IRS bite beginning to mirror its bark.

• Author: Green, Julius

Historically, compliance in the exempt organization area has not been a high priority for the IRS. Few organizations were audited, and the Service rarely used its available tools (such as the imposition of intermediate sanctions). Certainly, the IRS pledged a greater focus on perceived abuses by the exempt-organization sector. And for a number of years, practitioners have routinely advised exempt-organization stakeholders of the latest IRS concerns and assertions of enforcement and preached that the pressure was mounting to ensure that organizations were complying. However, the exempt community noted that there was little enforcement and so did not heed the IRS or the practitioners.

Action Replacing Rhetoric

Recently, however, the IRS has begun communicating the areas on which it will focus, followed by plan implementation. Commissioner Mark W. Everson has stated: "We've placed renewed attention and added resources in the charitable arena to help protect the integrity and maintain faith in the charitable sector.... [W]e are taking important steps to combat abuse in exempt organizations." He noted in the Serrice's Fiscal Year 2006 Enforcement and Service Results that audits of exempt organizations were at their highest level since 2000 (see www.irs.gov/newsroom/article/O,,id=164435,00.html).

Why the Change in Approach?

The change in activity can be attributed to at least three factors that have provided the IRS with the tools it needs to mount an effective compliance campaign:

* A Congress that has been much more rigorous in its approach to curbing perceived abuses in the charitable-organization sector.

* The development of modern tools to allow for more efficient inquiries and examination efforts.

* Electronic filing can provide electronic data to support efforts in a manner heretofore not available.

Congress and the IRS as Co-Players

Both Congress and the Service have over the past several years focused on creating transparency within exempt organizations (charities in particular) and curbing perceived abuses by the exempt-organization sector. Improving the nonprofit sector's accountability, governance, oversight and ethical conduct is a primary focus of the INS, the Senate Finance Committee, the Joint Committee on Taxation and state officials. Senate Finance Committee Chairman Max Baucus, D-MT, and committee member Senator Charles Grassley, R-IA, have played major roles in placing renewed emphasis on compliance and other issues affecting...