IRS exempt organizations audit manager Joe Kroll spoke at a program for the Bar Association of San Francisco yesterday and discussed five common ways charitable organizations jeopardize their 501(c)(3) tax-exempt status.
- Private inurement / private benefit.
- Lobbying and political activity.
- Filing requirements. Small 501(c)(3) organizations that have not previously filed Form 990 or Form 990-EZ may be required to electronically file Form 990-N. Failure to file for three consecutive years will result in revocation of exempt status.
- Unrelated business activities.
- Employment issues (particularly the employee-independent contractor-volunteer distinctions).
Kroll explained that the IRS no longer conducted random audits except where an industry segment has compliance problems or a single practitioner is involved in the formation of several noncompliant organizations. Referrals are the number one source for audit investigations. Media stories are another substantial source. Because of the recent expansion of the audit group, there are many new hires who will be auditing smaller organizations (e.g., under $1 million annual revenues) as they get experience.