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 1PDF.

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 IssuesPDF.

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.

Additional information

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