Tax-exempt organizations - the IRS wants you to think about record retention policies

Commenting on tax forms, Albert Einstein once said, "This is too difficult for a mathematician. It takes a philosopher."

Einstein might appreciate the latest changes in filing for tax-exempt organizations. In an attempt to foster transparency and ease the filing organization's administrative burden, the IRS recently redesigned the Form 990 (the annual information return that most tax-exempt organizations are required to file). The redesign asks a variety of questions regarding the filing organization's governance, including the question, "Does the organization have a written document retention and destruction policy?"

Although a portion of the new governance section "asks [for] information about policies and practices that are not required by federal law," the Sarbanes Oxley Act imposes criminal liability on organizations, including tax-exempt organizations, that destroy records with the intent to obstruct a federal investigation. Many tax-exempt organizations have responded to the Sarbanes Oxley Act by adopting and implementing record retention policies. The IRS recommended that organizations  "review[...] the new governance questions, which generally must be answered based on policies and practices in place on or before the last day of the 2008 tax year."

If your organization must check the "no" box for 2008 , consider implementing a policy for the 2009 tax year. Whether your organization deals with mathematicians, philosophers or neither, it's good business practice for your tax-exempt organization.

Tee Up Your Document Retention Policy -or End Up in the Woods

In a widely reported anecdote, pop singer Christina Aguilera was once introduced to golfing superstar Tiger Woods, one of the most recognized people on Earth. “Christina, I love your music,” Woods declared. “I have all your CDs...” “Sorry, I don’t follow tennis,” Aguilera said, “so I don’t know much about you.”

 

Unfortunately, ignorance is no excuse when it comes to compliance with record-retention policies and apathy will result in serious trouble.   The legal and regulatory risks associated with noncompliance include costly penalties, court sanctions, and adverse judgments.  In addition to these compliance risks, companies must also consider potential financial and strategic risks. According to Rich Bailey in “Leveraging Enterprise Records Management” in the Sarbanes-Oxley Compliance Journal, a recent survey found that “roughly 50 percent of respondents said they are less than confident that, if challenged in court, their organization could demonstrate that their electronic information is accurate, accessible, and trustworthy. Only now are organizations realizing the complexity and compliance requirements associated with e-records, including electronic documents, data, e-mail and instant messages. Another survey by CFO.com found more than one-third of top-level executives say their companies don’t have a disciplined way to deal with electronic discovery issues.”

 

ONE THIRD! That’s a lot of executives who are at serious risk of consequences due to their shortcomings in preparedness in dealing with electronic discovery issues. If your company has not already evaluated adopting a document retention policy, adopted a policy or, worse yet, is not following its existing document retention policy, get on the ball or you may end up being like another golfer, Harry Tofcano, who said, “I’m hitting the woods just great, but I’m having a terrible time getting out of them.”