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 Issuesauditing agents, and other IRS personnel. We believe that, in the absence ofguidance, well-intentioned IRS employees are more likely to impose governancestandards that may be ill-advised and most certainly are not required by law.This is particularly true in the context of widespread public commentary by seniorIRS officials, which seems likely to influence the actions of IRS personnel ondeterminations and on audit. Because the agents and other IRS personnelinvolved in examinations and other compliance initiatives rely on the InternalRevenue Manual, Audit Guidelines, and Training Programs, we recommend thatthese resources set forth the IRS’s positions on when revocation is appropriateand when other actions may be considered in lieu of revocation, the process forreferring cases where there are significant concerns about an organizationmeeting the operational test that could be addressed through the adoption ofspecific governance procedures, any other processes for ensuring consistency,when and how specific governance practices should be recommended, whetherand under what circumstances organizations are at an increased risk of auditbecause they have failed to adopt specific governance practices, and an explicitstatement that specific governance practices are not required for exemption.While the Internal Revenue Manual and Audit Guidelines are relativelyaccessible, Training Program materials, checklists, and other internal guidancetools can be more challenging to obtain. The IRS should assure that all materialsrelating to governance are readily assessable to charities and the public withoutthe need for a Freedom of Information request.(12)Education, Implemented Thoughtfully, Is More Appropriate ThanPressuring Change. We believe that the IRS has an appropriate educationalrole with respect to governance. We view there being less danger of harm to thesector here than in the other four IRS touch points (i.e., in creating standards forexemption; on determination of exemption; on examination or in othercompliance initiatives; and in 990 reporting). In addition, in the usual case,educational and outreach presentations and materials allow for a full and fairelucidation of important nuances pertaining to specific governance practices,which also minimizes potential harm to the sector. Nevertheless, thoughtfulnessis important because pronouncements from the IRS even in this context can beviewed as prescriptive, impacting behavior in a manner that can be harmful to thesector, and inappropriately suggesting to the public and watchdog groups thatthe absence of specific governance policies or practices is in effectmisgovernance. 155 We have three specific recommendations with respect toeducation and outreach. 156 First, the IRS might do better to target smallerorganizations than larger ones. As discussed previously, many sophisticatedand complex organizations are subject to regulation and/or are accredited and, in155The reach and impact of a speech by senior IRS personnel is considerably broader than the live audience who heard it. Evenwhere not posted to the IRS website, such speeches typically are reported by the trade press, and even if they are not, attendeesmay include representatives of law firms, accounting firms or trade associations who disseminate the remarks to their clients andconstituencies.156See supra note 91.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 56