By Thomas F. Blaney, CPA, CFE
Recently, the Internal Revenue Service (IRS) announced the areas within an exempt organization that they will be “deploying resources” (auditing) for 2012. The IRS is focusing their efforts on any international transactions. They will continue to examine exempt organizations that have offices or activities overseas.
Private foundations that perform international grantmaking, invest “off shore,” or maintain ownership of a foreign bank account may be subject to these examinations.
The IRS will review a private foundation’s operations to ascertain:
- Whether the foundation maintains adequate books and records to ensure assets are used for charitable purposes,
- Whether the foundation has maintained proper discretion and control over funds that have left the United States,
- Whether the foundation has met all filing requirements, and
- How foreign operations or grantmaking furthers the foundation’s exempt purpose.
The IRS also announced that they will examine a selection of the largest private foundations.
Areas that typically are scrutinized by the IRS during an examination are:
- Executive compensation
- Expense accounts
- Related-party transactions
- Investments in businesses or partnerships owned or managed by foundation trustees
- Investment vehicles such as limited partnerships
- Self-dealing issues
- Contributions to non-public charities
- Certain administrative expenditures
- Loans
If a representative from the IRS contacts your foundation either in writing or over the phone, don’t panic. Contact your foundation’s attorney and/or CPA. All communications with the IRS should go through these representatives. These audits are centered on the calculation of the amount of tax a foundation pays as well as the legal and compliance issues a foundation faces.
Thomas (Tom) F. Blaney is Secretary of the McCaddin McQuirk Foundation and a partner in the accounting firm of O’Connor Davies, LLP. He has spent over 20 years specializing solely in the accounting and tax aspects of exempt organizations and private foundations. He serves on the ASF Board of Directors and is a member of the Finance and Audit Committees. Hear him speak on “Quick Tips for the Form 990-PF” at ASF’s 2012 National Conference.
