In The People of the State of New York v. McEnerney, Brady and Company, LLC and Edmond Brady, Index No. 450796/2018, filed May 7, 2018, the AG alleged the defendants were instrumental “in perpetuating the existence of a sham charity,” the Breast Cancer Survivor Foundation, a not-for-profit corporation established in 2010, by:

• falsifying the charity’s financial statements in an effort to inflate the value of its charitable services;
• failing to report significant internal control failures; and
• issuing audit reports that falsely gave the charity an “unqualified audit opinion,” the clean bill of health necessary to solicit charitable contributions in New York.

Central to the complaint, which alleged fraud and false filings under New York law, is the allegation that the defendants had full knowledge that the charity was run by, and for the benefit of an external fundraiser, who was known to the defendants as not only a client of the accounting firm, but a source of referrals. According to the complaint, the accounting firm had provided accounting services to at least nine companies controlled by the external fundraiser, most either in, or associated with, the fundraising business. Indeed, it was the external fundraiser who selected the accounting firm to prepare the IRS forms and perform audits for the charity.  The AG alleged that the accountants were presented with “blatant red flags” such as:

• the Board of Directors of the charity never met (it was also noted in the complaint – and in the preliminary investigation report – that the only permanent Board members were the founder and his wife);
• the charity had no physical office or medical facility, yet reported donating substantial medical services; and
• all communication with the audit team was by and through the external fundraiser, not a director or officer, and there was no documentation authorizing his management.

Yet, as the AG asserted, even when faced with such indicators of potential fraud and failures of internal control, the auditors failed to either make a report to the charity’s Board of Directors or to “conduct the appropriate procedures and obtain audit documentation . . . relating to these indicators.”  Instead, the complaint avers that the principal accountant signed off on IRS forms that he knew contained false statements and authorized inaccurate audit reports, knowing the reports would be incorporated into state filings.  Concluding that such inaccurate reporting “deprives New Yorkers of access to reliable information,” the AG reasons that the defendant accounting firm “played an integral role in helping [the charity] to defraud New York donors.”  The complaint seeks restitution and damages, as well as civil penalties for the defendants in connection with the amount sourced from New York donors. A total of $18 million was solicited from 2010 to 2016; only $1 million was contributed from New York donors. We will be on the watch to see whether other states will also seek restitution in this manner.

See Something Say Something

This complaint delivers high praise and healthy affirmation for the members of accounting and auditing teams who speak up. According to the complaint, junior members of the audit team alerted senior auditors, in writing, about a number of concerns, warning that the external fundraiser “appears to be running the Organization . . .” According to the complaint, those junior members were removed from the audit team by the defendants who “willfully ignored  . . . professional standards” despite warnings from those who exercised professional judgment and skepticism.

Fiduciary Duty is not Delegable

This complaint is yet another reminder that officers, directors and trustees must exercise due diligence at all times and refrain from relinquishing oversight responsibility related to essential fiduciary functions.  That would include taking responsibility for not only selecting an accounting firm, but overseeing and understanding the compliance implications of its work product.

Registration is now open for Catalyst Center for Nonprofit Management‘s annual conference, Nonprofit University! Nonprofit University is an opportunity for nonprofit professionals in the Philadelphia area to gather for a full-day of learning, sharing, and networking. This year’s conference offers a choice of 16 workshops covering areas such as event planning, collaboration, compliance, and much more! Notably, our founding attorney, Morgen Cheshire, will be presenting a workshop.

The conference will be held on June 11, from 8:00 AM – 4:15 PM, at Bucks Country Community College. There is a discounted registration fee of $25 for clients of Cheshire Law Group. Click here to learn more or to register.

#GivingTuesday is a great opportunity for your nonprofit organization to kick off the charitable season. Your organization has the potential to bring in large donations and build relationships with long-term donors. Guidestar and GivingTuesday.org are two helpful resources that can help you launch a #GivingTuesday campaign. In the meantime, with the launch of any new or major fundraising event, it is a good time for a few compliance and risk management reminders.

As a general rule, as your organization’s outreach footprint expands, the opportunity for impact increases. As your organization plans for growth, it’s an excellent time to revisit ways to manage potential risk and to evaluate your organization’s way of doing things. We have seen our clients reap financial benefits and utter deep sighs of relief and gratitude when they begin thinking systemically about ways in which to minimize risk and build good will for their organization. Like many investments, those efforts will generally “pay forward”—sometimes exponentially so!

Charitable Solicitation Registration

Making sure your organization is following state charitable solicitation registration requirements is vital for any fundraising event or campaign. It’s crucial to check your compliance with each state’s requirements, especially for online giving. Since #GivingTuesday is designed around social media and online contributions, you may need to register in additional jurisdictions (…and you might also want to consider other legal issues, like trademark laws). It seems like decades ago, given the pace at which technology moves, but in 2001, the National Association of State Charity Officials released the Charleston Principles, a guide for regulating online charitable giving. Many state statutes at the time, though applicable to online solicitations, were drafted specifically to address more established fundraising techniques (such as telephone, direct mail, and in-person solicitations), and so the Charleston Principles were issued to provided clearer and uniform guidance for state officials tasked with the new challenge of applying their state laws to emerging media and electronic methods of soliciting charitable funds. The Charleston Principles recommend that state charity officials, when regulating organizations not domiciled in their states, interpret and enforce their respective state charitable solicitation statutes to require compliance with their respective state charitable solicitation laws and registration requirements if the charitable organization has an interactive website that allows online donations (e.g. “Donate Now” button) and if the organization (1) specifically targets for solicitation persons physically located in the charity official’s state; or (2) if the organization receives contributions from persons in the charity official’s state on a repeated and ongoing basis or a substantial basis through the organization’s website. For organizations without interactive websites (i.e., without “Donate Now” buttons), the Charleston Principles recommend that state charity officials consider (1) the organization’s outreach efforts to persons within their state (e.g., whether the organization invites further offline activity to complete a contribution, or establishes contact with the state such as sending email messages or other communications that promote the website) and (2) the factors above (regarding targeting and whether the organization receives contributions from persons in the state on a repeated and ongoing, or substantial, basis). An organization that is ramping up its solicitation efforts and is doing so online should review the Charleston Principles and should consult with an attorney specializing in nonprofit regulatory matters.

State charity officials take their state charitable solicitation statutes very seriously, and not only when it comes to enforcement against fraud. Registration fees may be an important revenue source for many states, helping to cover the costs of charity regulation.  Despite the fact that many states allow for the use of a uniform registration statement, keeping up with the costs and different thresholds to the registrations can be challenging. Applying these rules and navigating these requirements while doing so affordably presents other challenges for many organizations.  If your organization needs help understanding these rules and the registration requirements based on the solicitation of your organization, contact us, and we can provide guidance or connect you with resources that can help you navigate this process. If you want to learn more, read our blog post explaining charitable solicitation registration in more detail.

Campaign Videos

Videos are a great way to show people what your organization is all about. Whether it is footage from your organization’s latest fundraising event, testimonials from your organization’s clients, or employees discussing the values of your organization, videos can make a strong impact on your audience. With social media platforms like YouTube, Facebook, and Twitter, it’s now easier than ever to share videos with thousands of people with just a click of a button.

It’s essential that you get the consent of any person featured in your video. Having an event where you would like to take pictures and video? Consider whether your organization should require permissions and waiver forms to be signed by any participants, volunteers, and employees, and if so, how best to present these requests. There are a myriad of practical and legal issues to consider when drafting and presenting these documents. As just one example, you’ll want to make sure that you have the proper agreements in place with the people who create the footage for your organization!

Professional Solicitors and Fundraising Counsels

Your nonprofit organization may choose to hire a person or company to directly solicit contributions through telemarketing, canvasing, event marketing, or any other type of solicitations. Many nonprofit organizations may also consider using a fundraising consultant or fundraising counsel to plan their #GivingTuesday campaign, organize other fundraising campaigns, or help to write grant requests.

If your organization uses one of these professionals and provides the professional with any kind of compensation, your organization typically must register with the states where these solicitations are taking place. Even if your organization is exempt from charitable solicitation registration, using a professional solicitor may require you to register with some states. Organizations typically must also have written agreements (containing certain language) with these professionals. To protect your organization, your organization should only engage fundraising professionals who are familiar with these rules and who meet these requirements. Be wary of the fundraising professional who tells you, “I work for a lot of other organizations, and you are the first that has asked me for this.” Consult with legal counsel to determine if your organization is required to register and to understand what your organization’s contracts with these professionals need to cover. Checking in with legal counsel before engaging any professionals can help minimize risk manage resources, and help your organization stay in compliance.

IRS Required Acknowledgements

If any cash donations of $250 or more are received, your organization must provide a contemporaneous written acknowledgement to substantiate the donation. While the IRS only requires these written acknowledgements for cash contributions of $250 or more, for numerous legal reasons, it is best practice to send these acknowledgements to all donors for donations of any amount.  The acknowledgement must contain the following:

• Name of the organization
• Amount of donation
• Description of any non-cash contributions
• Statement that no goods or services were provided by the organization

See here for more information on the IRS website.

The end of the year is a great time to review your donor acknowledgment letters (and pledge agreements) and to make sure that your organization appears correctly on Select Check (the IRS’ Publication 78 database).

As organizations are gearing up their #GivingTuesday strategies, legal counsel can  support your organization’s legal needs and help you think systematically about your donor communications with a mind toward managing risk and conserving your organization’s resources. We welcome the chance to review your strategy and advise you on any legal issues that may be triggered by your #GivingTuesday plans.

For any questions or additional information about staying in compliance while planning your organization’s #GivingTuesday campaign – or any other fundraising campaign – please contact Cheshire Law Group.

This article is intended to be a general resource only and is not intended to be, nor does it constitute, legal advice.

On February 21, 2013, the New Jersey Attorney General filed a civil suit against the Hurricane Sandy Relief Foundation after the organization solicited more than $631,000 in charitable donations from the public. The foundation was not a tax-exempt organization recognized by the IRS, nor was it registered to solicit charitable funds within the state of New Jersey. According to the complaint, approximately $13,000 of the money solicited and received by the foundation was transferred into private bank accounts and only 1% of all donations received were actually distributed to victims. Eight months after Hurricane Sandy hit New Jersey, the founders of the fraudulent organization agreed to settle with the state of New Jersey by dissolving the foundation and turning over $334,000 in donations to a court-appointed administrator. If the case had gone to court, the founders would have faced over $20,000 in civil fines. Although this case was settled, New Jersey authorities are still prosecuting over 200 fraud cases related to Hurricane Sandy. In connection with earlier disaster-related fraud during times of tragedy caused by Hurricanes Katrina, Rita, and Wilma, and the Gulf Coast Oil spill, the U.S. Department of Justice charged more than 1,300 defendants in 47 judicial districts as of 2011.

To avoid donating to one of these fraudulent charities, see below for some tips that can help you detect and report charity fraud.

If you are a donor:

• Do your research before you donate. If you are being asked for a donation by phone, be careful about giving money with a debit or credit card by phone when you receive the call. Ask the charity to send you information by mail and ask for the name of the charitable organization and its tax identification number (E.I.N.). It’s also good to ask the person calling to identify his or her role with the organization and to obtain the telephone number of the person calling. You can always call the charity back directly to make a donation, or mail your donation.

• Using a credit card (as opposed to cash or a check) to make donations can offer greater protection.  There’s a better chance of being able to cancel or dispute any charges if you were to find out later that the organization is fraudulent.

• Pay attention to the names and websites of the charities soliciting donations. If you have questions about whether the charity is legitimate, the IRS has an online research tool called “Select Check” that you can use to determine if the organization is recognized by the IRS as a tax-exempt entity.

• Also, most states have a charities department that you can contact if you have concerns or questions about a particular charity. These resources are helpful if you believe you may have been a victim of a charity scam or if you want to find out whether an organization is registered to solicit donations in your state.

o For Pennsylvania, call the Charities Bureau at (717) 783-1720.
o For New Jersey, call the Department of Consumer Affairs, Charities Division at (973) 504-6215.
o For New York, call the New York State Attorney General’s Charities Bureau at (212) 416-8401.

• If you have been the victim of a charity scam, you should also call the Department of Justice’s National Center for Disaster Fraud at (866) 720-5721. In addition, you can file a complaint against a tax-exempt organization with the IRS by completing IRS Form 13909, Tax Exempt Organization Complaint (Referrall).

If you are a charity:

• Make sure that your organization is listed under the correct name on Select Check and on other charity search engines such as Guidestar. This is particularly important if your organization has undergone a name change.

• Conduct routine internet searches for organizations with similar names to help detect impersonators and to distinguish your activities from other charities.

• Make sure that your organization is properly registered on state and federal databases before soliciting charitable contributions.

• If your organization is a 501(c)(3) organization, make sure to state your status on your website and on any solicitation materials. Many states, such as Pennsylvania , New Jersey, and New York, also require charitable organizations to include disclosure language on all solicitations.

• If you are providing something of value to donors in exchange for their donations, review the applicable laws to ensure that your organization is in compliance with any substantiation and disclosure requirements for charitable contributions. See IRS Publication 1771, and the links above.

• If your organization’s application for tax-exempt status is pending, do not tell donors that their donations are tax-deductible. Even though your organization may be exempt in the near future, your organization is not presumed exempt during the application process. See the IRS website for additional information on required disclosure language before soliciting charitable contributions.

Parting Words:

In the weeks before Super Storm Sandy ever made landfall, more than 1,000 Sandy-related internet domains had been registered. How can a donor gauge which websites are related to legitimate charities and which ones are out to take advantage of the public’s generosity? The recent natural disasters and the events in Texas, Florida, Puerto Rico, Mexico, and the Caribbean continue to remind us of the overwhelming generosity of our society. Don’t let charity fraud stop you from donating to important causes. It is important, however, to stay vigilant against potential fraud and to conduct your own research before giving.

What is Charitable Solicitation Registration?

Charitable solicitation registration is a state’s way of regulating fundraising activities within its jurisdiction. Generally, a nonprofit organization must register for charitable solicitation in the states in which it plans on soliciting donations. It is important that these registrations are completed before any fundraising occurs within that state, though some jurisdictions allow for exemptions and registrations are not required until certain revenue thresholds are met. Fundraising activities can include requesting donations through Twitter, making personal asks, or hosting fundraising events. Although your organization may not specifically plan on soliciting donations from a particular state, seeking online donations may also require registering your nonprofit within certain states. If you have compliance questions about which states your nonprofit must register for charitable solicitation, contact Cheshire Law Group.

Charitable Solicitation Registration in Pennsylvania

Most nonprofit organizations planning to solicit donations within the Commonwealth of Pennsylvania must register with the Pennsylvania Department of State – Bureau of Charitable Organizations; however, there are some exemptions from registration for nonprofit organizations. Your organization may be exempt from charitable registration in Pennsylvania if your organization’s gross national contributions are less than $25,000 annually; and/or your organization falls under one of the following categories:

• Organizations of law enforcement, firefighters, or other public safety personnel
• Religious institutions
• Educational institutions
• Hospitals and hospital foundations
• Veteran’s organizations
• Library organizations
• Senior Citizen centers and nursing homes
• Parent-Teacher associations

You can find a complete and comprehensive list of exemptions on the Pennsylvania Department of State’s website under “Business & Charities Registration Information”. If you have any questions about whether or not your organization qualifies for exemption from registration, contact Cheshire Law Group.

If your organization is not exempt, your nonprofit organization should complete Pennsylvania form BCO-10, which can be found on the Pennsylvania Department of State’s website under Business & Charities Registration Forms. As part of your organization’s initial registration, you should include a copy of your organization’s IRS Form 990, financial statements for the previous fiscal year, IRS determination of exemption letter, organizational documents, and bylaws. This registration needs to be renewed annually. The renewal due date can be found on your certificate of registration, which your organization will receive once you have been approved for registration. We recommend having a tax professional or lawyer review before filing, especially if you are a first-time filer.

Charitable Registration in Other States

The forms and requirements for charitable registration differ from jurisdiction to jurisdiction. Some states do not require charitable solicitation registration, while others require extra forms and information in addition to the primary form. Most jurisdictions also require that organizations make written disclosures on solicitation materials.

Commercial Co-Ventures and Hiring Professionals to Assist with Fundraising and to Provide Fundraising Advice

Many jurisdictions also have special registration rules and contractual requirements for entering into commercial co-ventures (e.g., corporate sponsors that contribute a portion of their sales to your organization) and when working with paid professionals in connection with fundraising activities. Checking in with legal counsel before engaging professionals and before entering into these promotional fundraising ventures can help your organization (and your corporate donors) stay in compliance.

For any questions or additional information about registering your nonprofit organization for charitable solicitation, please contact Cheshire Law Group.   This article is intended to be a general resource only and is not intended to be, nor does it constitute, legal advice.

What emails should nonprofits watch out for?

The “Executive Director” sends an email to an employee in the finance, human resources, or payroll department and requests that the employee send W-2s or personal information, including SSNs, for all of the nonprofit’s employees. Except the email is not really from the Executive Director. It is from a criminal with a “spoofed” email account made to mimic the Executive Director’s. The email address will be very similar, but it may be off by a letter or it may add a number, or transpose letters, for example. Most people might miss it and may easily believe the email is from a trusted source. In the most egregious cases, the “Executive Director” sends a second email requesting that a wire transfer be made to a specified account.

The IRS reports that the spoofed email may contain these or similar messages:

• Kindly send me the individual 2016 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
• Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).
• I want you to send me the list of W-2 copy of employees wage and tax statement for 2016, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.

What can nonprofits do to protect themselves?

The IRS urges all employers to alert their payroll, finance, and human resources staff and outside vendors to this new scam and suggests sending W-2 scam emails to phishing@irs.gov, with “W2 Scam” in the subject line. Do not open any links contained in these emails as the links lead to imitation (spoofed) sites, which may carry malware that can infect computers in order to gain additional information.

Proactive steps for nonprofits include:

1. Reviewing existing policies and procedures, as well as staff and vendor training, to ensure neither staff nor vendors send sensitive tax or personal information in response to unsolicited emails. Such a review and periodic training is within reach even for nonprofits with limited budgets.
2. Having policies in place requiring that employees and vendors limit the secured email transmission of sensitive tax or personal information only to known recipients.
3. Discussing with the IT department or IT vendor what steps can be taken to ensure that spoofed emails, especially those from publicly-identified threats, are caught by the nonprofit’s spam filter.
4. Discussing with your insurance broker the availability of insurance to cover the costs associated with an employee inadvertently responding to a spoofed email.

When was the last time your nonprofit reviewed its policies and procedures and insurance coverage? Does your nonprofit have policies and procedures relating to spoofed emails and other cyber threats?

We are here to help. Please call Cheshire Law Group at (267) 331-4157 to discuss a cost-effective review of your nonprofit’s policies and procedures.

Schools and other organizations that provide services for children, and that rely on volunteers, should review and update their policies and clearance procedures to reflect the requirements of this new legislation.  Thinking systemically about compliance, and involving legal counsel in the design and drafting process, can help streamline implementation efforts, minimize risks, and conserve resources.

Here are a few other annual filing reminders and traps for the unwary that we have gleaned through our experiences as legal counsel for nonprofit organizations.

Traps for the Unwary:

• If your organization fails to file its annual return for three consecutive years, your organization will automatically lose its federal tax-exempt status. This rule doesn’t just affect small start-ups that fail to file the e-Postcard (see the third bullet point below); it can affect organizations with more complex organizational structures, too!

• Even if your organization is not required to apply to the IRS for tax-exempt status (for example, if it is a “self-declared” 501(c)(4), 501(c)(5) or 501(c)(6) tax-exempt organization), your organization still has an obligation to meet these annual filing requirements.

• With very few exceptions, most small tax-exempt organizations with gross receipts that are normally $50,000 or less (the threshold was $25,000 for tax years ending on or after December 31, 2007 and before December 31, 2010) must file the IRS Form 990-N (e-Postcard). NOTE: Organizations may not request an extension to file the e-Postcard.

• If your organization is a newly formed entity and its IRS Form 1023 application is pending with the IRS, your organization still must meet the applicable filing requirements. We recommend you work with a tax professional or nonprofit lawyer to help enter your organization into the e-Postcard filing system.

• The first 3-month extension is granted automatically. If you need another extension, submit it in advance so that if it is not approved, you can still file a timely return.

• Even if you have obtained a filing extension, any tax due on an IRS Form 990-T is due on the original filing deadline, and the IRS imposes penalties and interest on the failure to timely pay the tax. This rule tends to nail newer leaders in the nonprofit sector.

• If sending returns to the IRS by mail, send them by U.S. Mail certified return receipt requested. Keep all copies and records of documents sent and your date-stamped proof of mailing.

• Remember, an incomplete return is treated the same as a late return. If your organization files a return with missing information or required schedules penalties could apply. Review your return before submitting, and if you have questions, contact a nonprofit lawyer or tax professional before submitting to the IRS.

• Don’t include personal information, such as social security numbers and bank account numbers, on returns. The IRS is required to publicly disclose information returns, attachments filed with the return, and correspondence with the IRS about the filing. Therefore, don’t include personal information in any of those filings.

According to the report, the top compliance issues for colleges and universities concern 1) the reporting of unrelated business taxable income (UBTI) and 2) compensation practices. Here are the highlights . . .

Expect More Scrutiny

Congressman Charles W. Boustany, Jr., M.D., (R-LA), Chairman of the Subcommittee on Oversight of the Committee on Ways and Means, announced on May 1 that the Subcommittee will hold a hearing on the report.

Boustany noted that “it is critical that the Subcommittee continue its review of this segment of the tax-exempt sector… The Subcommittee has an obligation to explore the root of these alarming findings. . . This hearing is an excellent opportunity to discuss the results of the compliance project and examine areas for improvement in oversight, with an eye toward comprehensive tax reform.” [emphasis added] (Click here for the press release.)

UBTI Issues

The IRS reports that its examinations of colleges and universities led to an increase in the amount of unrelated business taxable income (UBTI) for 90% of the colleges and universities examined – the uptick in taxable income totalled about $90 million.

Note: because – as the IRS notes – these examinations were not randomly conducted, and instead colleges and universities were chosen for examinations based on their responses to the questionnaires and their IRS Forms 990, these results are not necesarily representative of other colleges and universities. Even so, the IRS seems intent on focusing on these issues for future examinations of colleges and universities, and on the exempt sector at large (see parting words below).

In its report, the IRS explains the issues that generally led to the adjustments: 1) the colleges and universities were deducting expenses that were not connected to unrelated business activities; 2) the colleges and universities were making computation and substantiation errors; and 3) the colleges and universities were improperly taking the position that certain actvities were related activities (and therefore could not give rise to UBTI).

Not surprisingly, the adjustments occurred mostly with respect to the following activities: fitness, recreation centers, and sports camps; advertising; facilty rentals; arenas; and golf.

Compensation Practices

The IRS notes in its executive summary of the report that most of the private colleges and universities examined made attempts to meet the rebuttable presumption standard (this is the standard that allows private colleges and universities to follow certain procedures when setting compensation for officers, directors, trustees, and key employees so that they may shift the burden on the IRS to prove that compensation set by the college or university is unreasonable for purposes of IRC 4958, the section of the Internal Revenue Code that imposes penalties on those who receive and approve unreasonable compensation).

Despite efforts made, about 20% of private colleges and universities failed to meet the rebuttable presumption standard, generally because of problems related to their comparability data, documentation, and lack of attention to detail.

The executive summary to the report also notes that the IRS looked at employment tax returns for about a third of the colleges and universities examined and at the retirement plan reporting of about a quarter of the colleges and universities examined – the IRS noted that all of the completed exams have resulted in adjustments in wages, leading to assessment of tax (and in some cases penalties) and that there were also retirement plan reporting problems at about half of the colleges and universities examined.

Parting Words (Where the IRS is headed)

The executive summary to the report gives a clear indication of where the IRS focus remains for colleges and universities and the rest of the exempt sector:

“The examinations of college and universities identified some significant issues with respect to both UBI and compensation that may well be present elsewhere across the tax-exempt sector. As a result, the IRS plans to look at UBI reporting more broadly, especially at recurring losses and the allocation of expenses, and to ensure, through education and examinations, that tax-exempt organizations are aware of the importance of using appropriate comparability data when setting compensation.” [emphasis added]

The purpose of the questionnaire is to learn more about self-declared tax-exempt organizations and to determine whether they are currently complying with the law; it is also meant to educate organizations and encourage voluntary compliance.  An organization that receives the questionnaire has 60 days from the date of the cover letter to respond.  An additional 30 days may be granted if needed.  After the questionnaires have been collected and reviewed, the IRS may choose to commence formal examinations of a number of the organizations that completed questionnaires.  For more information about the difference between a compliance check and an IRS examination (or audit), see IRS Publication 4386.  After the examination period, the IRS will quantify its data and release the findings to the public.

The questionnaire consists of a wide range of questions relating to the operations of your organization, including its lobbying activities, revenue sources, and compensation to officers and directors.  Many of the questions seem straight-forward; however, the questionnaire does include traps for the unwary.  Receiving the questionnaire offers the opportunity for your organization to reconnect with legal counsel to better understand your organization’s compliance obligations.  An attorney with experience  in nonprofit law can guide you through the questions, point out what the IRS is looking for, and help you avoid traps that could lead to an in-depth IRS examination.

The questionnaire is voluntary and failure to complete it will not automatically result in the loss of exempt status.  However, the IRS may choose to pursue an examination of any organization that chooses not to complete the questionnaire.   More information about the questionnaire can be found here on the IRS website.