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IRS Added 155 Employees in 2009 to Oversee Nonprofit Groups

Reprinted from the Chronicle of Philanthropy Web site

The Internal Revenue Service hired 155 new employees for its Exempt Organizations office, bringing the total to 921, Nikole Flax, an official in that division, told participants at the annual Washington Non-Profit Legal & Tax Conference.

The IRS has "heard from many of you about the concern of the retirement of many people within the service who have decades of knowledge," Ms. Flax said. "The good news is that the IRS has been able to replace some of the knowledge that we've lost."

About 100 of the new employees are working in the tax agency's examinations office, which audits nonprofit organizations, Ms. Flax said.

Several new employees are "tax law specialists" in Washington who are working to produce guidance, such as private-letter rulings that are sought by nonprofit groups that need approval of changes to their charitable mission or activities, she said.

As part of the agency's upcoming plans, Ms. Flax told the conference that the IRS soon will release an interim report on its continuing inquiry into the financial activities of colleges and universities. "Keep your eyes open, that should be out very soon," she said.

In October 2008, the IRS sent a 42-page questionnaire to more than 400 colleges and universities of all sizes asking about numerous financial details, including compensation, endowments, relationships to outside groups, and governance matters.

The IRS is also auditing many colleges and universities, a review that Ms. Flax said focuses on issues of compensation and unrelated-business income taxes, which organizations pay on revenue not connected to their missions.

The IRS will eventually issue a final report on its entire investigation.

Ms. Flax also reminded conference participants of an approaching deadline that will strip charities of their tax-exempt status if they have not filed forms with the IRS for the past three years.

The new revocation policy was mandated by the federal Pension Protection Act of 2006.

May will be the three-year mark for many groups in this category, Ms. Flax said. If charities lose their exemptions, they will have to reapply with the IRS.

"They basically have to start over," said Ms. Flax. "In the interim period, there obviously will be tax issues," such as the inability of the groups' supporters to claim charitable deductions on their gifts and taxes the organizations would likely owe on the income they received.

Charities with annual receipts greater than $25,000 must file the Form 990 or the Form 990-EZ. Small charities with annual receipts of $25,000 or less may file the Form 990-N, an electronic notice known as the "e-Postcard." Private foundations file the Form 990-PF.

Grant Williams, The Chronicle of Philanthropy
© 2010, The Chronicle of Philanthropy. Reprinted with permission.

Grant Williams is investigative editor for the Chronicle of Philanthropy.

Topics: Policy