The IRS has increased their reliance on data-driven software in an effort to more easily detect potential non-compliance on tax exempt filings.
During an environment of increased work load and decreased funding, the IRS is leaning on technology to assess the likelihood of non-compliance on tax exempt forms like the Form 990 including the use of data visualization tools.
Of the fiscal year 2018 exams that were selected for examination, 50 percent of those were selected using these data-driven methods. These exams focused on private inurement and private benefit issues, however, it is expected that the areas of focus will expand during 2019. In evaluating the current compliance strategy process, the IRS will be focusing on using the most appropriate, cost-effective, and least intrusive methods available, which include:
- Providing educational programs
- Soft letter compliance review
- Compliance checks
- Correspondence examinations
- Field examinations
This signifies that there is a higher likelihood of a tax exempt organization having an interaction with the IRS going forward. However, the good news for compliant organizations is that a letter from the IRS does not necessarily indicate a full-blown exam, instead, an organization with a complete and well-prepared return may only be required to respond to a few targeted issues.
Organizations should share all correspondences from the IRS with their CPA for guidance or best practices where responses are required.
Additional Not-for-Profit Resources
- Website 101: Public Information for Not-for-Profit Organizations
- Impact of ASC 606 on Not-for-Profit Organizations
- Mentorship Opportunities for Richmond Area Not-for-Profit Organizations
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.