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 IssuesIn a speech to the Land Trust Alliance on October 17, 2005, Steven T. Miller,Commissioner, TE/GE, IRS, mentioned without discussion that he and theCommissioner of the IRS are concerned about nonprofit governance. 284 “TheCommissioner has been talking for more than two years, as I have, about problems inthe nonprofit sector. . . . [W]e are concerned with [what] can be called lapses incorporate governance.” 285June 8, 2005, Testimony of Steven T. MillerResponding to written questions of the Senate Finance <strong>Committee</strong> hearing, Steven T.Miller, Commissioner, TE/GE, IRS, wrote on June 8, 2005, that a charity will have abetter chance of clearly distinguishing between charitable interests and the interests ofthose in charge of the charity if it adopts certain governance practices. 286 Specifically,he suggested: “an independent board of directors selected from the community, a strictconflict of interest policy, an annual financial review by an independent accounting firm(or an independent CPA, for smaller organizations), and executive compensationreviewed by the board of directors with advice from independent compensationconsultants (or, for smaller organizations, with a review of compensation practices atsimilar organizations of comparable size). In their review of their own governancepractices, we would encourage charities to look at various industry guidelines, includingthe Standards of Excellence promoted by the Independent Sector, as well as therecommendations of the Panel on the Nonprofit Sector in the governance area.” 287June 22, 2004, Testimony of Mark W. EversonIn a written statement submitted to a June 22, 2004, hearing of the Senate Finance<strong>Committee</strong>, Mark W. Everson, Commissioner of the IRS, highlighted governance issuesin tax-exempt organizations. 288 Everson noted that governance scandals are not limitedto the for-profit sector: “Although Sarbanes-Oxley was not enacted to address issues intax-exempt organizations, these entities have not been immune from leadershipfailures. Specifically, we have seen business contracts with related parties,unreasonably high executive compensation, and loans to executives.” 289 Everson notedthat the issues of governance and executive compensation are “closely intertwined,”and that the IRS is “concerned that the governing boards of tax-exempt organizationsare not, in all cases, exercising sufficient diligence as they set compensation for the284Steven T. Miller, Commissioner, TE/GE, IRS, Remarks before the Land Trust Alliance (Oct. 17, 2005), http://www.irs.gov/pub/irs­1tege/stm_land_trust_alliance_10_17_2005.pdf.285Id. at 2.286IRS’s Miller Responds to Finance Panel’s Questions on Form 990, Conservation Easements, Tax Notes Today, 2005 TNT 154­10, Doc 2005-17009 (June 8, 2005).287Id.288News Release, IRS, Written Statement of Mark W. Everson, Commissioner of Internal Revenue, before the <strong>Committee</strong> onFinance, U.S. Senate: Hearing on Charitable Giving Problems and Best Practices (June 22, 2004), IR-2004-81,http://www.irs.gov/pub/irs-news/ir-04-081.pdf.289Id. at 3.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 111