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 IssuesVIII.Why Treasury/IRS Should Proceed With Caution in Promoting NonprofitGovernanceThe IRS’s power to interpret its statutory mandate by the issuance of regulation andformal guidance is unquestionable. 132 That implementing authority includes the latitudeto promote governance mechanisms to ensure that underlying statutory objectives areachieved. Similarly, the IRS has broad power to inquire about matters of governance inthe contexts of applications for recognition of tax-exempt status, informational reportingby exempt organizations, and demands posed in audits and other exercises thatmonitor the conditions of exempt status 133 Finally, the IRS’s authority to interpret andopine, outside of the vehicles of regulation and formal guidance, through educationalmaterials and public statements, though not specifically articulated in law, rests upon anabsence of any prohibition against use of the “bully pulpit” beyond the statutoryconfidentiality accorded to individual taxpayer information. 134The greatest possibilities for harm arise at the outer edge of the IRS’s delineatedinterests. Because the formal statutory limits on its role in addressing concerns aboutnonprofit governance apply to regulatory interactions with specific tax-exemptorganizations, the IRS certainly has many opportunities to promote better behavioramong nonprofit boards. At the same time, that absence of a guiding and constrainingframework creates the potential that the IRS may inadvertently undermine theeffectiveness of its own efforts without careful consideration of the premises and likelyimpact of its inquiries and pronouncements. In focusing its broad discretion on nonprofitgovernance, a set of concerns should guide the IRS in selecting the issues, adoptingpositions, and communicating those views in individual inquiries or public declarations.• Beware the law of unintended consequences. When articulated by aregulatory agency with vast authority, every question has the potential toaffect the behavior of the regulated—even when articulated without intentionalbias. While some inquiries may be intended to drive the behavior of nonprofitboards to adopt certain policies that are sound or implement certain practicesthat are commendable, unintended consequences arising frommisinterpretation of the meaning or weight of these ideas are more likely thefurther that the IRS moves from the explicit requirements of the tax code. Oneof the potentially disturbing consequences could be discouraging volunteer132Administrative Procedure Act, 5 U.S.C. § 553.133The authority to inquire, at least in the audit and enforcement context, is broad but not without limits. See, e.g., United States v.Powell, 379 U.S. 48, 56 (1964)(rejecting a probable cause standard in connection with the IRS’ demand in an audit for informationrelevant to time periods ostensibly beyond the statute of limitations, but noting “… the responsibility of agents to exercise prudentjudgment in wielding the extensive powers granted to them by the Internal Revenue Code.”). IRC section 6033(a) grants authorityto the IRS to mandate the filing of returns to collect information for “the purpose of carrying out the internal revenue laws.” However,the IRS’s authority to seek information in required filings by taxpayers, including informational returns filed by exempt organizations,must be “materially related” to the tax code. See Incomplete Returns, GCM 36506 (December 8, 1975); Incomplete ReturnsProgram Correspondence Examination Program, GCM 37785 (December 12, 1978). See also Marcus S. Owens, Charities andGovernance: Is the IRS Subject to Challenge? Tax Notes Today, 2008 TNT 93-38, DOC 2008-9664, May 13, 2008.134IRC section 6103. In recent years, the IRS has become more active not only in developing useful educational materials to guideexempt organizations in remaining compliant with the tax code, see, e.g., the Life Cycle project posted on the IRS web site,http://www.irs.gov/charities/article/0,,id=169727,00.htm, but also to address governance issues that go beyond the Code’s specificrequirements, see Governance and Related Topics – 501(c)(3) Organizations, supra note 22. Similarly, IRS officials have givenpublic speeches that are not limited in scope to the tax code, but address broader governance issues. See, e.g., Appendix 6.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 42
The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance Issuesboard members from service, particularly with smaller organizations, becauseof the burdens flowing from encouraging unnecessarily extensive governancereforms. 135• The power to inquire is the power to punish. Asking for information aboutgovernance practices not only drives behavior through the power ofsuggestion, it also drives behavior through fear of entanglement withenforcement and concern that the organization may be perceived byimportant constituencies as misgoverned. For newly formed organizationsseeking recognition of tax-exempt status or existing organizations completingannual information returns, every question that is intended to drivegovernance practices carries a cost-benefit equation weighing acquiescenceto the suggested governance behavior with the time and expense of creatingand maintaining those practices. Particularly for smaller organizations, thecosts of adopting some practices, which may be advisable for largernonprofits, may not be worth the benefits, and will consume charitable assetsthat would otherwise be devoted to the organizations’ programs.• Governance is an unfunded mandate. The development andimplementation of specific governance polices and practices typically entailcosts, including with respect to the infrastructure that is needed to sustainbetter governance practices. Not only are grantmakers and other donorsreluctant to fund these types of administrative costs, a substantial portion of“administrative overhead” in any organization’s annual expenditures is takenas a sign of inefficiency that can deter future contributions. 136 Smaller andless well-off organizations may simply lack the capacity to implement “bestpractices.” Increased expectations cannot result in improved governancewithout the resources to meet the challenge, and the use of resources forgovernance may reduce the dollars available for charitable activities. This isnot to suggest that most organizations should not expend resources toenhance their governance. Rather, the amount of resources to be devoted togovernance and their application constitute a business judgment for thegoverning body, requiring consideration of the cost and benefits of specificpractices, as well as available resources.• One size does not fit all. The diversity of the nonprofit sector in this countryis the envy of the civilized world. While small organizations may representthe overwhelming majority in number, larger exempt organizations135See 2007 Urban Institute Study, supra note 40, at 16 (reporting that “70 percent of the nonprofits say that it is difficult to findboard members and 20 percent say that it is very difficult.”).136“Watchdog” groups regularly devote special attention to the extent to which exempt organizations’ resources are devoted toprogram services rather than administrative expenses – including the costs of implementing enhanced governance practices. See,e.g., BBB Standards for Charity Accountability (requiring that organizations spend at least 65% of total expenses on programexpenses); Charity Navigator’s ratings on “organizational efficiency” (comparing charities’ administrative expenses to total functionalexpenses), supra notes 79 and 85, respectively. In addition, ratios of program expenses to total expenses are commonly utilized byfederated campaign organizations, such as the Combined Federal campaign and the United Way. These types of metrics can, ofcourse, result in an unwarranted denigration of many charities.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 43
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 178 and 179:
The Appropriate Role Of The Interna
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?