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LETTERS

Lie Detector Test for HOAs - brought to you by the IRS

 

September 18, 2011

 

Laguna Wood California- Recently, the Internal Revenue Service (IRS)  added new frequently asked questions (FAQs) on Part VI of Form 990, Governance, Management, and Disclosure. This section of the Form 990 pertains to information about an organizationís governance, management, and disclosure policies.

The IRS has clarified and added explanations to a number of issues that have come up the process of completing  Part VI. There are twelve specific questions with explanations on the IRS' website including:

1. Generally, all organizations that file Form 990 are required to answer all of the questions in Part VI. As you will see from the following, some of the answers can be answered no. However, be careful if you answer no.


2. In general, the policies and practices described in Part VI are not required by the Internal Revenue Code. However, the IRS will use the information reported to assess noncompliance and the risk of noncompliance.


3. If the instructions to a particular question do not provide a specific time or period to be used to answer the question, the organization may take into account practices undertaken after the close of the tax year in its response to that question. This must be explained in Schedule O.


4. The organization may answer Yes to any question in Section B of Part VI that asks whether the organization has a particular policy if the organizationís governing body adopted the policy by the end of its tax year.


5. Part VI, Questions 6 and 7, ask whether an organization has members, and if so what their governance rights are, in order to provide a more complete and accurate picture about where governance authority is vested and about the organizationís legal structure. This applies to organizations that have actual members.


6. An organization is not required to provide a copy of the Form 990 to its board or governing body, or have them review it before it is filed, however, it is required to answer Question 10 regarding this.


7. The organization must use the IRS definition of independence.


8. The organization need not engage in more than a reasonable effort to obtain the necessary information to answer the questions regarding family relationships.


9. The IRS does not plan to provide model or sample policies referred to in Part VI.


10. Generally, an organization is not required to provide information regarding the composition of the governing body or policies or practices of a related organization.


11. Questions on specific policies should be answered yes only if the filing organizationís governing body has adopted the policies.


12. Form 990-EZ was not revised to include a governance section. However, question 34 was retained.

The text of ďForm 990, Part VIóGovernance, Management, and Disclosure, Frequently Asked Questions and TipsĒ can be viewed on the IRS website at .

Paul Loughrey

 

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