Abstract
Purpose. The purpose of this study was to examine the decision making processes of nonprofit board members to determine if they were aware of the full scope of their responsibilities, and the need to follow rules set forth in section 501(c)(3) of the IRS tax code in order to protect their organization's tax-exempt status. Theoretical framework. The theoretical framework of this study is based on the research foundations of Cohen, March, and Olsen's theory, A Garbage Can Model of Organizational Choice. Methodology. The subjects in the study were 31 board members, and 4 executive directors from 4 nonprofit organizations in Southern California. The board members from each of the nonprofit organizations engaged in a focus-group-style discussion addressing 6 hypothetical scenarios to determine if accountability issues related to the IRS were discussed during the decision making process. Each board member was then asked to complete individual written questionnaires. Each executive director responded to an oral survey administered by the researcher, and a content analysis was conducted on each nonprofit utilizing public records such as the organization's most recently published IRS Form 990, annual reports, board rosters, and other related information. Findings. This research indicates that board members view their primary role as fund developers and operational experts, rather than persons responsible for organizational compliance. Conclusions and recommendations. This research indicates that decisions made by board members may comply or not comply with rules set forth in section 501(c)(3) of the IRS tax code inadvertently, rather than by deliberate acts based on rational choices built on a solid foundation of knowledge. Boards make decisions that comply (positive inadvertency) or do not comply (negative inadvertency) based on their best judgment, similar decisions in the private sector, past experiences, but not based on a solid understanding of the rules and limitations of the IRS tax code. This leads the researcher to believe that the $15 billion a year (as reported to congress by the IRS) being lost due to abuses in the nonprofit sector may be the result of positive and negative inadvertency, rather than by deliberate malice.