You’ve already seen me rail on SOX and I’m not the only one.
I am not classically trained in recognizing Service threats but this certainly feels like one.
The Internal Revenue Service today reminded tax-exempt organizations to make sure they file their annual information form on time. In 2010 the tax-exempt status of any non-profit that has not filed the required form in the last three years will be revoked.
The Pension Protection Act of 2006 requires that non-profit organizations that do not file a required information form for three consecutive years automatically lose their Federal tax-exempt status. This requirement has been in effect since the beginning of 2007.
The costs of compliance begin to add up and suddenly it starts to reek of 404(b); compliance for the sake of compliance does not equal nor even assist transparency.
I spoke to Chris Leach, a former not-for-profit auditor who has served on several NFP boards, who gave some insight into the problem with the 990. Let me tick off just a few “concerns”:
• Some of the smaller non-profits don’t have anyone on their board qualified to do the 990. It’s not a 1040 and problems are numerous.
• NFP board members are exposed to liability, being forced to “sign off” on 990s. That should sound familiar to any auditor who has been at the job for longer than ten years or so.
• Increased regulatory pressure has been proven to distort true financial condition, not necessarily make it any more transparent.
Any of this sound eerily familiar?
Many boards do not have members equipped to adequately review and sign Form 990, so they are still exposing themselves to liability as a result of improperly filed forms. “Bad publicity is the largest implication in my view, especially for organizations facing financial stress, and even more so in this economic environment,” Chris told me. “Beyond that, from a board member’s perspective, the biggest problem would be misstatements on the Form 990, which could potentially lead to personal liability for the board.”
Chris is slightly more reasonable than yours truly, saying “Just the simple day-to-day administration of tax issues puts pressure on smaller not-for-profit organizations. [However], when a not-for-profit organization isn’t a worthy steward of its donors’ trust, donors feel betrayed, so they want more transparency.”
Fair enough. Bring on the transparency (and the headaches?)!