Best of Boards, 2nd Edition

Chapter 8 Focus on Tax-Exempt Status

John and Kay, two audit committee members of Companions for the Blind, a charitable nonprofit organization, were making a final review of the proposals for tax work submitted by three public accounting firms. John thought about the presentations that each of the firms made to Companions of the Blind about their expertise in preparing the Form 990. Wayne, a tax partner in one of those firms, made a particularly compelling case for using his firm’s services. Wayne’s presentation included an explanation to the board about why the proper preparation of Form 990 was so important. He also discussed the complexities involved in completing the form and how important it was for the board or its designated committee to review and approve it.

In the meeting, Wayne said, "Over the past decade, there has been significant focus by legislators such as Senator Charles Grassley, watch dog agencies such as Charity Navigator and Board Source, and government agencies such as the IRS on the tax-exempt status of nonprofits. Nonprofits benefit by not having to pay federal income and excise taxes and, in many states, by not having to pay state income, property, and other taxes. Some nonprofits also use their tax-exempt status to issue bonds at lower rates because the interest is not taxable to the bond holders. These benefits can save a nonprofit significant money, which can then be spent on programs that benefit the community. But abuse of tax-exempt status, ...