Thursday, February 7, 2008

IRS Releases Fact Sheets on Exempt Organization Examinations, Compliance Checks and Complaint Processing

The IRS has issued Fact Sheet 2008-14 detailing the methods and circumstances by and under which it conducts examinations and compliance checks of exempt organizations.  Here is an exerpt generally describing the reasons the IRS might begin an inquiry:

Selecting Organizations for Examination or Compliance Checks

EO strives to ensure consistency and fairness in its examination and compliance check processes.  In its annual Implementing Guidelines, which are available on the IRS website at www.irs.gov/eo, EO describes its proposed examination and compliance check activities for the year. EO designs and implements comprehensive projects to address issues that carry the most non-compliance risk.  To determine which organizations should be targeted, experienced specialists analyze information from Forms 990 and other sources.  This analysis will usually result in the selection of a group of returns for examination or compliance check. EO also reviews media reports and receives complaints from the general public and Congress about potential non-compliance by exempt organizations.  After confirming the information, and when appropriate, these organizations may be selected for examination or to receive a compliance check.  For details on how EO handles complaints about exempt organizations, see Fact Sheet 2008-13. Regardless of the process used to select returns, EO does not presume that an organization is violating the tax laws before it begins the examination or sends a compliance check letter.

In addition, Fact Sheet 2008-13 describes the methods by which members of the public can make complaints about exempt organizations and how the IRS responds:

The Review Process

Upon receipt, research is done to confirm the identity of the organization in question and once this is complete, information is entered into a database to help the IRS keep track of the progress of the review. An experienced EO revenue agent then performs a thorough technical analysis of the allegation made on the referral. The agent uses a “reasonable belief” standard to evaluate the facts and to determine whether EO should take further action.  Before taking action, the revenue agent must determine that the facts create a reasonable belief that the allegations may be true when considered fairly and in light of other reliable information. The reviewing EO agent will decide one of the following:

    • The information does not warrant further action. In this case, the agent inputs information, including rationale, into the database and closes the referral.
    • The referral relates to activities that should be considered at a future date. The agent documents the database and schedules the appropriate date to re-evaluate the information.
    • The referral contains characteristics that require it to be forwarded to a committee of career EO managers and agents. This committee evaluates referrals monthly -- more often in some circumstances -- and decides whether to proceed with an examination. The committee also applies the “reasonable belief” standard.
    • The information warrants an examination of the organization. The agent documents his or her decision and the reasons for it in the database. The information item then becomes part of the examination file.

If this process results in a decision to examine an organization, the Classification Office will forward the case to a field group for assignment to a revenue agent.  The revenue agent will contact the organization and schedule an appointment to begin the examination.  (For details on the EO examination process, see Fact Sheet 2008-14.)

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