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How Will the IRS Assess Penalties Against Nonprofits?


When was the last time you read about the IRS assessing penalties against a nonprofit organization? It doesn’t happen very often. The IRS conducts most of its oversight activities outside of the public eye and usually reaches settlements with organizations in private, so it’s very rare to hear that the IRS is investigating an organization and even more rare to learn that the IRS has taken an enforcement action.

That’s why an item published in Steamboat Today, the Steamboat Springs Colorado local newspaper, caught my eye. The paper reported that the city’s Education Fund Board has been penalized nearly $170,000 by the IRS for failing to file its annual tax return for four consecutive years.

According to the paper:

The Fund Board revealed after an executive session June 2 that its accountant did not file the nonprofit’s annual Form 990. It was revealed the next day that the return had not been filed for tax years 2006, 2007, 2008 and 2009.

Since that time, all returns have been filed for the group, which allocates the city of Steamboat Springs’ half-cent sales tax for education.

According to the IRS website, a nonprofit group with receipts in excess of $1 million could face $100 daily penalties for late tax return filings, with a maximum of $50,000 annually.

The board has asked the IRS to rescind the penalties based on the Fund Board’s creation as a nonprofit that provides funds to enhance K-12 education; its lack of awareness that the returns weren’t filed; and its quick action to file the returns.

Oh, and the board also fired their tax attorney.

Given all the attention about the new Form 990-N and the lack of appropriate filings from hundreds of thousands of nonprofit organizations, it will be interesting to see what the IRS strategy will be on assessing penalties.

P.S. After I completed writing this blog, an article appeared in the Steamboat Today on December 8: “[Fund Board President] Brown said, according to the Fund Board’s attorney, its accountant and a conversation with the IRS, it’s likely the penalties will be reduced or rescinded. The Fund Board sent a letter to the IRS on Nov. 22 asking that the penalties be waived.” Stay tuned. It will be indeed be interesting to see what the IRS does with all the potential filing penalties.

Bob.jpgThe preceding is a guest post by Bob Ottenhoff,  Chief Executive of the Center for Disaster Philanthropy. With an entrepreneurial spirit, strong technology focus, and a quest to make an impact in the world, Bob has the ability to take an organization and lead it into strong performance, sustainability, and industry leadership.

Topics: Policy IRS Nonprofits