Charity Governance

IRS GIVES BIRTH TO FORM 990 AND THE INSTRUCTIONS: TAX-EXEMPT ORGANIZATIONS NOW KNOW THE RULES OF THE GAME—PART I

DATELINE: August 19, 2008, Chicago

What do Apple and the IRS have in common? Both launch new products that are the subject of rumors months before the actual product debut. As hard as it may be to believe, like the Apple second generation iPhone, the redesigned Form 990 has been the subject of rumors for much of this year. Just as Apple watchers monitored shipping containers to determine whether iPhones would be available for sale in early in June, tax lawyers have had a cadre of summer associates posted outside the Kinkos at 1612 K Street in Washington, D.C. watching for Steven Miller, Loris Lerner, and Ron Schultz as they drop off the final version of the Form 990 and the accompanying instructions for copying. This apparently resulted in much confusion because Miller, Lerner, and Schultz or people who look like them have been using Kinkos a lot this year, fueling speculation that the final form and instructions were about to be released.

We, with our limited resources, have been monitoring the IRS Web site for developments. Sometime around 2PM EST today, the IRS posted the forms and the instructions, captioned...

THE NEWS KEEPS COMING FROM SAN DIEGO AND IT HOLDS LESSONS FOR ALL NONPROFITS

DATELINE: July 28, 2008, Chicago

Two in one month, pretty amazing. Last Thursday, Carolyn Y. Smith, the president of the Southeastern Economic Development Corp (SEDC) was terminated by a board of directors that was under pressure from Mayor Jerry Sanders to bring down the axe. Will Carless, SEDC President Ousted, Voice of San Diego, July 24, 2008; and Helen Gao and Jeff McDonald, SEDC Board Fires Embattled President, San Diego Union Tribune, July 24, 2008.  The pressure began building several weeks ago when it was revealed that SEDC employees, including Smith, had received $1 million in compensation during the last five years. The agency had budgeted $462,000, but the it actually paid

IS THE IRS PROVIDING A HINT ABOUT THE FUTURE?

DATELINE: May 27, 2008, Chicago

Those interested in ascertaining the direction in which the Internal Revenue Service is moving used to wait for revenue rulings, but in recent years, the IRS has moved away from issuing revenue rulings. It still does, but far less frequently. The tea leaves have taken a variety of forms. In the exempt organization area, determination letters denying tax-exempt status appears to be where the action is these days. Case in point, IRS Determination Letter 200821037 (released May 23, 2008).

We probably agree with the IRS's decision...

SIEGEL SUBMITS COMMENTS ON THE PROPOSED INSTRUCTIONS TO THE FORM 990

DATELINE: April 28, 2008, Chicago

Our very own Jack B. Siegel submitted comments to the Internal Revenue Service today regarding the instructions it proposed on April 9, 2008 to the redesigned Form 990.

A significant portion of Siegel's comments focus on Line 1b and 2 to Part VI of the Core Form. These schedules focus on whether a director is independent (Line1b) and the relationships among directors, officers, key employees, and highest compensated individuals (Line 2). He also focused on Part IV of Schedule L, which focuses on transactions between the exempt organization and interested parties. Determining which of these relationships should be captured and what should be disclosed about them is a difficult call. The public, the media, and watchdog groups want more, more and more. But the desire for complete disclosure must be balanced against the cost and propriety of disclosing all possible relationships. Siegel offered the IRS 14 examples that address the Line 2 disclosures, suggesting that the IRS create exceptions for business relationships that deserve protection because of the sensitive information disclosed by the very existence of the relationship. He also suggested that the IRS except out consumer transactions.

Siegel's comments cover all aspect of the redesigned Form 990, except for the forms that apply to hospitals, schools, and tax-exempt bonds.  In one section, Siegel expresses sympathy for some organizations that will be required to disclose first class and charter travel that is perfectly appropriate.  He focuses on disaster-relief organizations, suggesting to the IRS that first class and charter travel be defined to exclude certain legitimate and recurring uses of this travel.

Siegel also reiterated his concerns over the formatting for the instructions, pointing out that the IRS can make the instructions user friendly if it takes the time to use headers and footers, innovative numbering systems, and relies on its Glossary, which by the way, is excellent.  Siegel offered specific suggestions regarding format.

For a copy of Siegel's comments as submitted, click here

MRS. IRS, WE HAVE BEEN WELL INSTRUCTED

DATELINE: April 14, 2008, Chicago

Our personal income tax returns were completed late Friday afternoon. That means we were busy reading the Form 990 instructions all weekend. We also had the good fortune to fly American Airlines last week. Knowing that flying these days always poses the possibility of endless delays, we took the instructions with us. As it turned out, we had plenty of reading time.

At this point, we are about...

ALERT: IRS HAS RELEASED DRAFT INSTRUCTIONS FOR THE REDESIGNED FORM 990

DATELINE: April 7, 2008, Chicago

ALERT

The IRS has released the draft instructions for the redesigned Form 990.  Our staff of experts is currently pouring over the instructions and we will provide comments as soon as our staff has pounded them out on their IBM Selectric typewriters.

PART IV: HEY MRS. IRS YOU LOOK MARVELOUS, BUT YOU HAVE AN EYELASH OUT OF PLACE

DATELINE: January 8, 2008, Chicago

There is nothing like a client request to get you to look more closely at any new legislation. In this case, it's not a new law, but the new Form 990. We believe we have found a mistake that requires correction or clarification to the form. Unfortunately, any correction will need to be made to the form rather than through a line in the instructions.

As we have noted in the past, Schedule J, requires...

FIRST-CLASS TRAVEL AT THE SMITHSONIAN OFFERS BIG LESSONS FOR OTHER NONPROFITS ABOUT THE NEW FORM 990: CHECK THE BOX, VERSION II

DATELINE: December 28, 2007, Chicago

Today, the Washington Post's James V. Grimaldi and Jacqueline Trescott give the Smithsonian an after-Christmas lump of coal in an article entitled Indian Museum Director Spent Lavishly on Travel. The two focus on the travel expenses incurred by Richard West, Jr., the founding director of the Smithsonian's National Museum of the American Indian. According to the article, West spent more than...

PART III: MRS. IRS, YOU LOOK MARVELOUS—THE FORM 990 IS OUT

DATELINE: December 21, 2007, Chicago

We've been reading a lot about Holden Karnofsky and Elie Hassenfeld and their GiveWell organization the last few weeks. They are everywhere. Yesterday Stephanie Strom of the New York Times jumped in. 2 Young Hedge-Fund Veterans Stir Up the World of Philanthropy, Dec. 20, 2007. Strom in paraphrasing the two wrote,

Mr. Karnofsky and Mr. Hassenfeld argue that widely available existing systems for charity evaluation, which rely largely on the charities' tax forms, known as 990s, are basically worthless because charities are given wide latitude in how they classify information. For example, some charities count fund-raising costs as money spent on programs.

We strongly disagree with their apparent belief about the Form 990. We hope the two will take a close look at the...

PART II: HEY MRS. IRS, YOU LOOK MARVELOUS—THE FORM 990 IS OUT

DATELINE: December 20, 2007, Chicago

Well, we have begun to work our way through the various schedules that makeup the Form 990. For purposes of this post we will focus on...