October 3, 2002 | Read Time: 2 minutes
The Internal Revenue Service next year aims to complete plans for online filing of informational tax returns, conduct more audits of charities, and improve the way it shares information with states, according to guidelines adopted by the tax agency’s charity regulators.
Charities will be able to file their informational tax returns electronically starting January 1, 2004, according to Steven T. Miller, director of the service’s exempt-organizations division.
Mr. Miller said the IRS recognizes that it needs to audit more charities than it currently does. In 2001, the IRS audited 5,342 tax-exempt groups, fewer than 1 percent of the tax-exempt returns filed. “We want to make sure everybody knows we are out there and we are looking,” he said. However, because the number of employees in the service’s exempt division has not increased, the IRS will have to be “a little smarter” about the way it uses staff members, he said.
Auditors will no longer handle requests for tax-exempt status. That duty will be taken over by the IRS’s rulings and agreements section, Mr. Miller said.
Auditors will not only look at a greater number of charities, but will also, rather than examining entire organizations, focus on specific topics the IRS has identified as problems for charities of all kinds. Next year, auditors will focus on the way charities set executive pay and report fund-raising costs, in addition to how they handle vehicle-donation programs and whether universities are complying with tax rules for employees who are not citizens. In addition, auditors will pay special attention to relief organizations created after last year’s terrorist attacks, to make sure that they are complying with tax laws.
Next year, the IRS also will identify new issues to examine in future charity audits. It will look into reports that some nonprofit consumer-credit organizations are operated as for-profit businesses or tax shelters, and that some housing groups are failing to fulfill their missions. It also will study arts and humanities groups, private foundations, programs that provide housing for the elderly, hospitals, colleges and universities, and supporting organizations.
In addition, the IRS plans to put Form 1023, the application for tax-exempt status, online within the next six months. The IRS will put completed forms online for public inspection.
“FY 2003 Implementing Guidelines” will soon be available on the IRS Web site at http://www.irs.gov/eo.
