Simulated IRS Audits

Playing devil's advocate and using IRS forms and checklists, we are available to review the organizational structure, operations, activities, and relationships of our nonprofit clients as if they were undergoing an audit from the Internal Revenue Service to ensure compliance with the Internal Revenue Code and the related regulations governing them. These engagements are not audits, reviews, or compilations of the financial records of the organization as those terms are defined by the American Institute of Certified Public Accountants and we express no opinion on the financial statements of the entity.

At the conclusion of our engagement we issue a report which provides our conclusions, recommendations, the basis of our conclusions and recommendations, a list of the documents reviewed, and a summary.

Our broad base of experience permits us to look at an organization through the eyes of the government and the general public to ensure that the organization is fulfilling its tax-exempt purpose. Simulated audits of this type are entirely appropriate for noncharitable as well as charitable tax-exempt entities. These engagements permit an organization to be pro active in correcting weaknesses in its organization, operation, governance, management, administration, reporting and disclosure, and conflicts of interest.

Regrettably, real or perceived abuses of in the past few years are prompting calls within the IRS and Congress for new oversight of tax-exempt organizations. The Joint Committee on Taxation has advanced a number of proposals that could significantly change the way many organizations, particularly private foundations, operate. Some proposed changes would further limit the income tax deduction for appreciated property given to charitable organizations. We follow developments in this area and have an idea what legislative proposals will be introduced in coming Congressional sessions and administrative changes initiated by the Internal Revenue Service. The kind of operational audit we perform permits an organization to be proactive in anticipation of change, rather than having to react to it as change occurs.

©2008 Ronnie C. McClure, PhD, CPA