Life Cycle of a Private Foundation - Audits of Foundations
The goal of the Exempt Organizations Examinations program is to promote voluntary compliance by analyzing operational and financial activities of exempt organizations. As in any IRS examination of taxpayer returns, private foundations undergoing examinations have certain rights, as explained in Publication 1.
Issues in an audit may include a foundation's tax-exempt status, whether it incurred private foundation excise taxes, whether it paid employment taxes and tax on unrelated business income when required, and whether it filed required returns and reports. Procedures for examinations are explained in greater detail in Publication 892, Exempt Organization Appeal Procedures for Unagreed Issues.
Issues in a private foundation examination are not always limited to the private foundation. Excise taxes may apply to substantial contributors or related persons for certain transactions. Foundation managers who participate in these transactions knowing certain tax provisions have been violated may also be liable for excise taxes.
- Examination and Compliance Check Processes for Exempt Organizations, Fact Sheet 2008-14 (February 2008)
- Power of Attorney (rules that apply when a foundation is represented by an attorney or other representative)
- Examination Procedures (overview of IRS procedures for conducting examinations of exempt organizations)
- Potential Examination Consequences (overview of the potential consequences of IRS audit of an exempt organization)