October 14, 2004 | Read Time: 1 minute
As part of a stepped-up effort to monitor nonprofit organizations, the Internal Revenue Service plans to develop a statistical approach to determining which groups are most likely to have committed fraud or financial abuses and therefore should be audited, says Martha Sullivan, the head of the tax agency’s exempt-organizations office.
The IRS needs a sophisticated way to catch problems with tax-exempt organizations without relying on the press to find them, Ms. Sullivan told a meeting of tax lawyers held by the American Bar Association in Boston.
Government auditors need to become “data-driven” in selecting cases, she said, “rather than sitting back and waiting for someone to read The Boston Globe and decide, ‘That doesn’t sound good, I’m going to refer that for examination.’” The Boston newspaper last year published a series of articles about lavish foundation spending on salaries, perquisites, and board fees.
To strengthen its auditing efforts, Ms. Sullivan said the IRS would pull staff members away from other projects, such as studies of tax issues posed by different types of charities. The revenue service hired 70 new auditors in September and is now training them.
Ms. Sullivan said the IRS would focus its audits on four kinds of charities in the next year: credit-counseling organizations; groups that may be aiding terrorist efforts; charities that might be overpaying their top executives; and groups that are participating with companies or others in illegal tax shelters.
