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 IssuesIn its diversity and strength the voluntary sector is uniquely American—not in thefact of its existence, because it exists elsewhere, but in its extraordinary richnessand variety. It encompasses a remarkable array of American institutions. . . . .Perhaps the most striking feature of the sector is its relative freedom fromconstraints and its resulting pluralism. Within the bounds of the law, all kinds ofpeople can pursue any idea or program they wish… Our pluralism allowsindividuals and groups to pursue goals that they themselves formulate, and out ofthat pluralism has come virtually all of our creativity. Every institution in theindependent sector is not innovative, but the sector provides a hospitableenvironment for innovation. Ideas for doing things in a different, and possiblybetter, way spring up constantly. If they do not fill a need, they quickly fall by thewayside. What remains are the few ideas and innovations that have long-termvalue… Government bureaucracies are simply not constructed to permit theemergence of countless new ideas, and even less suited to the winnowing out ofbad ideas… The sector is the natural home of nonmajoritarian impulses,movements, and values. It comfortably harbors innovators, maverickmovements, groups which feel that they must fight for their place in the sun, andcritics of both liberal and conservative persuasion. Institutions of the nonprofitsector are in a position to serve as the guardians of intellectual and artisticfreedom… My observations about the positive aspects of the sector are notintended to gloss over the flaws that are evident in institutions and organizations.Some nonprofit institutions are far gone in decay. Some are so badly managedas to make a mockery of every good intention they might have had. There isfraud, mediocrity, and silliness. In short, the human and institutional failures thatafflict government and business are also present in the voluntary sector. Beyondthat, it is the essence of pluralism…that no particular observer will approve ofeverything that goes on. If you can’t find a nonprofit institution that you canhonestly disrespect, then something has gone wrong with our pluralism. Butthese considerations are trivial compared to the attributes that make theindependent sector a source of deep and positive meaning in our national life. Ifit were to disappear from our national life, we would be less distinctly American.The sector enhances our creativity, enlivens our communities, nurtures individualresponsibility, stirs life at the grassroots, and reminds us that we were born free.Its vitality is rooted in good soil—civic pride, compassion, a philanthropictradition, a strong problem-solving impulse, a sense of individual responsibilityand, despite what critics may say, an irrepressible commitment to the greatshared task of improving our life together.John W. Gardner 11John W. Gardner, The Independent Sector, Forward to America’s Voluntary Spirit; A Book of Readings,O’Connell, Brian, ed., The Foundation Center, 1983, at ix, xiii-xv.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 ii
The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance IssuesTABLE OF CONTENTSI. EXECUTIVE SUMMARY ......................................................................................................1II.III.IV.STATEMENT OF THE PROBLEM AND THE PROJECT OBJECTIVES..........................6A. Problem ..............................................................................................................6B. Objective ............................................................................................................6PROCESS..............................................................................................................................6INTRODUCTION ...................................................................................................................7V. BACKGROUND ...................................................................................................................12VI.A. Scope of Report ..............................................................................................12B. What Does “Good Governance” Mean? .....................................................13C. What Empirical Evidence Exists About Governance?.............................15REGULATION AND SELF-REGULATION OF NONPROFIT GOVERNANCEOUTSIDE OF THE IRS........................................................................................17A. Introduction........................................................................................................17B. States 18C. Models Outside Of Federal and State Regulations........................................211. Accreditation Systems.......................................................................222. Voluntary Standards and Participation in MembershipGroups ..................................................................................................24D. Disclosure and Transparency ..........................................................................27VII. ROLE OF IRS/TREASURY IN GOVERNANCE INVOLVING TAX-EXEMPTORGANIZATIONS ...............................................................................................29A. Introduction........................................................................................................29B. Governance Issues on Standards for Exemption...........................................29C. Governance Issues Involving Determinations ................................................311. Form 1023 Governance Questions ..................................................322. Governance Issues in the Administration of Determinations.....33D. Governance Issues Involving Form 990 Disclosure.......................................35E. Governance Issues in the Examination or Other Compliance Initiative Context 38F. Governance Issues in Education and Outreach.............................................41VIII. WHY TREASURY/IRS SHOULD PROCEED WITH CAUTION IN PROMOTINGNONPROFIT GOVERNANCE ............................................................................42IX.RECOMMENDATIONS.......................................................................................................46APPENDIX 1. SOURCES CONSULTED FOR THIS REPORT ..............................................58APPENDIX 2. FOR-PROFIT CORPORATE GOVERNANCE .................................................79APPENDIX 3. HEALTH CARE...................................................................................................85APPENDIX 5. EVOLUTION OF FORM 990 .............................................................................98APPENDIX 6. EDUCATION AND OUTREACH..................................................................... 101ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 iii
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Tax Treatment Of Cellular Telephone
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