Tax Alert: IRS SCHEDULE K AUDITS

June 27, 2017

Since 2008, Section 501(c)(3) organizations have had to file SCHEDULE K  (Supplemental Information on Tax-Exempt Bonds) with their annual IRS Form 990, providing very detailed information about the expenditure of bond proceeds and the use of bond-financed facilities. The accurate completion of SCHEDULE K requires Section 501(c)(3) organizations to review management and service contracts, research agreements, and other use agreements to determine if such contracts or agreements give rise to private business use and to prepare detailed calculations of an annual private business use percentage on a per bond issue basis.

Recent IRS bond audits confirm that the IRS is actively monitoring prior SCHEDULE K responses.  IRS audit requests now include specific questions based on SCHEDULE K information such as — backup information supporting private business use calculations, safe-harbor intake procedures for management contracts/sponsored research and inquiries regarding the late expenditure of bond proceeds.

Given this heightened scrutiny by the IRS, accurate monitoring of post-issuance compliance requirements and the related SCHEDULE K reporting is essential to 501(c)(3) organizations to ensure compliance with applicable federal tax laws and that the tax-exempt status of the bonds is not jeopardized.  Make sure your organization is getting it right.

If BLX can assist your organization’s internal post-issuance compliance efforts, please do not hesitate to contact us.

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