Can nonprofit organizations avoid tax audits?

| Oct 27, 2017 | Tax Audits

There are a number of nonprofit organizations that operate in Connecticut. In order to achieve nonprofit status, they had to set up their organizations properly and apply for the proper tax status. When it comes to taxes, nonprofits must be careful about how certain things are documented or they risk tax audits.

Audit: it is a word that can strike fear and panic into anyone. Most people think that if they have been picked for an audit, it means that they did something wrong when they filed their taxes. This may not be true, as there are those who are randomly selected to go through the audit process.

Since audits can be random, it may not be possible to totally avoid one, but there are things that the owners of nonprofit agencies can do in order to prevent any errors that would flag an audit. The first is to obtain a federal letter of exemption. Having this would show that the organization is exempt from sales and use taxes.

Another thing nonprofit owners can do is take care when it comes to purchasing goods and services. Such things need to be purchased on an organization’s card or with the organization’s funds in order to have proof that they are intended solely for the nonprofit. Those items must then be itemized on the proper tax exemption form.

Nonprofit organizations are really put under the microscope come tax time. The IRS just wants to make sure that such organizations really do qualify for the perks of having the nonprofit status. By keeping detailed records, nonprofit owners in Connecticut can avoid tax audits or at least be prepared if they get that dreaded notice in the mail. Those who find themselves facing audits can turn to a skilled tax attorney to help them through the process.

Source: ct.gov, “DRS: Nonprofit Oganizations“, Accessed on Oct. 25, 2017

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