Night of the living IRS review

Like an attack of zombies, an examination by the Internal Revenue Service (IRS) can be handled best if the organization has an idea of what is coming. This does not mean that anyone at a nonprofit should take the same steps as one would take to deal with zombies.

Marqus White, a senior tax manager with SaxBST LLP, has outlined the reasons for an IRS audit, as well as a look at the documentation an audited organization will need to have on hand.

Reasons for an audit:

The IRS received new audit examinations or priorities;

The IRS received complaints or tips about the organization’s potential noncompliance;

Risk modeling from the Form 990 shows an increased probability of noncompliance;

Tax-return issues with other taxpayers, such as business partners or investors;

Payor records not matching information reported by the organization; and,

Claims for refund or requests for abatement require further review.

If an audit takes place, the organization will need to have the follow at the ready:

Organizing documents and related information such as articles of incorporation, bylaws, board minutes, IRS exemption determination letter, application for exemption and correspondence to/from the IRS;

Books and records. Trial balance, general ledger, subsidiary journals, bank statements, canceled checks, sales receipts, donation records, purchase invoices, title documents, contracts; and,

Compliance items. Annual returns and employment tax returns.