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Top 10 Errors Form 990 can trigger an IRS audit

Several years ago, the IRS Exempt Organizations Division published a list of the Top 10 errors they saw on the “new” Form 990 in the early years of filing that return. That list is as follows:

  • Form 990 were submitted with missing or in Form 990 were submitted with missing or incorrect EIN. Verify you have the correct EIN or have entered the EIN in the selected field.
  • Most Non-profit organizations use variation of names for a variety of purposes. Best practice is to use the legal name shown on the IRS Master File records or, if a name change occurred, check the “name change” box and attach any required documentation.
  • Often times the tax period does not agree with the month on the Entity Index File. If your organization is not submitting a short period return or a final return, ensure you file for the tax period on Master File, or clearly indicate you are changing your tax period.
  • Missing Schedule O. Schedule O is required for all 990 filers. You can get confused by Line 38 of the core Form 990 (a yes/no checkbox) and assume you have the option not to include Schedule O.
  • Checking the “final return” box in error.This box should be checked only when the organization has terminated, closed or ceased to exist. Checking this box closes the organization’s tax-exempt status and filing requirements, causing problems for your organization when you attempt to file future returns.
  • Missing Schedule A. Schedule A is required in certain circumstances, be sure you know when schedule A is required. If it is missing, the IRS will correspond for the missing schedule.
  • Mathematical errors can happen when totaling functional expenses (Part IX Line 25, Column A).Verify the accuracy when adding lines 1 – 24e.
  • Math error when totaling Net Assets – End of Year (Part X, line 33, Column B). You should check calculations in lines 1 – 32 to ensure this total is accurate.
  • Math error when totaling Net Assets – Beginning of Year (Part X, line 33, Column A). You should check calculations in lines 1 – 32 to ensure this total is accurate.
  • Math error when totaling Revenue (Part VIII, Line 12). You should check calculations in lines 1a – 11e to ensure total revenue is accurate.

Most of these are “big picture” mistakes. Incorrect identification of data, omission of required schedules, and math errors must be avoided at all cost. As the IRS builds “queries” to run against Form 990-series returns (under their “data-driven decision making” approach to audit selection), we can be sure that they are looking for these mistakes.

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