Nonprofits Make List of Top IRS Problems

Each year, the national taxpayer advocate submits an annual report to Congress listing the most serious problems encountered by taxpayers. This year’s report, released December 31, 2009, and available on the IRS Website, identifies, analyzes, and offers recommendations for resolving 21 problems, and only 1 – listed as #20 out of the total of 21 – is related to tax-exempt entities.

Issue Number 20 – Research on Reaching Nonprofits

There is a clear recognition that the nonprofit sector is large and diverse, with citations of facts such as:

  • There is one exempt organization for every 169 Americans.
  • The sector employs about 9.4 million workers, representing over 7 percent of the total U.S. workforce.
  • There are 175 new tax-exempt organizations recognized by the IRS every day.
  • Higher education, hospitals, and primary care facilities, about 2 percent of the total number of public charities, hold more than half of the assets and represent well over half of all expenses.
  • Roughly half of all exempt organizations were staffed entirely by volunteers and another third had fewer than 10 employees.

But no matter the size of an organization, it must meet its tax-compliance and reporting obligations, whether or not it has staff or volunteers with the appropriate expertise. Even a volunteer who figures out the regular reporting obligations may be stumped by potential liability for excise taxes and accounting for unrelated business taxable income if the organization seeks to expand its funding sources.

There are only nine employees in the Exempt Organizations Customer Education and Outreach (CE&O) division, and their daunting task is to meet the informational and educational needs of these nearly two million organizations. This staff represents less than 1.5 percent of the total number of IRS Exempt Organization employees.

courtesy Guidestar