June 19, 2007
AHLA's Hospitals and Health Systems and Tax and Finance Practice Groups are pleased to provide IRS "Good Governance" Practices Analysis and Annotations by Michael W. Peregrine, Esquire, and Elizabeth M. Mills, Esquire.
In February 2007, the IRS released proposed governance guidelines for organizations recognized as tax-exempt under IRC Section 501(c)(3), such as hospitals and health systems. Satisfaction of the Proposed Guidelines is not a requirement for exemption, but they are intended to emphasize what the IRS believes to be the important relationship between effective governance and satisfaction of exempt purposes. The June 14 release of the proposed new Form 990 underscores even further the increased role that the IRS is attributing to corporate governance.
The historical IRS perspective finds there is a relationship between effective corporate governance practices and the "community benefit" standard of exemption. In recently published comments (April 26), IRS Commissioner (Tax Exempt and Government Entities) Steven T. Miller called promotion of good governance a new "pillar" of the IRS' service and enforcement programs for exempt organizations.
The IRS policy perspective is that current controversies in the tax-exempt sector can be addressed, at least in part, by enhanced transparency "and the existence of an engaged, informed and independent board of directors accountable to the community it serves."
Initial IRS efforts in this regard will be focused primarily on education on basic standards and practices of good governance. The release of the proposed "good governance" practices for 501(c)(3) organizations is reflective of such efforts.
The IRS "Good Governance" Practices Analysis and Annotations by Michael W. Peregrine, Esquire, and Elizabeth M. Mills, Esquire, of McDermott Will & Emery, provides an analysis of the nine specific governance guidelines proposed by the IRS.