Non Profit Report - May 2011

Date: May 2, 2011

IRS Proposes Regs on Disclosure of Exempt Organization Information to State Officials
by Stephen M. Schaefer

On March 28, 2011, the Internal Revenue Service and the Department of Treasury issued proposed regulations to reflect changes made by the Pension Protection Act of 2006 to section 6104(c) of the Internal Revenue Code. Section 6104(c) sets forth when certain information may be disclosed by the IRS to state officials about section 501(c)(3) organizations, organizations that have applied for tax-exemption under section 501(c)(3), and certain other exempt organizations. The proposed regulations provide guidance to the states regarding the process by which the states may obtain or review a tax-exempt organization's information returns for the purpose of administering state laws regulating exempt organizations and their activities.

Under the Pension Protection Act, the IRS is now authorized to disclose information about certain proposed revocations or denials of tax-exempt status before an administrative appeal has been made and a final revocation or denial has been issued. For an organization that has received tax-exempt status under section 501(c)(3), the IRS may disclose to state officials a proposed revocation of the organization's exemption before any administrative appeal is pursued by the organization challenging the proposed revocation. The allowed disclosure applies to organizations required to apply for tax-exempt status and to organizations that elected, but are not required, to apply for tax-exempt status. The IRS remains authorized to disclose to state officials final revocations and denials issued to section 501(c)(3) organizations after any administrative appeal has been concluded.

In addition, the IRS may disclose to state officials information returns of any section 501(c)(3) organization on the IRS's own initiative, regardless of whether it has initiated an examination, if the IRS determines that the information may be evidence of noncompliance with state laws. Disclosures authorized under section 6104(c) may only be made if the state receiving the information is following required disclosure, recordkeeping and safeguard procedures. The IRS is also permitted to disclose information to state officials about all organizations that have applied for tax-exemption under section 501(c)(3).

The changes made by the Pension Protection Act do not affect the obligation of the IRS to notify state officials of a refusal by the IRS to recognize an organization as tax-exempt under section 501(c)(3). In addition, the IRS remains obligated to notify state officials when a section 501(c)(3) organization's operations no longer meet the requirements to continue the organization's exemption. The changes made by the Act also do not affect the obligation of the IRS to notify state officials of the mailing of a notice of deficiency to an exempt organization for any tax imposed by the IRS. The obligation of the IRS to notify state officials of an organization that no longer meets the requirements for exemption under section 501(c)(3) includes notice of a revocation of exemption and notice that the organization is terminating or has dissolved in accordance with the governing documents of the organization. State officials may inspect and copy the organization's information returns and other documentary information relating to a final determination by the IRS as is relevant to any determination under state law.

Other tax-exempt organizations could also be affected by the proposed regulations. The IRS is authorized to disclose to state officials a tax-exempt organization's information returns upon written request, but only to the extent necessary to administer the state's laws regulating the solicitation or administration of charitable funds or assets.

The IRS will accept comments to the proposed regulations until June 13, 2011.

The Golden Rules for Committees
by Eileen Morgan Johnson

As associations grow and mature, they can find themselves with too many committees. There might be standing committees that are required by the association's bylaws or others that have been formed over time and never disbanded. An association's leaders might ask, how many committees do we really need?

Committees play a key role in the governance of an association. Boards of all sizes often do their real work at the committee level, and this is particularly true for large boards. Committees often include members of the association who are not on the board, which allows them to become involved and demonstrate their leadership ability.

On the other hand, committees can be a drain on an association's resources, both human and financial. Too many committee meetings will result in overload and meeting fatigue - participation drops significantly when the committee members are overwhelmed, bored, or uninterested in the committee's work (or lack of work).

To address the problem of too many committees - or perhaps the wrong committees - follow the four golden rules for committees:
  1. Not every committee has a right to exist forever.
  2. A committee must have real work and goals to be of value to the association and the committee members.
  3. Even standing committees can be changed through bylaw amendments.
  4. Don't create a committee when a task force or study group will do.

# 1. Killing Committees Gracefully
There are several ways to pare down an association's committees: "zero based" committees and sunsetting are particularly effective.

The zero based committee system is based on the concept of a zero based budget. Each year the association starts fresh with only those committees in place that are required by its bylaws. From there, the board determines what the association's programmatic, operational and governance needs are for the year ahead and forms committees to address those needs.

Sunsetting committees takes a slightly different approach. Each committee is given a specified duration. The committee ceases to exist on the date that it reaches the end of its life unless the board takes action to extend the duration. This can be an effective tool for those associations that want change but do not want to take affirmative action (or responsibility) to bring it about.

# 2. Put Your Committees to Work
Committees often devote great time and energy to developing the perfect committee charter - which then gets put away and never looked at again. While a committee charter can be useful to focus a committee's work and help the members agree on what they are supposed to do, a committee charter alone isn't enough. The board should give each committee a specific charge, either at the start of each year or upon the committee's formation. The committee's charge will identify particular issues that the committee will focus on that year and the actions they are expected to take.

Committee actions can include:

  • Studying an issue and reporting back to the board on the results of the study;
  • Recommending board action;
  • Monitoring activities such as conflicts of interest or finances;
  • Developing new programs, fundraising strategies, or membership activities, usually in conjunction with staff and/or members; or
  • Handling specific tasks for the board such as nominations or bylaws review.

A committee with a charge that clearly states the expected action or result will be more focused, more energized, and more likely to deliver a product or service.

# 3. Review Standing Committees Regularly
It might be cumbersome to amend the association's bylaws just to change the standing committees that are established there. However, it is a good practice for an association to review its bylaws every two years or so. (This not only allows the association to identify those sections of the bylaws that should be changed but also allows the board to confirm that its practices conform to the bylaws.) A review of standing committees should be part of such a regular bylaws review.

# 4. Use Other Options
Task forces and study groups can be an informal, time-limited way to accomplish the same work as a committee. Typically, a task force or study group is formed to tackle a particular problem or issue and is expected to report back to the board promptly. Once the report is delivered, the group is disbanded.

By following these four golden rules of committees, any association can streamline its committee structure and make service on its committees a pleasure rather than a pain for its members.