changes, in addition to theremoval of the then current trustees. 129As with determinations, there also are occasional private letter rulings and technicaladvice memoranda 130 where the IRS determined that an organization did not qualify fortax exemption under section 501(c)(3), at least in part because its governance structureresulted in private inurement or private benefit. In a technical advice memorandumreleased in 2004, the IRS looked at whether a closely-controlled church organizationhad violated the conditions of tax-exempt status on various grounds. In analyzingwhether a substantial non-exempt purpose existed, the IRS focused on theorganization’s accumulation of substantial investment and commercial assets. The IRSconcluded that the asset accumulation was appropriate given the organization’sreasonable anticipated needs for financial reserves. In confirming that the organizationdid not have a substantial non-exempt purpose, the IRS commented:Small, closely-controlled exempt organizations—and especially those thatare closely controlled by members of one family—with related businessentities require thorough examination to insure that the arrangementsserve charitable purposes rather than private interests. Qualifying forexemption is a facts and circumstances test. There is nothing thatprecludes an organization that is closely controlled or has related for-profitorganizations from qualifying, or continuing to qualify, for exemption.However, the lack of institutional protections, that is, a board of directorscomposed of active, disinterested persons, and the potential for suchorganizations to be abused requires IRS to closely examine actual127Samuel P. King & Randall W. Roth, Broken Trust: Greed, Mismanagement and Political Manipulation at America’s LargestCharitable Trust (2006). All facts in this discussion of the Bishop Estate are taken from Broken Trust and from the B. P. BishopEstate, Closing Agreement, August 18, 1999.128But see reservations expressed in Evelyn Brody, “A Taxing Time for the Bishop Estate: What Is the I.R.S. Role in CharityGovernance?,” 21 U. Haw. L. Rev. 537, 545-46 (1999), reprinted at 29 Exempt Org. Tax Rev. 397 (2000).129These included: a new trustee selection process that included an independent appointment committee; a new managementstructure making clear that the trustees are responsible for establishing policy, not for managing the charity’s day-to-day operations,and assigning responsibility for those operations to a new Chief Executive Officer position who would review and supervise otherexecutives; any changes in this structure during the five years immediately following the execution of the closing agreement requirednotice to the IRS; a system of checks and balances on the powers of the trustees and senior executives, including the newly createdCEO position; a conflict of interest policy; a compensation review process for the trustees and for senior executives; an annualfinancial statement audit, with the statements being made publicly available on the charity’s website and on request; and reimplementingan internal audit function with certain protections designed to secure the independence of the internal auditor.130See supra note 116.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 40
The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance Issuesoperations to analyze whether they continue to serve exclusivelycharitable purposes. 131Accordingly, as with determinations, the IRS considers governance in the audit or othercompliance initiative context. However, this context differs significantly fromdeterminations in that the organization has a track record and the IRS is, or should be,considering the organization’s actual operations in ascertaining whether theorganization qualifies for exemption. Thus, where there are actual violations of thestandards for exemption, the IRS rightfully has a greater interest and duty and,correspondingly, increased latitude to address misbehavior. Nevertheless, the absenceof guidelines in this area is troubling.F. Governance Issues in Education and OutreachIn recent years, the IRS, and occasionally Treasury, has been quite vocal in addressinggovernance issues as part of its education and outreach efforts. Although theseinitiatives do not have the force of law, the structure of these pronouncements can anddoes signal IRS expectations regarding the behavior of charitable organizations. Whilethis is an important and complex topic, we believe two generalizations are worth noting.First, the stakeholder audience for this type of signaling is very broad—charities, IRSemployees, members of Congress and their staff, the media, watchdog groups, and thepublic. Second, the very fact of discussing general or particular governance topicssignals that the IRS believes the topic should be carefully considered by charities; and,in fact, may suggest that failure to conform is itself misgovernance. To minimize the interrorem effect, the manner in which the message is delivered is important. It is highlypreferable for the IRS to take a more neutral approach (e.g., charities should giveconsideration to the board size and composition best-suited to carry out their mission),as opposed to being highly directive (e.g., charity boards should be limited to not morethan 15 members, at least 60 percent of whom should be independent, and shouldinclude at least one independent member who is expert in each of the following areas:financial accounting and internal controls, the charity’s mission-specific activities,fundraising, and public relations/communications).Appendix 6 includes selected examples of this “soft regulation” or resort to the “bullypulpit” by the IRS in its efforts to promote enhanced governance practices by taxexemptorganizations, including presentations by senior executives of the IRS. Ofparticular interest are: the “Governance and Related Topics – 501(c)(3) Organizations”supplement to the Life Cycle on-line educational tool released on February 14, 2008; itspredecessor draft, Good Governance Practices Discussion Draft released in Februaryof 2007; the Anti-Terrorist Financing Guidelines released in November of 2002; and thevery recent speeches by the Commissioner for TE/GE at the Georgetown TaxConference.131TAM 200437040 (June 7, 2004).ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 41
Page 5:
ADVISORY COMMITTEE ON TAX EXEMPT AN
Page 9 and 10:
MEMBER BIOGRAPHIESGOVERNMENT ENTITI
Page 11 and 12:
GENERAL REPORTOF THEADVISORY COMMIT
Page 13:
General Report of the Advis
Page 18:
Improving the Employee Plans Compli
Page 23 and 24:
Page 25 and 26:
Page 27 and 28:
Page 29 and 30:
Page 31 and 32:
Page 33 and 34:
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43:
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65 and 66:
Page 67 and 68:
Page 69 and 70:
Page 71 and 72:
EXHIBIT DSubmission Type:(insert fr
Page 73 and 74:
EXHIBIT D (CONTINUED)18. Descriptio
Page 75 and 76: EXHIBIT D (CONTINUED)VCP CHECKLISTT
Page 77 and 78: EXHIBIT D (CONTINUED)23. Have you i
Page 79 and 80: EXHIBIT D (CONTINUED)Instructions f
Page 81 and 82: EXHIBIT D (CONTINUED)23. Under Exam
Page 83 and 84: ADVISORY COMMITTEE ONTAX EXEMPT AND
Page 85: The Appropriate Role Of The Interna
Page 88 and 89: The Appropriate Role Of The Interna
Page 176 and 177:
The Appropriate Role Of The Interna
Page 178 and 179:
Page 180 and 181:
Page 182 and 183:
Page 184 and 185:
Page 186 and 187:
Page 188 and 189:
Page 190 and 191:
Page 192 and 193:
Page 194 and 195:
Page 196 and 197:
Page 198 and 199:
Page 201:
The Streamlined Closing Agreement F
Page 204 and 205:
Page 206 and 207:
Page 208 and 209:
Page 210 and 211:
Page 212 and 213:
Page 214 and 215:
Page 217:
ADVISORY COMMITTEE ONTAX EXEMPT AND
Page 220 and 221:
PROTECTING PLAN BENEFITS:IMPROVING
Page 222 and 223:
Page 224 and 225:
Page 226 and 227:
Page 228 and 229:
Page 230 and 231:
Page 232 and 233:
Page 234 and 235:
Page 236 and 237:
Page 238 and 239:
Page 240 and 241:
Page 242 and 243:
Page 244 and 245:
Page 246 and 247:
Page 248 and 249:
Page 250 and 251:
Page 252 and 253:
Page 254 and 255:
Page 256 and 257:
Page 259 and 260:
Page 261 and 262:
Page 263 and 264:
Page 265 and 266:
Page 267:
Page 271 and 272:
Tax Treatment Of Cellular Telephone
Page 273 and 274:
Page 275 and 276:
Page 277 and 278:
Page 279 and 280:
IRC, 2007-CODE-VOL, SEC. 280F. LIMI
Page 281 and 282:
PENIRC S 274 Page 1 of 12IIRC, 2007
Page 283 and 284:
PENIRC S 274 Page 3 of 12relationsh
Page 285:
Employee Cell Phones Page 1 of 1Emp
Page 289 and 290:
15. Special Rules for Various Types
Page 292:
Withholding RequirementsACCOUNTING
Page 299:
Page 303 and 304:
Governmental Relationship and Commu
Page 305 and 306:
Page 307 and 308:
Page 309 and 310:
Page 311 and 312:
Page 313 and 314:
Page 315 and 316:
Page 317 and 318:
Page 319 and 320:
Page 321 and 322:
Page 323 and 324:
Page 325 and 326:
Page 327 and 328:
show all

Advisory Committee on Tax Exempt and Government Entities (ACT ...

Create successful ePaper yourself

Delete template?

Save as template?