Thursday, February 7, 2013

Why are IRS audits of Charities up since 2009?

A Fox News opinion piece is reporting on the increase in audits of nonprofits that has occurred since President Obama took office.  In particular, the Fox News piece noted that starting in 2009, IRS audits (examinations) of tax exempt organizations increased materially relative to the Bush years.  The conjecture is that this is part of a strategy of undermining charities by the Obama administration.  Naturally, many others have piled on.  Here is the data on IRS examinations that is causing the stir ...


Sure enough, examinations are up, and the largest jump was in 2009, the year Obama first took office.

I hate to ruin a good conspiracy theory, but there is a more simple explanation for the jump.  Starting with tax filings made in 2009, the IRS adopted a new form 990 (the annual filing of tax exempt organizations).  The new form required more entities to file their financial information and also required additional disclosures about compensation, fundraising, and governance.  The new form 990 itself came from a long review of oversight for tax exempt entities.  The intent was to gather better information about, and place more scrutiny on, nonprofits' practices.  In fact, perhaps the loudest voice in Washington pushing for this additional scrutiny was Chuck Grassley, hardly a guy simpatico with President Obama.  So, it is correct that IRS scrutiny of nonprofits has increased in recent years.  However, it is hardly fair to consider this to be an effort led by the current president.

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