IRS Nonprofit Audit Targets

IRS Nonprofit Audit Targets Is your organization in the cross hairs? Here's what to watch out for... By Andrew Dzamba Because the tax laws under which nonprofit organizations operate are complicated, most organizations make inadvertent mistakes in filling out their annual Form 990. What follows is a quick checklist of nonprofit tax issues that the IRS is particularly interested in. That means that they are likely audit targets, and as such, they demand special care in the way your organization handles them: Gambling fundraisers: Sometimes the income from nonprofits’ gambling fundraisers (e.g., bingo, pull-tabs, Las Vegas nights, etc.) is taxable as unrelated business income (UBI), but the organization is unaware of it. For example, a court recently ruled that income from selling instant bingo tickets is taxable as UBI. Also, in recent years, several organizations have lost their tax-exempt status because too much of their operations consisted of running gambling fundraisers and not enough of the money raised went to charitable program services. In addition, the IRS has found cases of improper private gain, particularly in instances where charities hire outside professional operators to run their gambling events. The IRS is also stepping up its efforts to see that tax withholding rules for gaming fundraisers are being followed. Tax-exempt bonds: IRS agents have been instructed to scrutinize the effect of financing with tax-exempt bonds ...