From limited funding to strict compliance measures, nonprofits face a variety of difficulties that for-profit organizations are often able to avoid. Complications are especially evident when dealing with the IRS, which can come down hard on nonprofits that accidentally or purposefully step out of line. The result could be penalties or, in severe cases, the loss of special exemptions.
Due to these and other consequences, the following common nonprofit tax problems are worth avoiding:
Nonprofits are uniquely prone to audits. These are triggered, in part, because the IRS wants to ensure that these entities are run for the good of the public and not for personal gain. As such, nonprofits may find their finances coming under intense scrutiny.
Common issues brought up during audits include executive officer compensation, gift value as it relates to employee compensation, and restrictions on lobbying. Additionally, nonprofits are prone to many of the audit concerns that strike individual taxpayers and private businesses.
Late Filing Penalties
Nonprofits that are fortunate enough to avoid audits may face other problems precisely because they are so desperate to escape IRS scrutiny. When it comes to filing, dotting your i’s and crossing your t’s takes time — and given the many other demands that plague nonprofits, it can be easy to fall behind.
If you neglect to file on time, your nonprofit could be hit with hefty fees. Depending on the value of gross receipts, IRS late filing policies could leave your organization on the hook for up to $50,000 in penalties.
Thankfully, the IRS offers not only the opportunity for extending deadlines, but also, abatement options for select organizations. Common sources of relief include statutory exceptions and administrative waivers. Select nonprofits can take advantage of a reasonable cause option, which is granted on a case-by-case basis.
At the Highland Tax Group, we’re well-equipped to help local nonprofits deal with a variety of tax concerns. Reach out to learn how we can be of assistance.