Honesty and accuracy go a long way, especially when you are dealing with the IRS.
Recently, a tax-exempt charity known as the Foundation for Moral Law was audited by the IRS. According to the Washington Post, the IRS audit found discrepancies between the organization’s Form 990 filings and its internal books. In a letter to the organization, the IRS stated that these issues “could jeopardize your exempt status.” The charity had been presided by former Alabama Judge Roy Moore, who is now a candidate for U.S. Senate. Moore said he never took a salary when he was president, but the IRS found out that he was actually getting paid annually for 12 years. This compensation added up to $1 million that the charity could not afford.
You’re probably wondering, “how does something like that happen?”
At Tate & Tryon, we have worked with over 600 national and international nonprofit organizations, meaning we have prepared thousands and thousands of 990s. After hearing a story like this, we put together a few takeaways for the tax-exempt community to keep in mind:
- Always be prepared for an audit. It’s unlikely that this audit of the Foundation for Moral Law was a random IRS selection. It is more likely it was the result of a prompt by a whistleblower.
- Expect IRS enforcement, no matter who’s in charge. The 990 is a public document and as such enhances IRS enforcement. The more visible an organization or its key people, the more scrutiny it will be under.
- The IRS can take immediate action. You have worked hard to maintain your tax-exempt status. Don’t let a careless mistake, cutting corners, or the idea that you’re “safe” and probably won’t be audited put you at risk of losing your tax-exempt status or intermediate sanctions (the excise tax) which the IRS may impose in lieu of revoking tax exemption.
- Hire a qualified professional. Have a professional prepare your 990 and make sure your board of directors has enough time to review it before filing with the IRS. Learn more about maximizing the effectiveness of your board here.
The bottom line? When it comes to IRS audits, follow the old adage from the boy scouts and “always be prepared.”