IRS Changes Form 990 Audit Approach

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With many, if not most, federally tax exempt organizations coming up on the end of their fiscal years at June 30, the Commissioner of the Internal Revenue Service has authorized a new and fresh approach to the audit process for these organizations.

In a speech at the Representing and Managing Tax Exempt Organizations conference, Internal Revenue Service Exempt Organization Director, Tamera Ripperda, recently indicated that the Internal Revenue Service will soon be applying a new audit strategy designed to be more efficient. Starting sometime later this year, the agency will begin targeting certain high risk issues that can be data-driven from Form 990, Return of Organization Exempt from Income Tax.

Ripperda indicated they may be looking at unrelated business income and whether the organization is complying with the Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA). In addition, the Internal Revenue Service will be considering whether the organization is organized and operated for exempt purposes, and if the assets are being properly protected from abuse.

The shift to “data-driven” assessments of an organization’s compliance with the federal tax laws means that Form 990 preparation is more critical than ever. A properly prepared and executed information return will ensure that an organization’s chances for random audit selection are minimized and that exposure to income taxes, both on unrelated income tax as well as other income by virtue of loss of exempt status are kept at the lowest level possible.

Grossman Yanak & Ford LLP has extensive experience in all matters concerning exempt organizations, including tax compliance and Form 990 preparation. We appreciate the complexity and nuances found in the guiding tax law and are well prepared to help your organization fully comply and meet all federal mandates.

For more information, contact Bob Grossman at 412-338-9300.