For Nonprofits - IRS Released Results of its Governance Study

IRS Governance Study—Preliminary Results

The Internal Revenue Service Exempt Organizations Division ("EO") completed its analysis of 1,300 checksheets from 501(c)(3) organizations, and has produced preliminary findings. According to EO, this analysis included only public charities that already had been selected for examination, so the results are not statistically representative of the overall 501(c)(3) population. Nonetheless, this analysis offers some insight into which governance practices might be useful indicators to the IRS of tax compliance.

The presence of the following factors was associated with compliance for the group that were reviewed:
 Have a written mission statement
 Always use comparability data when making compensation decisions
 Have controls in place to ensure the proper use of charitable assets
 Provide for Form 990 review by the entire board of directors before filing

So what is associated with non-compliance?  According to the IRS, having control of the organization concentrated in one individual, or in a small, select group of individuals.  That's a red flag and will invite greater scrutiny.  Read the entire IRS EO 2012 Annual Report and FY 2013 Work Plan here.

Bottom Line
A few factors indicate compliance to the IRS.  If these factors are pretty straightforward and if in place, further inquiries or examinations might be avoided.

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