In October 2008, the Internal Revenue Service (the “IRS”) began work on the Nonprofit Colleges and Universities Compliance Project (the “Project”). The IRS sent out an initial compliance questionnaire to over 400 tax-exempt colleges and universities. Based on the responses, 34 colleges and universities – about 8.5% of the total number of institutions that originally received the questionnaire – were then selected for examination; as of Spring 2013 the IRS had completed 90% of these examinations. On April 25, 2013, the IRS released the Final Report on the Project (the “Report”), summarizing the findings from the completed examinations and representing the culmination of almost five years of research and analysis.
Although the Project has focused specifically on colleges and universities, the key points raised in the Final Report are applicable to all tax-exempt organizations. Specifically, the Report can assist organizations with identifying and understanding issues that will be the likely focus of future examinations, such as unrelated business income and executive compensation. The IRS is likely to remain particularly vigilant in reviewing and overseeing compliance with the rules applicable to these two areas in future examinations of all organizations recognized as exempt under Internal Revenue Code Section 501(c)(3).
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