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Nonprofits are not immune to government scrutiny. While most organizations never face serious issues, IRS audits and investigations can happen.

Striving to act in good faith and holding leaders, employees, and board members to strict ethical standards can help, but there are no guarantees.

Sometimes an audit or investigation can be triggered by something as simple and innocent as a paperwork error. Other times, a single board member’s actions or even a misunderstanding of the rules can trigger a deeper review.

In the most serious cases, organizations may be investigated for knowingly misusing funds or providing personal benefits to insiders. Although less common, organized and prolonged malfeasance at nonprofits can and does happen.

If your Atlanta nonprofit receives a notice of audit or is contacted by the IRS about a potential investigation, don’t panic. There are clear steps you can take to respond appropriately, protect your status, and demonstrate your commitment to compliance.

What Triggers IRS Scrutiny of Nonprofits?

While some audits are random, most IRS attention is driven by one or more red flags. These include:

• Inaccurate or incomplete Form 990 filings
• Large, unexplained changes in revenue or expenses
• Excessive compensation for executives
• Failure to file returns for consecutive years
• Anonymous tips or whistleblower complaints
• Evidence of political campaigning or private benefit

Importantly, many of these red flags can arise from simple mistakes or poor documentation. Others may stem from a rogue individual within the organization. Although intentionality, or the lack thereof, can influence the severity of penalties, even unintentional errors can have serious consequences if not handled properly.

Types of IRS Oversight

There are different levels of IRS involvement, each requiring a different response from audited or investigated nonprofits:

• Correspondence Audit: The most common type. The IRS sends a letter requesting clarification or additional documentation for a specific issue on your Form 990.
  
  
• Field Audit: A more intensive, on-site review of your financials, operations, and governance. This usually indicates more serious concerns.
  
  
• Investigation: This goes beyond standard audits and may involve potential fraud, abuse, or criminal violations.

If your organization receives any communication from the IRS, read it carefully. Early and honest communication can make a significant difference in the outcome of an audit.

Steps to Take Immediately

• Notify leadership: Alert your executive team and board chair as soon as you receive a notice. Don’t keep it internal to just one staff member. Investigations require transparency and coordinated action.
  
  
• Review the notice in full: Understand what the IRS is asking for. Is it a specific concern about an executive’s salary? A pattern in your fundraising expenses? Or a full-scale audit? Knowing the scope helps you plan next steps.
  
  
• Locate and preserve records: Pull relevant Form 990 filings, board meeting minutes, financial reports, and internal policies related to the issue. Do not alter or discard anything, even if you’re unsure whether it’s helpful.
  
  
• Do not speculate or overexplain: If the IRS requests clarification, stick to the facts. Don’t try to guess what they’re looking for or offer unnecessary information. If you’re unsure how to respond, consult a nonprofit attorney before submitting anything.
  
  
• Engage a nonprofit attorney if you don’t have in-house counsel: Even for simple correspondence audits, working with a nonprofit attorney can help ensure you respond accurately, protect privileged information, and don’t escalate a solvable issue into a major problem.

How Georgia Nonprofits Can Reduce Risk

The IRS doesn’t require perfection, but it does expect good governance. Some of the most common audit triggers can be prevented by following clear policies and documenting key decisions. Atlanta nonprofits can protect themselves by:

• Maintaining thorough board minutes and conflict of interest disclosures.
• Keeping detailed, accurate financial records that clearly show how funds are received, allocated, and spent.
• Using dedicated accounting software designed for nonprofits to ensure proper categorization and reporting.
• Separating operational duties so the same person isn’t handling both income and expense approvals.
• Conducting regular internal reviews or audits, even if not legally required, to catch issues early.
• Training staff and board members on legal obligations, ethical standards, and document retention policies.
• Tracking restricted donations separately from general operating funds.
• Double-checking Form 990s for errors and filing them on time.

Even if a mistake occurs, having solid records and processes in place can go a long way in demonstrating that your organization is acting in good faith. This, along with the speed and tone of your initial response, can prevent a mistake or misunderstanding from escalating.

What If a Board Member or Executive Made a Mistake or Acted in Bad Faith?

The IRS recognizes that nonprofits can be harmed by the actions of individuals. If a board member misused funds, failed to disclose a conflict of interest, or violated tax law, your response matters more than the infraction itself.

Proactive corrective action, such as removing the individual, revising policies, or reimbursing misused funds, may help reduce penalties and preserve your exempt status.

If, on the other hand, your board was aware of the issue and failed to act, the entire organization may be viewed as complicit. That’s why early intervention and clear documentation of corrective steps are essential.

Don’t Wait Until Your Atlanta Nonprofit Is Audited Before Performing an Internal Review

Nonprofits that maintain strong records, follow reasonable policies, and respond quickly can often resolve IRS concerns without long-term damage.

The bigger risk comes from ignoring red flags, delaying your response, or trying to handle it internally without qualified legal assistance.

If you’re concerned about a potential issue, the Law Office of Cameron Hawkins can help. We represent Georgia nonprofits in audits, investigations, and proactive compliance planning, so your mission stays protected.

Call (678) 921-4225 to schedule a consultation today.