Take the Initiative with the IRS

Published:

clip_image001clip_image002by John Keller, CPA, Manager, Tax Services Group and Member of the Not for Profit Services Group | Amanda Meko, CPA, Partner, Director of the Not for Profit Services Group

It may be human nature to shy away from voluntary contact with the IRS, but that may not always be the wisest approach for a nonprofit. Getting caught trying to sweep mistakes under the rug can bring its reputation into serious question. By taking the proactive approach with the IRS before receiving a notice, a not-for-profit will find that the agency is likely to be more amenable to finding a solution.

The IRS is paying greater attention to not-for-profits these days. The redesigned IRS Form 990, for instance, asks more extensive and probing questions about nonprofit governance than it has in the past. Also, the IRS has cracked down in the last few years on organizations that have failed to file to keep their tax-exempt status.

In addition to failing to file regularly, nonprofits may trigger an IRS investigation, fine or other consequence by compensating executives excessively or improperly using funds. Even an innocent math or other filing preparation error can stir up trouble.

Make sure that you don’t brush off a potential compliance problem because you don’t understand it or don’t have time to deal with it. Burying your head in the sand is never a wise policy when it comes to the IRS. If you discover you’ve made a mistake, act quickly and get professional advice. The earlier you bring an error to the attention of your accountant, the easier it is to make right.

Remember to keep some perspective. Don’t let embarrassment, guilt or fear prevent you from taking the right steps. Innocent mistakes aren’t character flaws and don’t have to reflect badly on your organization. Getting caught trying to sweep mistakes under the rug, however, can bring your judgment (not to mention your nonprofit’s reputation) into serious question.

By taking the proactive path with the IRS before you receive a notice, you’ll find that the agency is likely to be more amenable to finding a solution. The agency has announced its willingness to work with struggling organizations to help them maintain their nonprofit status and, in some cases, has waived heavy penalties to allow delinquent organizations to catch up on their filings.

Don’t put the organization at risk for stiff fines or censure. If your nonprofit has a compliance question, be sure to contact your CPA, attorney or other trusted advisor.