The NonProfit Times - June 1, 2008 - (Page 28)

TAXING ISSUES HARVEY J. BERGER, GARRETT B. GLUTH AND D. GREG GOLLER Fiduciaries And The 990 Your organization’s governance is transparent he Internal Revenue Service (IRS) recently made substantial changes to Form 990 in an attempt to strengthen nonprofit governance and accountability. These changes reflect a view that increased transparency will induce charitable organizations to make important changes to their governance model if needed. Is your organization’s governance model ready for the spotlight? Form 990 states your organization’s case for retaining tax-exempt status and demonstrates the organization’s compliance with the tax rules on an annual basis. As such, Form 990 is considered an “information return.” Form 990 includes annual financial statement information; discloses transactions with insiders and related entities; and describes your accomplishments,programs, and activities.An organization’s Form 990 is open to the public for inspection. Nonprofits rely on fiduciaries to make decisions and take actions that enable the organization to accomplish its charitable mission.A fiduciary is a person who has a legal and ethical duty to act in the best interests of another person or entity. Both the revisions and the additions to Form T 990 evidence the IRS’s unwillingness to rely solely on the fiduciary model to ensure charitable organizations efficiently carry out their exempt purposes. Though nonprofit directors, like forprofit directors have fiduciary duties of care and loyalty, it is not clear that these fiduciary duties are suited to the needs of the nonprofit world. The duty of care requires directors to be informed and exer- interests ahead of their own. It requires directors to act in good faith and in the reasonable belief that each action taken is in the best interests of the organization. Neither the duty of care, nor the duty of loyalty, prevent a nonprofit board from completely changing the organization’s mission within the parameters of its exempt purpose. This possibility suggests that the fiduciary duties of nonprofit di- The mechanisms that ensure for-profit directors faithfully carry out their fiduciary duties do not operate in a charitable context. cise their duties with the care that a reasonably prudent person would exercise under similar circumstances. Beyond informing themselves of the relevant facts pertaining to their organizational decisionmaking function, nonprofit directors must also devote considerable attention to their oversight function. The duty of loyalty requires directors to put the organization’s rectors might be unresponsive to the expectations of donors and the general public. Even if the duties are considered responsive, the mechanisms that ensure for-profit directors faithfully carry out their fiduciary duties do not operate in a charitable context. Nonprofit governance does not benefit from derivative litigation or the market for corporate control. In fact, standing rules prohibit most donors from bringing suit against directors or officers of a charitable organization.Thus, the IRS’s attempt to influence nonprofit governance might be warranted. Charitable organizations are charged with using charitable assets effectively and efficiently. Most charities are self-regulating in the sense that donors are less willing to give to organizations that engage in transactions with insiders, pay exorbitant salaries to officers and employees, or fail to adopt policies that prevent diversions of charitable assets. By using the new Form 990 to highlight these instances, the IRS is fostering a public enforcement mechanism. Since donors and the general public want to be informed of circumstances where charitable assets are not being put to a good use, it is not surprising that perceived and actual abuses of charitable assets are highlighted in the press on a regular basis. FORM The sponse prove 990: THE CHANGES revisions to Form 990 are in reto Congressional prodding to imtransparency. These changes Register by July 11, 2008 and SAVE $100! 2008 NEW YORK NONPROFIT CONFERENCE August 14 – 15, 2008 l Waldorf=Astoria | New York, NY Special Pre-Conference Workshop: August 13 www.nonproﬁtfederation.org Please mention Key Code: NPT when registering. 28 JUNE 1, 2008 THE NONPROFIT TIMES www.nptimes.com http://www.nonprofitfederation.org http://www.nonprofitfederation.org http://www.authorhouse.com http://www.barnesandnoble.com http://www.amazon.com http://www.dcmillerassociates.com http://www.nptimes.com

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The NonProfit Times - June 1, 2008 First Kroc Center Set To Open It’s Layoffs And A Lawsuit At ARC In The Twin Cities Hospices Put On Life Support Contents Who...When...Where...How...What? Idol Charities Still Waiting For Funds Heck Of A Job Play On Words Make Endowments Pay Donor Management Software Who’s Next? Joining The Masses Online Email Evangelism Three Corners Business Briefs Fiduciaries And The 990 Calendar United Way Refocusing On Programs, Reducing Affiliates NPT Jobs Resource Directory

The NonProfit Times - June 1, 2008

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