Starting and Managing a Nonprofit Organization: A Legal Guide

By Bruce R. Hopkins | Go to book overview

CHAPTER TWENTY-FOUR
IRS Audits of Nonprofit
Organizations

The IRS, of course, has the authority to examine (i.e., audit) nonprofit, tax-exempt organizations. Until recently, this has not been a priority for the IRS. With more appropriations from Congress, considerable prodding from members of Congress, and an energetic Commissioner of Internal Revenue, IRS audits of exempt organizations have been steadily increasing. Today, IRS audit activity involving exempt organizations is at an all-time high. Thus, managers of nonprofit organizations are on notice that the chance of their organization getting audited, while inherently slight, is statistically greater than ever.


ORGANIZATION OF IRS

The leadership of nonprofit organizations, and those who represent these entities, should understand the organization of the IRS. Among the many reasons for this is to gain a perspective on the IRS audit function. Generally, an IRS audit is less traumatic if the overall process is understood. It helps with the coping.

The IRS is an agency (bureau) of the U.S. Department of the Treasury. One of the functions of the Treasury Department is assessment and collection of federal income and other taxes. Congress has authorized the Secretary of the Treasury to, in the language of the Internal Revenue Code, undertake what is necessary for “detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same.” This tax assessment and collection function has largely been assigned to the IRS.

The IRS web site proclaims that the agency’s mission is to “provide America’s taxpayers with top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” (A commentator wrote: “The specific role of the Internal Revenue Service in the [federal tax] system is to both collect and protect the revenue without incidentally frustrating or terrorizing the taxpayer population.”) The function of the IRS, according to its site, is to “help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share.”

The IRS is headquartered in Washington, D.C.; its operations there are housed principally in its National Office. An Internal Revenue Service Oversight Board is responsible for overseeing the agency in its administration and supervision of the execution of the nation’s internal revenue laws. The chief executive of the IRS is the

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