On the record, off the hook. Paperwork protects tax status

Meeting minutes of Section 501(c)(3) organizations are one of the first places the Internal Revenue Service, the state attorney general, and others will look in trying to determine whether the board of directors is governing the corporation's operations and activities in conformance with tax-exemption rules and whether board members are properly fulfilling their corporate fiduciary duties. Because such minutes reflect deliberations and actions that took place at board meetings, minutes provide a record of circumstances surrounding significant corporate decisions--decisions the IRS and others may choose to question. An organization trying to maintain its tax-exempt status can further its cause by making sure that meeting discussions (and minutes), as well as backup documentation, include all pertinent information. The tax-exempt organization should take special care when drafting minutes regarding deliberations and actions pertaining to transactions that prompt close IRS scrutiny. For example, with joint ventures, corporate minutes should reflect that the exempt organization's board based its decision to enter into the joint venture primarily on the venture's investment value and/or its value in achieving exempt purposes--not the venture's benefit to the non-exempt party.