Issue

Many not-for-profit organizations ask, “what are my chances of being audited?” Currently, the percentages are low – but things may be changing.

Situation

Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii).  They are required to file Form 990 annually.  MBC’s CFO calls and asks, “What are our chances of being audited by the IRS?”

“Interesting you should ask,” we say, “the IRS recently released their 2016 Tax Data Book.  The statistics would show a .18% chance (that’s less than 2/10’s of 1% or about 18 in 10,000), overall of an ‘exempt organization’ being audited.  Understand that Form 990-N filings comprise over half of that number and the Data Book information “lumps” some returns/groups (see Footnote 7 below) that may make these numbers different from what we’d intuitively expect.  Further, the IRS has begun using over 200 ‘queries’ to ‘test’ Form 990s and develop audit candidacy through – what they call – ‘data-driven decision making’.”

Having said all of this, you should be very diligent in reviewing/examining your Form 990 before sending it to the IRS.

The Data Book (all 76 pages) may be found here.

Rules

From 2016 Internal Revenue Code Data Book:

Tax-exempt organizations (total returns filed) = 1,500,331 (Table 3)

Tax-exempt organizations (electronically filed) = 961,630 (Table 4)

Forms 990, 990-EZ, and 990-N examined =  2,725 (Table 9)

Table 3, Footnote 7: Includes the Form 990 series as follows: 990 (tax-exempt organization information return, long form); 990–EZ (tax-exempt organization information return, short form); 990–N (electronic notice (e-Postcard) for tax-exempt organizations not required to file Forms 990 or 990–EZ); 990–PF (private foundation information return); and 990–T (tax-exempt organization unrelated business income tax return). Also includes Forms 4720 (excise tax return of charities and other persons); 5227 (split-interest trust information return); and 8872 (political organization report of contributions and expenditures). Tax collected on Form 990–T is combined with Business income taxes in other tables.

Bottom Line

  • Over 1.5 million “exempt organization” tax returns were filed in 2016
  • Of these, 64% were filed electronically
  • Only 2,725 were examined/audited.
  • If you file Form 990-series returns, the IRS is using over 200 “queries” to select organizations for audit.
  • You should carefully review/examine your Form 990 prior to filing.

 

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.