It?s tax time for everyone: your personal taxes are theoretically due two weeks ago, and corporate and nonprofit returns are due in May. While people scramble to get their files and records and receipts in order, the IRS is busy as well. But not always in a good way, and not always the right way.
Don’t Panic, It Isn’t Personal
The IRS?s budget is continually cut, so the employees who review and audit are overwhelmed and rely on their computers to spit out the information they need on your organization. Whether it is to make sure you have filed your return, your information on the return is correct according to their records, or to answer any inconsistencies those massive computers may find; if something does not look right, you will be getting a letter from them with what they need from you.
Beware Of Scams
First off, beware of scams. I must receive 2-3 calls a day from someone telling me my computer is sending out bad info, from the so-called sheriff telling me I have to pay $2000 since I didn?t show up at a jury summons, or that the IRS is coming after me with fines, interest and penalties. The first time you get one of these calls, you might be concerned, but don?t be. The only way you will be contacted by the IRS is on paper, with a letter, reference information and instructions on what they need. They will not ever call you, nor ask for personal and financial info.
Read It All Through First
Secondly, don?t panic. As a nonprofit, you will not be paying federal taxes, but you might have a state tax or UBIT (unassociated business income tax- if you sell stuff to raise funds, you may owe tax on the amount you raised) tax to pay. You do have to pay payroll taxes for your employees as well. *
If you do get a letter from the IRS, open it right away and read every word. Be sure the information they have is correct and see what it is they are requesting of you. Sometimes they will want to do a document audit, and see copies of your incorporation papers, articles and by laws, along with your state and federal tax exemptions.
Follow the Instructions
Unless there is a request for a payment, most of the time these information requests can be easily handled: follow the instructions on what is required and mail it in. Do keep copies and note when you received the notice, the deadline by which you must respond and what your actions have been. If you call for more information and by the grace of God actually speak to a person, note the date, time, name and employee number of the person you speak with along with details of your questions and their answers. However, do be prepared to wait for a very long time on hold, I am talking hours here.
Keep Copies of Everything
If you are asked to pay some amount, be sure you compare your return to their payment demand. Search out the issues they bring up and do your homework. Sometimes they are right, but many times they are wrong. But to prevail and not get caught up in the endless computer back and forth, you must also document everything on paper.
When you mail back your correspondence, make it easy on them, even if you are annoyed. Be sure every sheet of paper has your organization?s name, address, and EIN number. Copies of requested documents should also have this information. If there is a little tear off section on the bottom of the IRS letter, include that with your mail and papers. Naturally you have made at least one copy of the letter in its entirety for your files.
Note the date you mail in the response and wait, at least 30 days, sometimes more, for their acknowledgment and response.
If you do owe money, you will need to pay it quickly or those penalties and fines will pile up. Are they asking for money you don?t think you owe? Go back to your records, look for what they see. If they are wrong, be prepared to prove it with your records.
Perhaps Unavoidable Rarely Fatal
Dealing with the IRS is a fact of life, and most of the contacts will be benign. As with many other things in life, it is simply easier to make sure your return and documentation is done right the first time than to go back to fix or change afterwards.
Did you receive a letter that makes you nervous? Give us a call and we will help calm those fears. 310 828 6979
*One nonprofit figured they didn’t have to pay federal payroll taxes, despite an accountant being on their board and many notices of nonpayment. They figured that the notices were in error and the IRS was mistaken, so they ignored them. That is until the unpaid taxes, fines, interest and penalties amounted to more than $75,000 and their nonprofit status was in danger of being revoked. Suddenly they had to act and act fast, raise those funds and pull their butts out of the fire. Not fun times for anyone, so take a lesson, don?t ignore any correspondence from the IRS, ever.
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