# Transparency and Compliance per the IRS



## ILGHAUS (Nov 25, 2002)

A couple of people have asked why this item is so important and if organizations are being required to post this info on their websites. 

The below is a dry read and many 501(c)(3) and current 501(c)(3) _pending_ organizations will ignore what is being told to them. That is their decision to make, but they should then take it as no surprise when other organiztions and the general public start to re-evaluate them. 

On another thread I posted a quote from the IRS stating that they were requesting that nonprofits post certain items on their websites. 

Also from the IRS:

Remarks of Steven T. Miller
Commissioner, Tax Exempt and Government Entities
Internal Revenue Service
Before Independent Sector
Los Angeles, California
October 22, 2007

_ ... It is an increasingly skeptical environment – an environment that is not as willing as before to extend the benefit of the doubt. Moreover, it is an environment in which some are questioning whether the public benefits that tax-exempt organizations are providing are commensurate with the organizations’ resources and the tax subsidies they receive. In addition, increased transparency has led to some absolutely legitimate questions about certain practices and what they cost the public. ...

... Promoting tax compliance is always a core concern. But there are others. One of these is enhancing transparency. ...

... We see the problems and understand the environment and, in response, have significantly enhanced our compliance efforts. At the same time, we have started to act on the principle that effective taxexempt organizations benefit from transparency, and from engaged boards.

Our renewed emphasis on compliance is illustrated by the increasing number of examinations that we conduct. We have further enhanced our work by establishing new offices and new ways of doing business. An example is the Exempt Organizations Compliance Unit (EOCU). Through the EOCU, we look at more issues, touch more organizations, and establish a more comprehensive compliance presence. ...

... I believe that, going forward, we must continue to press for transparency and good governance practices. So the question becomes, what role should the IRS play?

I think the answer is that we need to continue to promote transparency and good governance. At a minimum we must educate. The concept of the IRS educating organizations on standards of good governance should be familiar. We have been doing it for a long time. Our Determination agents are trained to ask governance-related questions as they review applications. Further, our Examination agents currently assess exempt organizations’ internal controls at the start of an exam to help determine how deep they have to go. _


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## Jazy's mom (Jan 5, 2004)

Thanks, TJ this is a great post.


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## ILGHAUS (Nov 25, 2002)

*REMARKS OF STEVEN T. MILLER
COMMISSIONER, TAX EXEMPT AND GOVERNMENT ENTITIES
INTERNAL REVENUE SERVICE
GEORGETOWN SEMINAR EXEMPT ORGANIZATIONS
PANEL ON NONPROFIT GOVERNANCE
APRIL 23, 2008*

Quote:
... Over the past year, we have said repeatedly that we care because a well-governed organization is more likely to be compliant, while poor governance can easily lead to trouble. Good governance also allows for self-identification and resolution of problems. ...

... So not only do we care about governance, we have been quite active in the governance area over the past year. The crown jewel of this effort is the governance section of the revised Form 990, effective for 2008.

*This section asks about the composition and independence of the governing body, about governance policies and procedures, and how and whether governance and financial information is made available to the public.* ...

... in February, we released an educational piece on our Web site,
which encourages leaders of nonprofits to consider key governance issues, and ties these issues into the governance section of Form 990. We want to notify organizations about the questions they will be asked each year from now on as they file their 990s. The purpose of that piece is to highlight governance matters that leaders of charities of all sizes and types should consider throughout the entire life cycle of their organizations, from cradle to grave. ...

... While the diversity of the sector may mean that one size does not fit all, that does not mean that there are not some general
principles to be considered when you set up and operate a tax exempt organization. ...

... An exempt organization’s board or governing body is accountable to the community it serves. In some cases this is the general public; in other cases it is the organization’s membership; but in all cases it is accountability to someone other than the officers and directors of the organization. And remember that the
organization exists to serve and be accountable to a broader group. ...

... So we will continue to educate widely and to communicate about governance during the determination process. As I have discussed, we will also continue to press for transparency in reporting as part of our Form 990 work. ...


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## ILGHAUS (Nov 25, 2002)

*Remarks of Steven T. Miller
Commissioner, Tax Exempt and Government Entities
Before the Georgetown Law Center Seminar on
Representing and Managing Tax-Exempt Organizations
April 24, 2008*

Quote:
... the public and the Congress may and often do have an expectation that the Service can act when we see organizations spending 98 cents of every dollar on fundraising or compensation and 2 cents on services. ...

... pushing transparency so people can see for themselves just how efficient and effective an organization is, or is not. This means we need to give the public tools they can use to make apples-to-apples comparisons. As the public seeks a good “return” on its contribution dollar, we push for enhanced and meaningful transparency in the hope that market forces and the good sense of the public will bring about change. ...


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## Trucknup (May 8, 2005)

I hope you realize that the IRS means transparency in divulging financial information. These remarks were made in reference to the public knowing about high salaries, percs, and other expenses. 

They certainly could care less if someone answers an unknown individual about when they change a dog's water. 

[Edited by Admin. Wisc.Tiger for violation of Board Rules]


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## Sue F (Oct 3, 2007)

I do not disagree that transparency may have to do primarily with financials....BUT....governance has completely to do with how one runs their business.

Just as everyone advocates being very careful in adoption procedures, we must also advocate being sure that rescues are working for the good of the animal. Yes, there are many viewpoints on what is considered proper management of rescue animals. But basic procedures should be the same.

Adoption without proper applicant screening, for example, should be discouraged. 

When people ask about policy and procedure, they are usually referring to the adoption policies and procedures...this SHOULD be on every rescue's website...if I am a potential adoption candidate, I want to know what is expected of me!!! That way I can determine if I meet the requirements to adopt a dog from that agency. How is that being self-righteous or bigoted?


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## ILGHAUS (Nov 25, 2002)

> Quote:[Edited by Admin. Wisc.Tiger for violation of Board Rules]


Edited after TJ made the post below.

This is close to breaking a board rule so perhaps you will want to watch your wording in the future.


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## ILGHAUS (Nov 25, 2002)

On my first post I said the following:


> Quote: The below is a dry read and many 501(c)(3) and current 501(c)(3) pending organizations will ignore what is being told to them. That is their decision to make, but they should then take it as no surprise when other organiztions and the general public start to re-evaluate them.
> 
> On another thread I posted a quote from the IRS stating that they were requesting that nonprofits post certain items on their websites.


So no the IRS doesn't care on the quality of care that a rescue gives to a dog -- that is the concern of other rescues, possibly the State Ag. Dept., local ordinances, and the general public. But the day-to-day care is not the topic of this thread nor of the other threads that I have started. Like it or not, running a rescue is not just about the care of the animals anymore. At one time someone took in an animal and passed the word around to their friends and co-workers that they had a dog that needed a home. They may have even ran an add in the paper. But over time things have changed. The Internet is used more, most rescues have started designing fancier and larger websites, and fundraising has become a more important activity. 

For those people who want to stay out of the public evaluations perhaps they need to stay at the rescue level of the concerned individual, possibly even a very small gathering of family or friends, who takes in and rehomes dogs. But once they go nonprofit they open themselves to a certain amount of loss of internal privacy and if they decide to go to the 501 level they loose even more. Even the IRS had made changes in what they are asking a rescue to disclose while their application is pending and in the 5 years following before a final determination is made. The original letter is only a temp. status and at the end of that period (again 5 years) the organization will have to answer another form. The IRS is saying that they will be asking more indepth questions and they expect the organization to have certain written policies in place. 

This past year a reformatting of the 990 (to be used in 2009) was put into place with an emphasis on transparency. More changes are expected to be made on this in the next several upcoming years. The IRS is posting this information via their website and through workshops and other on-line sources. For those that don't agree with these changes there is a chance to send your concerns into them. They are gathering this info up and using it in their discussions and workshops. For those that are interested, you can read the letters from the different facilitators where they address the pros and cons, the likes and dislikes of the different organizations on the topics mentioned. 

So again, for those individuals or organizations that don't want to read and then discuss with others about the changes, then that is their decision. They have the option to not even come to or read these threads as these threads have been posted for those who are interested in sharing ideas and experiences so that we can all help each other through this process. 

Is the concern over the the business side of a rescue organization more important than the care of the dogs? No, of course not, but it is necessary once an organization has made the decision to step up onto the level where they are now governed by more govenmental laws and regs. Ignoring the changes in how the community is looking at them will not make the clock run back to where it use to be. We may not like all the changes but they are here and we must learn how to deal with them in order to keep our organizations running smoothly.


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## Trucknup (May 8, 2005)

Again, most of what IRS is asking is more detailed financial information. Their main concern is that the charity is legitimate and not trying to veil a "for profit" corporation as a charity and to let the public see how money is spent by a charity. Much of this was fueled by public outrage at the amount of compensation paid to CEO's of large charities and the small percentage of money that actually trickled down through the administrative expenses and on to the actual programs. In fact, they do ask for information on each Officer and how they are compensated and if certain benefits are paid on their behalf. They will also require that charities show their 3 major accomplishments along with the expenses of each. 

The same form is completed by any type of charity - they do not have specific forms for specific charities. 

These new forms, beginning in 2010, will NOT apply to organizations who receive less than $50,000 annually in contributions. Most small to medium rescues will fall in this category and will simply file a "postcard" with the IRS. This form contains very basic information but no financials. The donation threshold for the postcard will be $25,000 until 2010.


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## ILGHAUS (Nov 25, 2002)

_*From update released today from the IRS:*_

*IRS to Release Instructions for Redesigned Form 990 in August* 

The Internal Revenue Service will release revised instructions to the 2008 Form 990, the annual return most tax-exempt organizations must use to report information about their operations, in the next few weeks on its website. The instructions are for the redesigned Form 990 that organizations will file for their 2008 tax year (returns filed in 2009), which was released in final form in December 2007 ( IR-2007-204). ... 

The IRS sought comments from the public on the 2008 Form 990 instructions, in an effort to make sure the final instructions address the needs of the tax-exempt community. The comment period closed on June 1, 2008.

The draft 2008 Form 990 instructions are organized according to a consistent format. There is a general overview of the form or schedule explaining its purpose, an explanation of who must file that particular schedule, and then line-by-line instructions to aid in answering each question on the form or schedule.

The draft instructions also contain a number of new tools designed to make it easier for the organization to answer the questions and to promote more uniform reporting. These tools include a comprehensive glossary of terms; a sequencing list to help organizations determine the order in which to fill out parts of the form; a compensation table to help organizations determine how and where to report items of compensation; and many illustrative examples. These aids were developed in response to comments received last year in connection with the draft Form 990.

_Updated: August 5, 2008_


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## ILGHAUS (Nov 25, 2002)

The last several posts dealt with Form 990 and now the IRS is requesting feedback on Form 990-EZ.

************************************************

From the Federal Register / Vol. 73, No. 131 / Tuesday, July 8, 2008 / Notices

*DEPARTMENT OF THE TREASURY

Internal Revenue Service

Proposed Collection; Comment
Request for Form 990–EZ*

AGENCY: Internal Revenue Service (IRS),
Treasury.

ACTION: Notice and request for
comments.

SUMMARY: The Department of the
Treasury, as part of its continuing effort
to reduce paperwork and respondent
burden, invites the general public and
other Federal agencies to take this
opportunity to comment on proposed
and/or continuing information
collections, as required by the
Paperwork Reduction Act of 1995,
Public Law 104–13 (44 U.S.C.
3506(c)(2)(A)). Currently, the IRS is
soliciting comments concerning Form
990–EZ, Short Form Return of
Organization Exempt From Income Tax.

DATES: Written comments should be
received on or before September 8,
2008, to be assured of consideration.

IRS Link 

The IRS is proposing that Form 990-EZ filers use 6 forms that were designed for Form 990 users:
Schedule A, Public Charity Status and Public Support 
Schedule C, Political Campaign and Lobbying Activities 
Schedule E, Schools 
Schedule G, Supplemental Information Regarding Fundraising or Gaming Activities 
Schedule L, Transactions with Interested Persons 
Schedule N, Liquidation, Termination, Dissolution, or Significant Disposition of Assets


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## middleofnowhere (Dec 20, 2000)

It's not just financials: It's that you follow your by-laws - if you say you have meetings, you have to have meetings. You have to disclose your board members & so on. It's pretty comprehensive.


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## ded37 (Jan 18, 2005)

> Originally Posted By: middleofnowhereIt's not just financials: It's that you follow your by-laws - if you say you have meetings, you have to have meetings. You have to disclose your board members & so on. It's pretty comprehensive.


Excellent point!

I am curious about the make-up of rescue boards -

For the rescues with an official State standing as a corporation (whether officially designated with IRS 501(c)3 status or solely as a state tax exempt non-profit): 

How many rescues (no matter volunteer size base) have Boards that consist of volunteers or members (depending on how the corporation was organized) who have day-to-day operational roles? 

In other words - Does the Board _mostly_ consist of the Intake Coordinator, Transport Coordinator, Home Check Coordinator, etc.

Or, does the _majority_ of the Board consist of people who have nothing to do with the everyday operations of the rescue? People from the community that believe in the rescue's mission, but are also impartial, bring diversity to the Board, and only have the best interest of the rescue as a whole and making certain it is run properly by its day-to-day operational directors? 

I have seen only a handful of rescues (organized as a formal corporation) with a link to the IRS Determination Letter (for those with 501(c)3 status) and/or a link to its State Standing on its website.

Also, a corporation's bylaws should not contain its day-to-day standard operating procedures (SOPs). SOPs are to be written policies and procedures.

Bylaws of the corporation are completely different from the day-to-day operations of the rescue.


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## pupresq (Dec 2, 2005)

Ours is half and half. I think it's important to have people in the group who understand what's what and why things happen the way they do, but it's equally important to have good people outside the group who can be a (hopefully) unbiased voice in the event of trouble. Too much power concentrated in the hands of too few leaves no safety net if those at the top lose direction. 

Our outside people are all community members who are involved with dogs/animals in one way or another but not directly with our rescue.


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## ded37 (Jan 18, 2005)

Thanks pupresq.

Personally, I think that is the appropriate set-up.


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## ILGHAUS (Nov 25, 2002)

*Changes in reporting and forms*

The points in this thread are changing slightly but the new fits into the puzzle with the old. So for those Rescues who have gone 501(c)(3) within the past 5 years and were granted Public Charity status with an advanced ruling here is some good news for you. 

Quote from the IRS website:

*Elimination of the Advance Ruling Process *

_On September 9, 2008, the IRS issued temporary Income Tax Regulations, which eliminate the advance ruling process for a section 501(c)(3) organization. Under the new regulations, a new 501(c)(3) organization will be classified as a publicly supported charity, and not a private foundation, if it can show that it reasonably can be expected to be publicly supported when it applies for tax-exempt status._
Link to article 

In looking at this I feel a sign of relief and say thank goodness. It is going to be so much easier to be assumed that a new organization is a Public Charity and then only have to have follow-up documentation instead of being presumed to be a Foundation and have to prove to the IRS that you are in fact a Public Charity. 

This comes at a good time for me as the organization that I am Executive Director for was going to have to finalize this process in less then two years and now we will not have to. I'm also in the process of assisting two other organizations go from State Reg. Non-Profit to IRS tax status 501(c)(3). I was very pleased to see this proposed change make it through as it will help all of our stress levels.

I know this is the early stages yet, so at this point maybe I won't shout it out loud but keep it a whisper -- _It looks like the IRS is making some of the forms a little more user friendly._


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## Timber1 (May 19, 2007)

I appreciate all the info provided. 

Our reascue board is 100 percent people that also care for and work with the dogs.

Let me add that unless one knows the IRS has gone after an honest rescue group, my concern is minimal. These guys have much bigger dollars to follow, and in my case has generally been helpful.


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## ILGHAUS (Nov 25, 2002)

*Re: Changes in reporting and forms*

For more info on the Advanced Ruling Change and also the new 990s here is <u>Implementation of Form 990; Final Rule</u> --> IRS Publication effective 09-09-08. 

Though many Rescues do not fall under the IRS income/assest level that require filling out Form 990 there are numerous grants available that have this as part of their reqested paperwork in a grant proposal. 

Since under the new Ruling the 990-EZ has an additional section, this may change and these funders may now allow the use of the 990-EZ. The following link gives more info on upcoming changes to the 990-EZ. --> Background Paper from the IRS


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## ILGHAUS (Nov 25, 2002)

*Re: Changes in reporting and forms*

Posted November 7, 2008 on the IRS website:

Do Not File Form 8734 at End of Advance Ruling Period 

_New regulations eliminate the advance ruling process, under which a section 501(c)(3) organization was required to file Form 8734 to establish that it had been a publicly supported charity during its first five tax years. The new rules apply to organizations with advance rulings expiring on or after June 9, 2008. _ 

http://www.irs.gov/charities/charitable/article/0,,id=188457,00.html


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## ILGHAUS (Nov 25, 2002)

*Transparency and Governance -- IRS*

A couple of posters brought up the fact that the IRS is only interested in the financial aspect of a 501(c)(3) organization. Well, "times they are a changing" ......

REMARKS OF STEVEN T. MILLER
COMMISSIONER, TAX EXEMPT AND GOVERNMENT ENTITIES
INTERNAL REVENUE SERVICE
WESTERN CONFERENCE ON TAX EXEMPT ORGANIZATIONS
LOS ANGELES, CALIFORNIA
NONPROFIT GOVERNANCE
NOVEMBER 20, 2008

Some quotes:
_The first thing we recognize about governance is that there are gaps in our ability to regulate in this area. No section of the Internal Revenue Code establishes specific requirements for how a tax-exempt organization is to be governed. However, it seems somewhat obvious that, at a minimum, governance is relevant in some areas._ ... _Indeed, the word “governance” does not appear in section 501 of the Code at all. Nevertheless, the IRS has been and will remain active in this area. It is too important to ignore._ ... _When we first started to speak about governance, some agreed with our posture, but we also met with reluctance, indignation, and even anger. Some argued that we had no authority to involve ourselves in this area – that we could not tell you how to run your business. Some argued that we were infringing on the authority of the state attorneys general._ ... _we recognize that good governance is important and that we have a legitimate interest in the issue._ ... _In a word, the Service is going to be involved with governance._ ... _let the sun shine on governance practices. Let the public see how your organization is run – what standard of conduct you desire and aspire to._ ... _The question is no longer whether the IRS has a role to play in this area, but rather, what that role will be._ ... _we need to make sure that the public is getting a fair return for the enormous tax subsidy it entrusts to the tax-exempt sector. We need to be sure the public is getting its money’s worth._ ... 

Link to .pdf file


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## middleofnowhere (Dec 20, 2000)

*Re: Transparency and Governance -- IRS*

I'm glad Tracy thought to post this information. Although I am presently a government employee, I have a NFP background and am interested in keeping up with major changes like this. In my field, the major umbrella organizations are hosting workshops on the new 990. The reason it is so important right now is that what you have done in 2008 will be the basis for a lot of (if not all) organizations when they file in 2010. So people need their ducks lined up NOW.


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## ILGHAUS (Nov 25, 2002)

*IRS Updates*

Once again there are changes. The IRS is going through a three-year transition period with filing forms for non-profits. The new 990-EZ and 990 forms and instructions are now finalized. Even if you are not required to file for several months yet, you may want your financial person to go over the new forms early. 

For 2008 taxes filed in 2009:

Gross receipts normally ≤ $25,000 -- Use form 990-N

Gross receipts > $25,000 and < $ 1 million, and Total assets < $2.5 million -- Use form 990-EZ or 990

Gross receipts ≥ $1 million, and/or Total assets ≥ $2.5 million -- Use form 990

These amounts will change for the 2009 taxes.

Important point to remember is some grants require you to file with a 990 or to submit a certified financial report with your proposal.


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