Exempt Organizations Advisory - IRS Provides Frequently Asked Questions for Form 990, Part VI, Governance, Management, and Disclosure

Catherine W. Wilkinson (cwilkinson@steptoe.com)
Suzanne Ross McDowell (smcdowell@steptoe.com)

At the end of May the IRS posted eleven questions and answers on its website which provide filing tips for the Form 990, Part VI relating to organization governance.  The tips are available here. Notable information includes:

• Most of the policies and practices described in Part VI are not mandatory or required by the Internal Revenue Code.  Nevertheless, the Form 990 states that exempt organizations must respond to the questions.  The IRS will use the information reported, with other information, to determine noncompliance or the risk of noncompliance with tax laws for both the organization and for the tax-exempt sector.

• If a specific time period is not included in the instructions for a question, the organization can take into account practices adopted after the end of the tax year.  If a specific time period is provided, the organization may still use Schedule O to describe practices adopted after the relevant date. 

• Questions regarding the organization’s members are asked in order to provide the IRS with an understanding of the governance structure and authority of each organization.  Questions about local chapters, branches or affiliates are used to determine whether the organization’s policies and practices extend throughout the organization to its affiliated entities.

• The definition of “independent voting members of the governing body” is provided in the Form 990 instructions and must be used, even though it may be different from the definition of independent used in other settings.

• Each organization is required to make a reasonable effort to determine the business and family relationships among board members, officers and key employees.  One example of a reasonable effort is for the Form 990 preparer or an officer eligible to sign the Form 990 to distribute a questionnaire annually to the organization’s officers, directors, trustees, and key employees asking for the information required by questions 1 and 2 of Part VI of the Form 990.  The questionnaire would include the name, title, date and signature of the person responding and provide the definitions of independent voting member, family relationship, business relationship, and key employee.  The organization can then rely on these responses when answering the questions on the Form 990.  This example is expanded from the one included in the Form 990 instructions.

• The IRS does not intend to provide sample policies for organizations to adopt.

• In general, an organization does not need to provide governance information regarding related organizations.  Policies and procedures adopted by a controlling organization are not relevant unless the filing organization has adopted the policies as well.