The IRS provides nonprofit organizations with their tax-exempt status and establishes standards that help assure that these organizations are transparent and well governed.
According to Lois Lerner, the leader of the IRS EO division, the IRS is
“…committed to looking for ways to increase transparency about the status and findings of our projects by providing a clearer picture of our fiscal year goals and reporting on interim findings where possible. We hope this approach will provide the sector with a better understanding of how EO balances targeted projects with the overall compliance, determinations, guidance and education activities our stakeholders expect from us.”
An IRS audit can happen to any tax-exempt organization. In fact, several pregnancy center organizations have had an IRS audit in the last few years.
Ever wonder what an IRS audit of your nonprofit organization may look like?
Well, it begins with a letter from the IRS. Here is some information taken from a recently released IRS memo that gives us an insight into the process.
- Audits: The IRS conducts two types of audits–
- Field audit (or examination): If the initial contact letter sets up an appointment for an IRS agent to visit the organization’s premises, the IRS is conducting a field audit.
- Office/correspondence audit (or examination): If the letter asks you to deliver documents to an IRS office by mail, the IRS is conducting a correspondence audit.
- Non-audits: If the letter indicates the IRS is conducting a compliance check, then you’re not being audited.Note: The IRS also sometimes asks organizations to complete questionnaires to help us better understand how organizations satisfy federal tax law requirements. Neither compliance checks nor compliance check questionnaires are audits.
An audit starts with the initial contact and continues until a closing letter is issued. A compliance check or compliance check questionnaire starts with the initial contact. The IRS may contact the organization again if the IRS needs further information, or if the organization does not respond to the compliance check or questionnaire. The IRS typically issues a closing letter at the end of a compliance check, but not at the end of a compliance check questionnaire.