The IRS has increased its oversight of tax-exempt organizations in recent years. If a non-profit fails to file Form 990 three years in a row, they’ll lose their tax-exempt status automatically. The IRS also is getting stricter with non-profit organizations that don’t correctly classify workers as employees, don’t report unrelated business income, participate in off-limits political activities, or engage in financial transactions with insiders.
If you’re experiencing IRS compliance issues, you may be hesitant to reach out to the IRS. But the agency is generally willing to work with struggling organizations (and their advisors) to help them maintain their non-profit status.
Acknowledge Errors
In addition to failing to file regularly or taking part in prohibited activities, non-profits can trigger an IRS investigation with an innocent math or other filing preparation error. 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 tax advisor, the easier it is to make right.
Also, 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. And don’t let embarrassment prevent you from taking the right steps. Innocent mistakes 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 non-profit’s reputation and funding — into question.
Consult Your Advisors
Tax advisors have experience working with the IRS, so listen carefully to your experts’ advice and follow their lead in amending any errors. These advisors can even accompany you if you need to meet with the IRS in person or by phone. Approach IRS meetings with an open mind and, once there, simply explain the facts. Don’t act defensive, assume the government is ‘out to get you,’ or engage in other hostile behavior.
By taking the proactive path and approaching the IRS before you receive a notice, you’ll find that the agency is likely to be more amenable to finding a solution. Taking the initiative can also speed up the process so that you can get back to running your organization.
Act Immediately When Facing IRS Compliance Issues
Don’t put your organization at risk for interruptions, fines, or censure. If you’re having trouble with IRS compliance, discover you’ve made a filing error or receive an IRS notice of audit or compliance check, contact us immediately. We can help you catch up, repair mistakes and, if necessary, apply for tax-exempt status reinstatement.