Why is Good Governance Important?Posted on May 3rd, 2012.
According to a recent speech by Lois Lerner, director of IRS Exempt Organizations, there is a direct correlation between an organization’s good governance and overall tax compliance. Specifically, the IRS asserts that a well-governed organization is more likely to be compliant with the tax law and as a result, is taking an active examination of an organization’s governance policies through the use of the annual reporting Form 990, a report that must be filed by all nonprofit organizations except for churches. The IRS also looks at the governance practices of organizations applying for tax exempt recognition.
After a recent analysis that examined the governance practices of exempt organizations, the IRS concluded that the following good governance practices were linked to tax compliance. They include:
- Maintaining a written mission statement;
- Using comparability data when making compensation decisions;
- Implementing procedures in place for the proper use of charitable assets;
- Having the Form 990 reviewed by the entire board of directors prior to submission (the IRS pointed out that this practice can be linked to having an active and engaged board of directors in all areas of the organization’s activities and operations).
These good governance practices should be adopted and followed by all nonprofit organizations, including churches.