Situation

Our clients and friends at Denali Christian College (go Bighorns!) are a 501(c)(3) public charity. They have just received a letter from the IRS stating that they have been selected for an IRS examination regarding their 2013 Form 990.  The Information Document Request (IDR) is detailed.

We commend them for calling their advisors first. There can be a “don’t try this at home” element to IRS audits.

We agree to help them pull together and organize the data.  Also, we plan to be onsite for the initial meeting with the agent.  We send them a Form 2848, Power of Attorney and Declaration of Representative for signature but also want them to be aware of the guidance issued by the IRS on all “auditor interaction”.

We also note to them that the IRS is changing the manner by which they go about auditing not-for-profit organizations and they should review IRS Publication 4221, Compliance Guide For 501(c)(3) Public Charities in order to get a feel for some of the things the auditor may be looking for.

Rules

Depending on the type of review, you will initially be contacted either by letter or phone call, which will include the name of the IRS personnel as well as the employee’s badge number. The IRS does not use e-mail to initiate contact with an organization.

In all reviews, IRS personnel will mail a letter along with a list of documents and records needed to conduct an audit or compliance check. The letter will contain contact information for both the individual conducting the review as well as the individual’s manager.

The IRS Exempt Organizations division has a great webpage – with lots of links – regarding guidance if your organization is selected for audit. It can be found at:

http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Audit-Process

This web page will explain the IRS audit process for charities and other nonprofit organizations. IRS Exempt Organizations is continuously exploring how to improve our service to charities and other nonprofit organizations, and we hope you will find the information on this page useful.

 

Also, the IRS recently issued the following:

IRS Guidance on Auditor Interaction:  The IRS’s Office of Professional Responsibility issued guidance on various aspects of auditors’ interactions with employees of corporations that they are auditing, including those employees identified in Form 4764 (Communications Agreement, LB&I Examination Plan) and those identified in Form 2848 (Power of Attorney). Form 4764 allows a corporate taxpayer to designate one or more employees to (1) discuss tax matters, (2) provide and receive information, or (3) receive and discuss adjustments (or some combination of these three). If the employee advocates, negotiates, disputes, or does anything which goes beyond mere delivery of facts, general explanation, or acceptance of materials, then the employee is engaged in representation activities. At that point, a Form 2848 must be obtained from the corporation authorizing the representation. See http://content.govdelivery.com/accounts/USIRS/bulletins/cdcaeb for more information. Alerts from Office of Professional Responsibility (OPR), Issue 2014-12.

Bottom Line

If your school is selected for an IRS audit and you receive the “initial contact letter or phone call”, you should consult with a tax professional who is knowledgeable and experienced in IRS Exempt Organization audits. They will be able to help you navigate the rules and regulations and assist your team in complying with IRS requests, meeting requirements, and discussing issues with the Service.

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.