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

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The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance IssuesSteven T. Miller, Commissioner TE/GE, IRS, spoke on each day of the two-day 2008Georgetown Tax Conference. In his first speech 268 he addressed four issues: whygovernance matters to the IRS; what the IRS has done in the past year to encouragegood governance; where the IRS expects to go in the governance area in the future;and what attendees can do to help their clients and organizations strengthen goodgovernance. He set the backdrop as follows:Over the past year, we have said repeatedly that we care because a wellgovernedorganization is more likely to be compliant, while poorgovernance can easily lead to trouble. Good governance also allows forself-identification and resolution of problems. Some disagree with us onthis. My view is clear. Despite the absence of explicit federal statutoryprovisions setting forth clear governance standards, what I am callingjurisdictional gaps, we are not interlopers trying to regulate an area that isbeyond our sphere. Rather, the effects of good or bad nonprofitgovernance cut across virtually everything we see and do in our work. Itimpacts whether the organization is operated to further exempt purposesand public, rather than private, interests. It dictates whether theorganization’s executives are compensated fairly or excessively. Itinfluences whether the organization makes informed and fair decisionsregarding its investments or its fundraising practices, or allows others totake unfair advantage. The question is no longer whether the IRS has arole to play in this area, but rather, what that role will be.Miller described the governance questions on the redesigned Form 990 for 2008 as the“crown jewel” of their governance efforts over the last year and also touted thegovernance article that was added to the Life Cycle on-line educational tool. Heemphasized the importance of board composition, including independent members,internal financial controls that serve to safeguard charitable assets, and othergovernance procedures that ensure that large scale decisions are reviewed. Headvised that the IRS will be increasing education about governance in the determinationprocess, continue to press for transparency in connection with the Form 990, andconsider a post-exam governance checklist designed to determine if governance is afactor in compliance.In his second speech, 269 Miller spoke both about governance and about efficiency andeffectiveness. With respect to governance, his themes were similar to his earlierspeech. He emphasized the IRS belief that there is a “nexus between goodgovernance and tax compliance,” and spoke to the initiatives the IRS would be taking topromote good governance, including education, transparency, and analysis through apost-exam checklist.November 10, 2007, Speech by Steven T. Miller268See Remarks of Steven T. Miller, supra note 24.269See Remarks of Steven T. Miller, supra note 31.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 108
The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance IssuesIn a speech to the Philanthropy Roundtable on November 10, 2007, Steven T. Miller,Commissioner, TE/GE, IRS, stated that good governance policies of tax-exempt entitiesis within the IRS’ core responsibilities. 270 “I believe that the IRS contributes to acompliant, healthy charitable sector by expecting the tax-exempt community to adhereto commonly accepted standards of good governance. For many tax-exemptorganizations, governance is already very good. But in too many instances, we havefound governance to be wanting. While a few continue to argue that governance isoutside our jurisdiction, most now support an active IRS that is engaged in this area. . . .We are comfortable that we are well within our authority to act in these areas.” 271October 22, 2007, Speech by Steven T. MillerIn a speech to the Independent Sector on October 22, 2007, Steven T. Miller,Commissioner, TE/GE, IRS, noted the importance of good governance in the non-profitsector and questioned what role the IRS should play. 272 “I believe that, going forward,we must continue to press for transparency and good governance practices. So thequestion becomes, what role should the IRS play? I think the answer is that we need tocontinue to promote transparency and good governance. At a minimum we musteducate. . . . Do we need to go beyond education? A question I would put before youthis morning is whether it would benefit the public and the tax-exempt sector to requireorganizations to adopt and follow recognized principles of good governance? And arelated question: Who should police this area – you or the Service?” 273 Miller addedthe caveat: “[W]e are not trying to oversee all non-profit governance matters. . . .Business judgment and many internal governance issues properly belong to the statesand to the tax-exempt organizations themselves. So, while we have a role to play, partof our challenge and responsibility is to determine what that role is and limit ourselves toit.” 274April 26, 2007, Speech by Steven T. MillerIn a speech to the Georgetown Continuing Legal Education Seminar on April 26, 2007,Steven T. Miller, Commissioner, TE/GE, IRS, asked whether tax-exempt entities shouldbe required to adopt and follow recognized principles of good governance. 275Specifically, he asked “whether it would benefit the public and the tax-exempt sector torequire organizations to adopt and follow recognized principles of good governance? Ata minimum, should the Form 990 report and make public an organization’s acceptance270Miller Discusses IRS Function in Charitable Sector, Tax Notes Today, 2007 TNT 223-43, Doc 2007-25673 (Nov. 10, 2007).271Id.272Steven T. Miller, Commissioner, TE/GE, IRS, Remarks before Independent Sector (Oct. 22, 2007), http://www.irs.gov/pub/irstege/stm_isector_10_22_07.pdf.273Id. at 4-5.274Id. at 5.275IRS Official Speaks on Exempt Organizations Issues, Tax Notes Today, 2007 TNT 84-4, Doc 2007-10678 (April 26, 2007).ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 109
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