IRS & Unrelated Business Activities of Not-for-Profits

Unrelated Business Activities

The IRS released its 2012 Work Plan outlining areas the Exempt Organizations (EO) division will focus on in 2012. Among other things, it will increase its scrutiny on organizations with unrelated business activities and on private foundations.

Exempt Organizations Division Activity

The EO is developing a model that will identify organizations which report significant gross receipts from seemingly unrelated business activities but which show no tax liability. This is in conjunction with the EO’s upcoming unrelated business income tax project. The EO will also be on the lookout for impermissible political activities being undertaken by an organization.

It will also increase its selection of private foundations for audit. However, the Work Plan did not provide any clues as to what the IRS will be looking for in those audits.

In addition, the 2012 Work Plan provides an update on the IRS’s focus on organizational governance and the connection of governance to tax compliance.

This might be a good opportunity to review your organization’s unrelated business activities and the reporting of such activities to make sure the underlying documentation is in order in the event of an IRS examination. We are available to meet and discuss these and other topics at your convenience.