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When the Internal Revenue Service speaks, it's a good idea to listen carefully. This is particularly true if you are a board member, official or employee of a nonprofit organization that has been granted tax-exempt status by Uncle Sam. According to legal and academic experts, with an estimated 1.9 million nonprofit organizations in the United States and charitable giving topping $260 billion in 2005, increased scrutiny and revisions in the IRS' reporting requirements are top of mind for officials at foundations, universities and other nonprofit groups.

One marquee item: the extensive changes the IRS has made on its proposed forms for organizations exempt from income tax-better known as Form 990. The pending changes will require detailed reporting about "governance, management, and financial reporting" on tax-exempt groups.

While some legal experts have debated whether the IRS even has jurisdiction in such issues, veteran observers warn against complacency.

"I have heard many practitioners argue that governance is the sole purview of state law and that the IRS should stay away from the issue," Thomas Silk, a senior counsel at Silk, Adler & Colvin in San Francisco, wrote in the July issue of the Journal of Taxation. "My own view is that whether IRS guidance on charitable governance is a good thing is beside the point. It is going to happen-either under this administration or the next."

...it is inevitable that the IRS will continue to work with a supportive Congress to resolve any jurisdictional ambiguities about state and federal oversight of charitable organizations.

Given past scandals in the nonprofit world, Silk added, it is inevitable that the IRS will continue to work with a supportive Congress to resolve any jurisdictional ambiguities about state and federal oversight of charitable organizations.

The new Form 990 http://www.independentsector.org/ programs/gr/Draft_Form_990.htm covers executive compensation, endowments, related organizations, joint ventures, governance, the amount spent on administration of a charity, and new rules for the billings and debt collection of hospitals.

The governance questions in particular "are not to be taken lightly," Silk concluded in his article. "They are not asked as a benign poll of charitable organizations. They are backed with the full enforcement power of the federal government."

In an interview, Silk said, "Everyone wants to pay attention and not be a poster boy for bad actions. The importance of avoiding adverse publicity can be critical. The dirty truth is that negative publicity, which can be viewed as an extra-legal enforcement tool, is far more likely to cause a charitable organization to be shuttered than the minimal enforcement efforts" of all state and federal tax law enforcement authorities.

This protective stance is becoming commonplace for board members at nonprofits who have experienced heightened federal scrutiny in the for-profit sector since passage of the landmark Sarbanes-Oxley Act of 2002. The federal law sparked passage of a number of state laws and the launch of investigations of nonprofits by state attorneys general such as the 2003 probe spearheaded by Eliot Spitzer, then attorney general of New York.

...increased scrutiny and revisions in the IRS? reporting requirements are top of mind for officials at foundations, universities and other nonprofit groups.

The Senate Finance Committee has kept the issue in the national spotlight, investigating university athletic programs, television evangelists, and charitable organizations? abuses of tax-exempt status.

In response, the Independent Sector, the Washington-based nonpartisan coalition, convened in 2004 the national Panel on the Nonprofit Sector, comprising 200 highly qualified and experienced professionals from the nonprofit arena. The panel has released two reports to Congress and the nonprofit sector to improve the transparency, governance, and accountability of charitable organizations.

"What you see if you look at that [revised 990] is a much tighter focus, and assessment of controls, around the issues of governance, compensation, conflicts of interest, and the role of independent directors," said Lynne L. Heinrich, a senior consultant at Marts & Lundy and lecturer on nonprofit governance at the University of California, Berkeley, Haas School of Business.

Ongoing scrutiny from the Senate Finance Committee, the IRS, and state attorneys general should not be ignored. "Organizations need to pay attention to this," Heinrich said. "They need to assess their current practices against required and recommended levels of compliance and best practice, and make changes."

Above all, the increased awareness reflects a commitment by nonprofit leaders to good stewardship and accountability to donors.