The 501 S(c)ene

The latest view on not-for-profit accounting issues

Who Will the IRS Choose for Form 990 Audits?

The Exempt Organizations Division of the IRS has recently made a change in how they select nonprofit organizations for audits of the Form 990. Previously, audit selections were made based on specific types of organizations. For example, after the IRS conducted a study of nonprofit hospitals, those organizations were audited in higher numbers than other types of nonprofit organizations. There was also a focus on 501(c)(7) organizations for a time period.

But now, there will be a different methodology for making the audit selections. The IRS plans to run each Form 990 through a series of questions (150 of them) and if there are too many “failed” answers, then the organization is more likely to be selected. Although these 150 questions are not available to the general public, experts are saying that these questions will be basically looking for inconsistencies between different sections of the Form 990.

So in order to avoid an audit, it is very important to ensure accuracy, that all required schedules are attached, and that all required sections of the Form 990 are completed in full. If you do have certain items reported on the Form 990 that are potentially “red flags”, it may be a good idea to include descriptions or explanations for these areas on Schedule O.

Colette Kamps, CPA