What is the purpose of the annual filing

What is the purpose of the annual filing of the IRS form 990 for nonprofit boards?
Reading for the week: Textbook chapter’s three (3) and four (4)
IRS Form 990 and federal tax-exempt status. Those who have undertaken the process of applying to the IRS for recognition of federal tax-exempt status understand how valuable that status is. Not only does tax-exempt status relieve an organization of most federal and state corporate income tax liabilities, as well as the ability to receive tax-deductible charitable contributions (for those exempt under Section 501(c)(3)), but it offers credibility with the public. However, those benefits come with a price tag in the form of the federal tax laws’ many restrictions on a tax-exempt organization’s income, fundraising, meetings, educational programs, publications, lobbying and political activities, standard-setting, certification, and other activities. Failure to comply with these restrictions can jeopardize an organization’s tax-exempt status and result in other penalties as well (such as “intermediate sanctions” for “excess benefit transactions”). The IRS’ principal tool for monitoring compliance with the federal tax laws is the very comprehensive Form 990 information return, which must be filed annually by most exempt organizations. Thus, to protect their organization’s tax-exempt status, board members should have a basic understanding of the restrictions imposed by the tax laws, and implement policies and procedures responsive to these requirements as well as Form 990’s reporting mandates.
Failure to understand and manage conflicts of interest. In recent years, awareness of conflicts of interest in the nonprofit sector has been especially high, with watchdog organizations, the IRS (via the Form 990), and even Congress aggressively monitoring nonprofit governance practices for any hint of abuse. Nonprofits that fail to manage conflicts of interest run the risk of losing public confidence, or worse, becoming the object of a media scandal. Such risks provide ample reason to avoid even the appearance of impropriety by implementing a well-drafted conflict of interest policy and a transparent disclosure process and procedure for managing conflicts. Conflict of interest policies should help nonprofit managers and volunteer leaders understand that not all conflicts involve bad actors with poor ethics. Rather, a conflict can arise any time a nonprofit manager or volunteer leader’s personal, financial or other interests could potentially conflict with the interests of the nonprofit. And recognize that not all conflicts are necessarily bad for the nonprofit; some can even be in the organization’s best interests. But the key to effectively dealing with potential conflicts is for the board to undertake a routinized process for identifying, disclosing, and managing them.

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