Best Practices In Nonprofit Governance: Dealing With "Voluntary" Reforms

Nonprofit governance reform was a focal point in the last Congress and may become one again. In the meantime, however, a recent IRS pronouncement may serve as a catalyst for voluntary reforms. On February 2, 2007, the IRS released its "Good Governance Practices for 501(c)(3) Organizations" (the "Recommendations"), calling on charities voluntarily to implement "best practices" for corporate governance. Although the IRS does not have the authority to regulate nonprofit governance directly, several of the tax rules the IRS does enforce (e.g., private inurement, private benefit, and excess benefit rules) contain concepts that parallel state-law fiduciary duties, including the duty of loyalty and the duty of care. Moreover, in order to facilitate IRS enforcement activities, both Form 990 (annual information return) and Form 1023 (exemption application for 501(c)(3) organizations) require a wide variety of disclosures regarding financial transactions with insiders, including the process