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IRS Issues Proposed Guidelines on Good Governance Practices

March 13, 2007

On February 2, 2007, the IRS released and requested comment on draft guidelines entitled “Good Governance Practices for 501(c)(3) Organizations.” Although the guidelines are only in draft form, they are worth reviewing as they provide a good window into the IRS’ thinking on the governance of 501(c)(3) organizations. The full text of the guidelines can be found at http://tinyurl.com/229e67.

The guidelines recommend the following nine practices:

1. Have a clearly articulated mission statement.

2. Adopt and regularly evaluate a code of ethics that communicates a strong culture of legal compliance and ethical integrity. Establish effective whistleblower policies.

3. Put in place policies and procedures to help directors meet their duty of care, which includes ensuring that each director:

a. Understands the charity’s mission and goals.

b. Is fully informed on its financial status.

c. Has full and accurate information to make informed decisions.

4. Make sure directors understand their duty of loyalty. Adopt and regularly review a conflict of interest policy.

5. Adopt and monitor procedures to ensure that charity’s Form 990 and other annual reports are complete and accurate and posted on the organization’s website or made as accessible as possible to maximize the charity’s transparency.

6. Ensure the fundraising solicitations meet federal and state law requirements and that fundraising materials are accurate, truthful and candid.

7. Take seriously the role of an independent audit committee and consider changing audit firms every five years (note: this recommendation has received significant criticism).

8. Discourage director compensation and only pay it if an independent, uncompensated committee determines that compensation is essential to attract the necessary expertise.

9. Establish an up-to-date document retention policy that includes guidelines for handling electronic files.


The IRS released these guidelines through an informal process and has not yet asked for formal comments. We will send out client updates as the IRS issues further information or issues its final guidelines. If you would like more information on the regulation of Section 501(c)(3) health care organizations, please contract Melissa Auchard Scholz (608-284-2610 or mscholz@gklaw.com) or another member of our Godfrey & Kahn Healthcare Team.

Media Contact 

If you have a media request or need an attorney with particular knowledge for comment, please contact Susan Steberl, Director of Marketing, at 414.287.9556 or ssteberl@gklaw.com.

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