IRS suggests transparency policies

November 20, 2008

As part of its effort to boost nonprofit transparency, the IRS is asking tax-exempt organizations detailed questions about their policies on the new Form 990 information filing.

The IRS also has suggested that nonprofit organizations adopt policies related to the following areas to avoid increased scrutiny and audits:

* Conflict of interest - A conflict of interest arises when someone in a position to make decisions for an organization stands to benefit financially from the decision. When such situations arise, nonprofits should be able to define the conflict of interest, identify the individuals involved and specify appropriate steps to resolve the problem.

* Whistleblowers - This policy should encourage employees to speak up in the event of illegal activities or violations of organizational policies.

* Document retention - This policy should specify which procedures are followed for maintaining and destroying documents.

* Compensation - Organizations must determine compensation for directors and top management with reviews by a governing body, reviews of compensation for similar positions at other organizations and documentation of deliberations.

* Joint ventures - This policy should outline any joint ventures between a nonprofit and a for-profit company.

* Gift acceptance - This policy should determine which gifts, outside "nonstandard contributions," will be accepted by the nonprofit.

The new Form 990 also asks nonprofits to disclose details about compensation for top executives, including allowances for travel, housing, personal services and other benefits.

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