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

The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance Issues(7) Questions That Ask About Practices And Approaches Are Typically BetterThan Questions That Ask About Policies. One aspect of neutrality is to focuson the practices and approaches employed by a charity, as opposed to whether ithas adopted certain policies. As noted above, policies are not practices and badpolicies can lead to bad practices. Even where a policy has been adopted, thatpolicy may not be well conceived, the existence of a policy does not mean thatemployees and other constituencies are aware of or understand the policy, andthe policy may not be enforced in a manner that achieves its intended objectives.Moreover a poorly crafted policy or one that the organization is not in a positionto enforce can create liability. It also must be appreciated that the creation andenforcement of a policy may be a significant burden to small charities or tocertain other types of charities, diverting critical financial and human resourcesaway from their charitable activities with little or no corresponding benefit.While we believe, on balance, that the governance questions on the redesignedForm 990 for 2008 are relatively neutral, we do have significant reservationsabout the questions relating to the whistleblower policy and the documentretention and destruction policy. Neither has an explicit relationship to the taxrules (we would, of course, feel otherwise if the document retention anddestruction policy focused on tax documents); while they may be important forcertain large organizations, they are likely to present an unnecessary burden forsmaller and certain other types of organizations; and hospitals (and perhapsother large organizations) typically have such policies in place and therefore donot need the IRS to encourage them to do so. 148 We also note that while theredesigned Form 990 asks about five different policies (gift acceptance,whistleblower, document retention, conflict of interest, and joint venturearrangements), it attempts to confirm adherence to the policies only in the lasttwo instances. The sample conflict of interest policy included with the Form 1023instructions goes well beyond the basics that would be appropriate for a smallorganization. 149 Moreover, the policy is less inclusive than one would expect inthe case of many universities, hospitals, and large organizations, suggesting tothese organizations that the IRS sees no need for their more extensiveprotections. 150148See supra Section VI.B. and infra Health Care Appendix 3.149See, e.g., supra note 142.150For example, the sample policy applies only to a “director, principal officer, or member of a committee with governing boarddelegated powers.” Many universities, hospitals, and large organizations subject all employees, or employees at the director levelor higher, to their conflict policy. Putting aside the lack of clarity as to what constitutes a “principal officer,” in many largeorganizations senior managers other than the president (or possibly the chief financial officer and/or chief operating officer) are not“officers” within the meaning of state law, which requires that they be so designated in the organization’s governing documents.Many other persons who might constitute “disqualified persons” or “insiders” also would not be included. While the sample policymay be broader in some respects from excellent forms of conflict of interest policies, it also may be narrower in other respects. Forexample, such policies might speak to conflicts involving use of organization information for personal benefit, soliciting for the benefitof, or otherwise assisting, another entity to the detriment of the organization, or usurping for personal gain an opportunity to thedetriment of the organization. We note, however, that Governance and Related Topics – 501(c)(3) Organizations, supra note 22,does state: “Organizations are urged to tailor the sample policy to their own particular situations and needs, with the help ofcompetent counsel if necessary.”ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 53