If you lead a nonprofit in Kansas, your tax-exempt status is fundamental to everything you do. It allows donors to deduct their gifts, exempts you from income tax, and builds the foundation of trust that makes your mission possible.
The IRS knows this too. And they’re paying closer attention.
Recent discussions at the American Bar Association Tax Conference made clear that IRS oversight of nonprofits has shifted significantly. The agency is using data analytics to identify organizations whose filings suggest potential problems, and even well-run Kansas nonprofits can find themselves under review if their records or governance don’t clearly demonstrate compliance.
How IRS Oversight Has Changed
The IRS has moved from random audits to targeted, data-driven reviews. They now flag organizations whose filings suggest:
- Activities that don’t clearly align with stated mission
- Governance gaps or missing board oversight
- Inconsistent reporting across years
- Unusual compensation or benefit arrangements
- Missing or incomplete required disclosures
What this means:Â Even if you’re doing everything right operationally, unclear documentation or incomplete filings can trigger review.
What the IRS Is Watching
- Private benefit and inurement:Is anyone personally benefiting from nonprofit funds inappropriately?
- Mission consistency:Do your actual activities match what you described when you applied for exempt status?
- Unrelated business income:Are you properly reporting and paying tax on income unrelated to your exempt purpose?
- Governance and controls:Do you have an active, independent board? Written policies? Conflict of interest procedures you follow?
- Filing compliance:Are you filing Form 990 on time every year?
Why Kansas Nonprofits Are Vulnerable
Many Kansas nonprofits operate with limited staff and volunteer boards, which is normal and appropriate. But it creates specific risks:
- Volunteer governance:Â Meetings happen informally, minutes aren’t kept consistently, conflicts aren’t documented
- Part-time bookkeeping:Â Financial records maintained by volunteers who may lack nonprofit accounting expertise
- Outdated policies:Â Policies created years ago for IRS approval, then never reviewed again
- Limited professional support:Â Small budgets mean issues aren’t identified until they become problems
- Mission drift:Â Activities evolve with community needs, but documentation doesn’t evolve with them
None of this reflects bad intent. But from an IRS perspective, these gaps look like compliance failures.
What Strong Compliance Looks Like
You don’t need corporate-level systems. You need appropriate controls for your organization’s size.
Active, documented governance:
- Board meets at least annually (quarterly is better)
- Written minutes for all meetings
- Board reviews Form 990 before filing
- At least 3 unrelated board members
Current, followed policies:
- Conflict of interest (required)
- Document retention
- Whistleblower protection
- Compensation review and approval
- Gift acceptance (if soliciting donations)
Don’t create policies you don’t follow:
- The IRS cares more about what you do than what’s written
Mission-aligned activities:Â
- Every program should clearly connect to your exempt purpose.
- Ask regularly: Would we be able to explain this connection to the IRS?
Basic financial controls:
- Two signatures on larger checks
- Someone other than check-writer reconciles accounts
- Regular financial reports to board
- Clear documentation of related-party transactions
Accurate Form 990:Â Your Form 990 is public. It’s what the IRS reviews and what donors look at. Before filing:
- Have someone other than the preparer review it
- Verify narrative descriptions match actual activities
- Ensure all schedules are complete
- Make sure board members have seen it
Organized records:Â Keep digital backups of everything, especially:
- IRS determination letter
- All Form 990s (indefinitely)
- Financial statements (7 years minimum)
- Board minutes (indefinitely)
- All governance policies
What to Do If You Receive an Audit Notice
Don’t panic. Most audits resolve without major issues.
Do this immediately:
- Contact your CPA or advisor before responding
- Gather your records
- Identify gaps in documentation
- Respond on time—missing deadlines makes everything worse
- Present information clearly and completely
Don’t:
- Ignore the notice
- Provide documents without professional review
- Miss deadlines looking for perfect answers
Build Compliance into Your Calendar
- Q1:Â Review and approve prior year’s Form 990; update board roster; collect conflict disclosures; review policies
- Q2:Â File Form 990; conduct board compliance education; review financials; verify related-party documentation
- Q3:Â Review mission alignment; conduct records audit; update job descriptions; review compensation
- Q4:Â Begin Form 990 prep; review unrelated business income; document major decisions; schedule next year’s meetings
How CGP Group Helps
We work with Kansas nonprofits who want to focus on mission, not IRS compliance. Most compliance issues are preventable. The key is addressing them proactively.
Your mission matters. Your community depends on you. Protecting your exempt status protects your ability to serve.
Contact us today to assess your readiness today.
