IRS Increases Scrutiny of Nonprofit Organizations
January 11, 2011

During the last few years IRS has significantly stepped up its efforts to oversee nonprofit organizations. The agency has recently released a report that shows that its audits of charities had increased 30% in 2009 and yet another 12% in 2010.

The greater oversight is the result of an increased number of IRS employees. In 2008, IRS added 100 employees to the examination unit that handles charities.

According to a recent article in the Chronicle of Higher Education, the key areas targeted by IRS in order to enforce compliance include:

• Employment taxes – IRS is collaborating with the Social Security Administration and state regulators in order to identify organizations that avoid paying employment tax.
• Loans to executive, trustees and other key employees are drawing more scrutiny by IRS.
• Unrelated business income continues to be under increased scrutiny.
• Supporting organizations or charities that collect and channel money to a specific nonprofit are increasingly examined. IRS believes some groups have established these organizations for their own financial benefit.

Exempt organization should pay attention to the disclosures related to the above on the new Form 990. Proper disclosure may decrease the risk of an IRS audit.

If you have any questions on how to be in compliance, contact your BPM advisor or e-mail bpm@bpmcpa.com.

This publication contains information in summary form and is intended for general guidance only. It is not intended to be a substitute for detailed research nor the exercise of professional judgment. Neither BPM nor any member of the BPM firm can accept any responsibility for loss brought to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.