Whether you are a board member, executive director, accounting manager or CFO of a non-profit organization, you should be aware that the Internal Revenue Service (IRS) is increasing their audits of the Form 990.
Effective for tax years beginning in 2008, the IRS extensively revised Federal Form 990 to include a new summary page, a new governance section, enhanced reporting of executive compensation and an organization’s relationships with insiders and other organizations and new reporting for non-cash contributions, foreign activities, tax-exempt bonds and hospitals.
Now that several years have passed since the 990 revisions, the IRS has commenced auditing Form 990s based on “data-driven” criterion. This means organizations will be automatically selected for audit if certain data is detected by this automated process. The shift to “data-driven” assessments of an organization’s compliance with the federal tax laws, means that Form 990 preparation is more critical than ever. A properly prepared and executed information return will ensure that an organization’s chances for random audit selection are minimized and that exposure to income taxes, both on unrelated business income tax as well as other income by virtue of loss of exempt status, are kept at the lowest level possible.
Based on recent discussions with an IRS agent, some of the most common indicators that result in a non-profit organization’s selection for audit under this data-driven audit selection process are as follows:
As the IRS continues to identify organizations with potential non-compliance indicators, it is more important than ever, that tax-exempt organizations monitor and report accurately all required information with respect to their activities on their Form 990.
For more information please contact Patrick McAssey at email@example.com or (401) 330-2726.
Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.