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ExpressTaxExempt Blog

Thursday, March 5, 2015

IRS Audit of Exempt Organizations

If you are not prepared, just the word - Audit - can create stress and fear. It's an unsettling feeling anytime the IRS wants to look at your financial documents. But when you know what to expect and how everything is done, the entire experience is much less frightening. Let's begin...

Will Your Organization Be Audited?
This one is tricky to answer. The IRS isn't required to audit a certain percentage of exempt organizations every year, so that is good. But then you have to accept the random selection process. It could happen, you just don't know when. The main issues that trigger an audit are described by the IRS as an organization's tax-exempt status and private foundation classification, whether it paid employment taxes and tax on unrelated business income when required, and whether it filed required returns and reports.

If you keep your exempt status in good standing by filing your Form 990 every year, and properly document everything and file your returns on time, you can still be randomly selected for an audit.

Are There Different Types of Audits?
There are different types of audit procedures implemented depending on the size of your organization and the potential issued involved. There are three main audit procedures used by the IRS: field, office, and correspondence/OCEP (Office Correspondence Examination Program). If you are used to seeing audits in movies or on television where a team of auditors rolls in and goes through everything, that is considered a field audit and is typically only used for very large organizations. If you are a smaller organization and receive an audit notification, you will most likely be asked to go to an IRS office for an interview, or be asked to send in specific documents. You can even be asked to an audit interview at your accountant's office. However you are audited, the IRS is kind enough to tell you exactly what records are needed so you don't get too stressed out.

What is Publication 892?
Publication 892, also known as, Exempt Organization Appeal Procedures for Unagreed Issues, is a way for you to appeal an IRS decision based on your audit. Like if the IRS proposes to revoke or modify your organization's exempt status, you can appeal the decision and stop the IRS from taking away your status.

IRS audits in a whole can be a bit overwhelming at first to understand. There is a lot of information out there about the procedures and what to do. Don't let the popularized fear of audits stress you out. The IRS will tell you exactly how it will all go down, what you need and what to do.

To keep your tax exempt status in good standing, be sure to file your Form 990 every year, and by your deadline date. Express990 provides e-filing of Form 990-N, 990-EZ, and soon to come the complete Form 990 and 990-PF.

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