Foundations should take note of the April 24, 2010, “Prepared Remarks of Commissioner of Internal Revenue Douglas H. Shulman at the Council on Foundations 2010 Annual Conference, Denver, CO”

Lawrence Associates summarized and excerpted some of the key and potential implications of these remarks:

IRS Focus on High Wealth Individuals

– The IRS is innovating .  “A good example is our global wealth unit which we launched last year, which will look at the entire web of economic entities controlled by a high wealth individual.  In the past, we looked at each legal entity separately.  Now we will look at an individual’s tax return, business holdings, trusts, related charitable entities, foreign holdings and other tax related activities as an integrated whole to look for patterns of non-compliance.”

Oversight and Criteria for Grant-making and Grantees

 – “one of the key criteria for grant-making in most foundations is a strong, stable management team and board of directors for the organization receiving a grant… Before your foundation makes a grant, you want to make sure that the organization receiving the grant is:

     o Properly run and a good steward of its assets
     o Has good internal controls
     o Has sound leadership
     o Is skillfully managed to give you confidence it can and will execute in its mission and serve a public good

Focus on Good Governance and Internal Controls

– “The Council’s ethical principals…mirror the IRS’ core values of honesty and integrity …respect…continuous improvement…inclusion…openness and collaboration…and accountability.”
–  “…good governance is essential to public trust and accountability, and critical to the success of all organizations and institutions, including governments, non-profits and for-profits.”
–  “We want well-run institutions that deliver on their on their missions – exempt purpose – tax parlance.  We want appropriate controls in place to ensure clean books and records and adherence with legal requirements…We both benefit from another set of eyes looking at similar issues.”

Potentially Aligning the Form 990-PF with the Form 990?

– ” We will continue to focus on….trust, accountability, and transparency as our strategy evolves.  The new Form 990 is perhaps the best example of our recent work to promote public trust and accountability in the non-profit area.”

Continued Areas of IRS Focus and Articulation of Good Governance

–  “Congress…allowed for greater control by the original donor to a private foundation in exchange for the application of a fairly precise set of restrictions on behavior.  To some extent, these restrictions are a specific articulation of some good governance practices; including taxes on:
     o acts of self-dealing involving private foundation assets;
     o private foundation expenditures that are not for charitable purposes; and
     o excessive business holdings or risky investments that jeopardize the financial well-being of the foundation”.