Preparing for an IRS Review

Preparing for an IRS Review

An analysis by the Internal Revenue Service (IRS) doesn’t have to be a life or death situation.  Being prepared is the best way an organization can get through an audit without the nightmares and panic attacks.

First off know the major factors that trigger an audit and do what you can to make an ongoing effort to avoid them.  Second, know what you need to have ready in the case an audit should happen and always keep your records and books up to date just in case.

The most common factors to trigger an audit tend to be:  the IRS receiving new audit examinations or priorities; the IRS receiving complaints or tips about and organization’s noncompliance; risk modeling from the Form 990 shows an increase probability of noncompliance; tax-return issues with small business partners, investors, or the like; pay records not matching information reported by the organization; and claims for refund or requests for abatement that require further review.

In the event an audit should take place you will want to have the following prepared: founding documents (these include articles of incorporation, bylaws, IRS exemption determination letter, application for exemption along with any correspondence to or from the IRS, board minutes, etc.); books and records (particularly trial balance, general ledger, subsidiary journals, bank statements, canceled checks, sales receipts, donation records, purchase invoices, title documents, contracts, etc.); and compliance items such as annual returns and employment tax returns.

Maintaining good practices in record keeping and in policies and procedures should be a big help in keeping the stress of an IRS audit to a minimum.  A quick assessment of your organization’s practices periodically is all you need to do to make sure your organization is in the best shape it can be to get through this experience little more than a slight inconvenience.

(Compiled from “Night of the Living IRS Review”, The NonProfit Times)

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