Issue
Form 990 asks about whether your institution has written conflict of interest, whistleblower, and document retention/ destruction policies. For myriad reasons, you should be in a position to answer “Yes” to all three of these line items. We covered conflict of interest policies a few weeks ago. Herein we discuss the other two.
Situation
Marathon Bible College (MBC) is a public charity and a school under I.R.C. sections 501(c)(3) and 170(b)(1)(A)(ii). They attend one of our webinars on “Board Governance” and call with a question about two policies that the IRS queries about on Part VI of Form 990: Whistleblower policy and Document retention and destruction policy. They state that for years they have not had these policies in place and have answered “No” to Lines 13 and 14 of Part VI.
After hearing what we had to say in the webinar about the IRS’ new data-driven decision-making process, they are very interested in having their board of trustees adopt these policies and put them in place. MBC’s accounting team has a realistic concern about being “chosen” for an IRS exam. They ask if we have templates that they might use as a starting place.
We answer that the American Institute of Certified Public Accountants (AICPA) has some great templates that they offer as a service to not-for-profit organizations. Those may be found here (whistleblower policy) and here (document retention and destruction policy).
Rules
From 2015 Form 990 Instructions (Part VI, Line 14):
Lines 13 and 14. A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported. A document retention and destruction policy identifies the record retention responsibilities of staff, volunteers, board members, and outsiders for maintaining and documenting the storage and destruction of the organization’s documents and records.
Certain federal or state laws provide protection against whistleblower retaliation and prohibit destruction of certain documents. For instance, while the federal Sarbanes-Oxley legislation generally does not pertain to tax-exempt organizations, it does impose criminal liability on tax-exempt as well as other organizations for (1) retaliation against whistleblowers that report federal offenses, and (2) for the destruction of records with the intent to obstruct a federal investigation. See 18 U.S.C. sections 1513(e) and 1519. Also, note that an organization is required to keep books and records relevant to its tax exemption and its filings with the IRS. Some states provide additional protection for whistleblowers.
Bottom Line
The IRS looks for whether you have adopted three separate policies on Form 990, Part VI. Best practices certainly dictate that you have more policies than these in place. As an aside, you might want to look into membership in the AICPA’s Not-for-profit Section.
In addition, If you need more information about policies, touch base with your skilled, knowledgeable , and experienced not-for-profit tax professional. They will be able to help you navigate these potentially treacherous waters.
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.