1. Staying in Step with the GovernmentEmerging Trends in Government Regulation & Filing South Dakota Community Foundation June & July, 2010
2. Topics Introduction – How Did We Get Here? US Congressional Oversight & Scrutiny Federal (IRS) Issues Form 990 Intermediate Sanctions State regulation & filing requirements
3. How Did We Get Here? Nonprofit sector is big and influential Nonprofit sector is very splintered Perception of eroding confidence in charity Trends toward more public scrutiny IRS changing role – reluctantly - from pure financial regulation to broader governance oversight Form 990 & other information readily accessible
4. Regulatory Trends and Influences IRS Intermediate Sanctions Sarbanes-Oxley (SOX) Senate Finance Committee House Joint Tax Committee (hospitals) Panel on the Nonprofit Sector IRS Governance Best Practices (now included in 2008 Form 990 questions) IRS Inquiry Letters (hospitals & universities)
5. Enforcement risk P Disgruntled/former employees/donors/ clients P Media P "Public Advocates" "Your 990 is showing!"
6. New 990 – Who Must File Generally speaking, all 501(c) organizations must file – exceptions are limited and specific Churches are generally exempt from filing
8. New 990 – Governance Policies to Have in Place Written conflict of interest policy? The IRS includes a sample conflict of interest policy in Appendix A of the Form 1023 (application for nonprofit recognition). It was originally written for nonprofit hospitals, but it can be adapted to other charities and nonprofits: http://www.irs.gov/instructions/i1023/ar03.html Written whistle-blower policy? Written document retention/destruction policies? Joint Venture policy? Act exclusively in furtherance of tax exempt purpose
9. New 990: Governance Practices to have in place Contemporaneous Minutes of Board and Committees Review of Form 990 by Board before Filing Public Disclosure of Tax Return (990) Compensation Committee Review executive and director compensation Audit committee
10. New 990– Reporting Requirements Many other new and expanded reporting requirements that don’t involve governance policy Lobbying Fundraising Tax-exempt bonds
11. Public Disclosure At your principal, regional, and district place of business, you must make available for inspection upon request: Form 1023 – Includes Articles of Incorporation, Trust Indenture, or Association; Financial information for the preceding 3 years of operation; By-Laws Form 990 – last three years IRS Correspondence Documents must be mailed within 30 days upon request
12. Public Disclosure – Conditions and Exceptions Reasonable postage & printing costs Harassment Privacy (e.g., donor names in public charities) Older documents (e.g., Form 1023 prior to 1987)
13. “Intermediate Sanctions” The penalties imposed under Internal Revenue Code Section 4958 on persons involved in excess benefit transactions. Intermediate sanctions are an alternative to the revocation of an organization’s tax-exempt status when private individuals receive an excess benefit.
17. Organizations Covered Under IS 501(c)3 and 501(c)4 organizations Note: private foundations are not covered under new Intermediate Sanctions regulations because they have similar regulations to follow already Churches are covered under Intermediate Sanctions even if they haven’t filed for exempt recognition
18. Excess benefit transactions -- general Any transaction between an exempt organization (nonprofit) and a disqualified person where the value of the benefit to the individual exceeds that provided to the exempt organization
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20. Individual benefiting B 25% excise tax on the amount of the excess benefit, plus "making the nonprofit whole"
21. Organization manager B 10% excise tax on the amount of the excess benefit (up to $10,000 per transaction)
25. Includes all salary, commissions, fringe benefits (except for certain exclusions), reimbursed expenses, etc.
26. “Highly compensated employee” B anyone with reportable compensation exceeding $150,000 in 2009, regardless of title/position
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28. Demonstrate reasonableness through documentation -- document, document, document! P Conflict of interest policy for organization B The IRS includes a sample conflict of interest policy in Appendix A of the Form 1023 (application for nonprofit recognition: http://www.irs.gov/instructions/i1023/ar03.html P Board minutes documenting action on transactions including conflicts, recusal of board members, etc. P Written board recruitment program including questionnaires documenting conflicts P Document managers’ conflicts
29. South Dakota Registration File Articles of Incorporation with SD Secretary of State File IRS Form 1023 or 1024 Apply for SD Sales Tax Exemption if eligible – most SD nonprofits are not eligible File Annual Report with SD Secretary of State
30. Thank You! 818 S. Hawthorne Avenue Sioux Falls, South Dakota 57104-4537 (605) 336-0244 or (888) 4-SUMPTION www.sumptionandwyland.com
