Nonprofit Governance and IRS Form 990
Posted on Mar 16, 2012
If you are serving on a nonprofit board, you have a fiduciary duty of care in exercising oversight of the organization. The extent of that duty was illustrated quite vividly in a recent federal district court case in which a volunteer board chairman was saddled with a $193,952 trust fund recovery penalty for unpaid employment taxes. Volunteer directors and officers enjoy considerable liability protection under Vermont law, and may enjoy further protection under directors and officers liability (“D & O”) insurance, although such protection is unlikely to extend to IRS penalties. The facts of the district court case are somewhat unusual, but the point remains – board members need to know what is going on in their organizations. Trust, but verify.
One of the ways to ensure an active oversight role for your board is to review the annual filing of IRS Form 990 – the informational return for tax-exempt organizations. The IRS revised Form 990 in 2008 to include a questionnaire on board governance. Your board would do well to review those questions and consider whether they point to any deficiencies in governance procedure. I had intended to write more on this topic, but I procrastinated long enough that Emily Chan of the Nonprofit Law Blog has done the work for me. I refer you to her great summary: