Excellent article in the October 12 issue of the Chronicle of Philanthropy on the IRS's increasing efforts to audit and watch nonprofit activity. They are particularly concerned with excessive exec pay and inappropriate loans to ED's and board members. The Director of the tax-exempt office, Lois Lerner has added nearly 12% more staff in the past year, mostly to the audit division. And, it appears that size does not matter: the IRS is going to audit large and small organizations.
The point? Make sure you are clean, clean, clean...and ready to cooperate.
An organization on whose board I served until September got an audit inquiry letter from the IRS last winter. I was audit committee chair at the time, so was closely in the loop. After one conversation, and shipping a few documents, the IRS said no problem, have a nice day. Why? Because we were completely clean, transparent, and totally cooperative. The "anomaly" they saw was easily explained, but at the same time there was nothing else to make them concerned.
Don't think that, because you are a small organization, or because your organization is new, or because you do good works (who doesn't?) that you can ignore the IRS rules and regs. You can't, and you put your mission in peril if you do. Remember, we have a special tax status because we are special organizations. We have to act like it and merit the community's trust in us.
I recently listened to an exec rant about how the IRS should spend its time on auditing big business, not charities, and how she was going to "stick it to them" if they darkened her door. She talked about calling her Congresswoman, and writing letters to the editor. I suggested that she might just put all that energy into making sure her audit committee had its records in order.
She bristled, and I told her she sounded like the driver on the highway who, when pulled over by the trooper for speeding, didn't argue that they were going too fast, but that others were going even faster. The law is the law, and the IRS's job is to enforce it.
And our job is to meet both the letter and the intent of the law. If we start feeling our good works give us a hall pass...let me change my metaphor....a get out of jail free card, we're both wrong and wrong-headed.
The charitable sector, and every one of us in it, needs to be above reproach, not looking for an angle. And if we screw up and the IRS notices, it's our fault, not theirs.