IRS Describes Increased Enforcement of Nonprofit Sector

Mark Everson, commissioner of the Internal Revenue Service (IRS), told attorneys at the Georgetown Law Center's Tax-Exempt Seminar that the sector must act to head off a "gathering storm" resulting from use of the sector as a vehicle for tax avoidance. Other IRS officials at the April 28 training described new and increased enforcement activities. Everson expressed concern that a 1990s trend in banking and accounting that designed and marketed abusive tax shelters has negatively impacted the nonprofit sector. He also said, "Shoddy shelters are now moving into organizations that you are working with." However, he said he is optimistic that the sector can respond positively, noting, "I think that unlike the business community and the profit-making community, the exempt community is taking steps to address this." The IRS's main priorities for enforcement in this area are donor-advised funds, supporting organizations, inflation of deductions, executive compensation, and credit-counseling groups. Currently the IRS has more than 2,000 inquiries into executive compensation pending. In addition, it has established a data analysis unit to help target resources more effectively. A pilot program with California will help establish ways to work more closely with state charity regulators. Overall, IRS staff said they want to "touch more organizations sooner," in order to enhance education and compliance. One possible approach would be a "follow up" with organizations three to five years after they are granted tax exemption.
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