ATTENTION CHARITIES: THE IRS MAY BE INVESTIGATING YOU
By J. Keith Phifer, Esq.
Any Charity who has filed its federal tax return for 2005 should be aware that conflicts of interest and related party transactions have become very hot issues with the IRS. Not only has the IRS increased scrutiny on existing charitable organizations, but they have effectively placed an affirmative responsibility on all charitable organizations to adopt some sort of conflict of interest policy. The IRS has provided a sample form for such a policy, which may be modified to fit the requirements of each individual charitable organization. Charitable organizations should circulate the policy with a conflict of interest questionnaire to its board, officers and key employees annually so that they can track not only actual, but also potential conflicts of interest and related party transactions, and disclose them as required on their annual tax return. This is the key reason that a full policy is probably necessary. The IRS is now looking beyond pure violations of self-dealing and looking to make sure that full disclosure is made of all transactions with related parties (e.g. the president of bank A sits on the charity's board, and the charity conducts business with bank A), and that proper procedures are followed as are outlined in the IRS policy (regular course of business, multiple bids, etc.). Charities should adopt such a policy as soon as possible if they have not done so already.
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