While historically, not-for-profit audits have been rare due to minimal tax obligations, recent changes in IRS funding as part of the Inflation Reduction Act could potentially lead to increased audits. As the IRS hires new agents in various divisions, including the Tax Exempt and Government Entities Division, non-profit compliance checks and audits may become more frequent.
We aim to keep you informed and prepared for potential changes in IRS audit practices to ensure your not-for-profit organization remains compliant and protected.
Review the Communication
Carefully review the correspondence from the IRS, which will likely be sent via U.S. Postal Service, and take note of the issue(s) being examined and the Information Document Request (IDR) items listed. These documents may include:
- Filed Form 990s and other tax documents
- Payroll tax records
- Records of transactions with donors or business partners, and;
- Unrelated business income documents
Understand the deadlines for response and any modifications to the IDR that may have been discussed during the initial phone call.
Communicate and Meet Deadlines
Work with the IRS auditor to agree on deadlines for your response and make sure to deliver all requested documents and information by the agreed-upon dates. If you are unable to agree on a deadline, the auditor will assign one. It’s important to be prompt and responsive to avoid delays or potential penalties.
Be Complete and Thorough in Your Response
Provide all requested documents and information in a complete and accurate manner. Double-check your responses for completeness before submitting them to the auditor. If the auditor determines that your response is not complete, you may be granted extensions to comply or face consequences.
Remain Calm and Professional
Stay calm and professional when communicating with IRS agents. Avoid confrontation or making assumptions. Be respectful and cooperative in all interactions, both written and verbal. This can help establish a positive relationship with the IRS and potentially lead to a more favorable outcome.
Seek Professional Assistance if Needed
If your non-profit is unsure about how to respond to the IRS communication or needs assistance in assembling information and documentation, seek professional help from an accounting firm or a tax professional. They can provide guidance, ensure compliance, and advocate on behalf of your non-profit during the audit process.
Consider Appealing if Necessary
If the IRS proposes a tax adjustment, tax status change, or revocation of tax-exempt status and you disagree, you have the right to request an appeal with the IRS or through the court system. Consult with a tax professional to determine the best course of action for your non-profit’s situation.
