IRS Audits Nonprofits, Lets Big Business Slide - September 7, 2004 Vol.5, No.18

September 7, 2004 Vol.5, No.18:

Published: 09/07/2004

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IRS Audits Nonprofits, Lets Big Business Slide

The Internal Revenue Service (IRS) has begun a major effort to examine internal financial issues of charities and foundations. IRS Announcement 2004-206, issued August 10, said nearly 2,000 charities and foundations will be contacted and asked for information about their salary practices and procedures. The effort will include a broader review of foundations that will eventually include examinations of over 400 organizations, and conclude in July 2005.

The Senate Finance Committee has held public hearings this year focusing on excessive compensation; involvement in joint ventures and tax shelters; participation in fundraising activities; and participation in political campaigns. Its staff released draft proposals for reform during the summer, and nonprofit groups have provided input and responses.

While nonprofits are enduring increased audits, a study done by Syracuse University Transactional Records Access Clearinghouse concluded that the IRS audited fewer corporations and small businesses in 2004 than in previous years. The declining audits of businesses exposes a flaw in the administration's tough stance on corporate wrongdoing.

Unlike large corporations, most of whom operate with far larger budgets, 70 percent of charities have annual budgets of under $500,000. Tougher regulations and enforcement procedures could be overly burdensome to organizations so that people are discouraged from working for nonprofits or giving to charitable organizations, a development clearly not in the government's, or the public's interest.