Nonprofits

Tax-exempt status is a privilege the IRS can examine, condition, and take away. Charities, trade associations, private foundations, and religious organizations answer to the same enforcement machinery as any taxpayer, with an added layer of rules about who benefits from the organization and how.

Whiteford represents nonprofits and the people who run them when that machinery engages: an examination of the Form 990, a proposed revocation, an unrelated business income assessment, a payroll tax balance, or an inquiry into a transaction with an insider. The work is discreet, because a public dispute with the IRS can cost an organization its donors before it costs it anything else.

Most matters begin as an IRS examination run by the Tax Exempt and Government Entities division rather than the examiners who audit businesses. The questions are different, the exposure is different, and the sequence of responses shapes what the organization keeps.

Where nonprofit tax exposure becomes personal

Two doctrines reach past the organization to its people. Excess benefit rules impose excise taxes on the officers, directors, and major donors who receive more than fair value from a charity, and on the managers who approved it. And payroll tax withheld from staff wages is trust fund money: when it is not paid over, the IRS can assess the Trust Fund Recovery Penalty against the executive director, the treasurer, or a board member it decides was responsible.

Both are civil matters most of the time. When an inquiry starts to probe whether returns were knowingly false or donations were diverted, it needs to be handled as a potential criminal matter from that point on, even if no one has said the word.

The federal task force behind much of this activity treats charities, benefit programs, and the people who run them as enforcement targets in their own right. Our fraud enforcement tracker follows each development that reaches nonprofits and their boards.