4 Reasons Why the I.R.S. Interim Report “Exempt Organizations – Universities Compliance Project” is an Important Read

Too many times the IRS has hinted at the direction to which it is heading, with people taking little notice.  Well, in quiet screams, the IRS is doing it again, with the release of their interim report last week: “IRS Exempt Organizations – Colleges and Universities Compliance Project.”

I preface that I have not yet read the report, but I will. And here’s why I think you should too:

1. The I.R.S. is Cracking Down

The interim report summarized responses to “compliance questionnaires sent to 400 public and private colleges and universities in October 2008” (IRS press release).  This is not the first report (the IRS did a similar report on nonprofit hospitals) that the IRS has sponsored nor will it be the last.

2. Knowing is Half the Battle

Reading the report can give a nonprofit – especially schools — a sense of what to expect:

The interim report contains preliminary information on the respondents’ organizational structures, demographics, exempt and unrelated business activities, endowments, executive compensation as well as governance practices. (IRS Newswire IR-2010-058)

3. The IRS has Teeth

The report was not just some intellectual study.

The IRS has opened examinations of more than 30 organizations that were selected based on responses to the questionnaire. These examinations focus primarily on unrelated business income and executive compensation issues.  A summary of findings and information learned from the examinations will also be included in the final report. (IRS Newswire IR-2010-058)

Last time I checked, examinations were not a good thing.

4. The IRS is Learning

“This compliance project, like our previous one on nonprofit hospitals, gives us a lot of valuable information on activities conducted by those organizations that will help us in our enforcement and services efforts,” said Lois Lerner, Director of the IRS Exempt Organizations.  “Our findings will be reported in a final report after we have completed our analysis of all of the data.” (IRS Newswire IR-2010-058)

In other words, the IRS is learning more and understanding better how organizations work; the IRS sees itself as better equipped to oversee tax-exempt charities and judge their activities.  In my opinion, this feeling will lead to an increased desire by the IRS to put their newfound understanding to use and create more pinpointed inspections — performed both before and after a 501(c)3 tax-exemption has been issued.

Conclusion

I only happened to come across this announcement by accident (I can’t seem to unsubscribe from the IRS Newswire email list), but I am glad that I did.  We are seeing the IRS on an almost consistent basis increase its oversight of charities.  The old ways of running a nonprofit — little transparency, fiscal responsibility, and strategy — are quickly and quietly becoming extinct.  Or they should, if you want your organization to survive the IRS’ version of natural selection.

Tizku Lemitzvot,

Shuey

Disclaimer: This blog houses my personal opinions and is for informational purposes only – not advice. As charity laws can be quite complex, please refer all questions to qualified and licensed professionals. Read the full disclaimer.

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