The IRS has released three new Exempt Organization Technical Guides (TGs) to help clarify how it reviews nonprofit compliance. While these guides are written primarily for IRS examiners, they are also valuable tools for nonprofit leaders. By understanding what’s in them, you can better anticipate IRS expectations and strengthen your organization’s governance and reporting.
What Are Technical Guides?
Technical Guides are reference manuals that bring together IRS rules, policies, and examination procedures in one place. They don’t change the law, but they explain how the IRS interprets it and what examiners look for during audits.
For nonprofit leaders, these guides offer a window into the IRS’s priorities — helping you spot risk areas and prepare your organization before issues arise.
Why They Matter for Nonprofits
Nonprofits can use these guides to:
- Stay Ahead of Risk: Know the issues most likely to attract IRS scrutiny.
- Strengthen Policies: Ensure your compensation, governance, and reporting practices align with IRS expectations.
- Protect Tax-Exempt Status: Understand where missteps (even unintentional ones) could threaten compliance.
- Build Confidence: Demonstrate to your board, donors, and stakeholders that your organization is managing resources responsibly.
Highlights from the New Guides
1. Compensation and Private Benefit (TG 3-8)
- Focus: When nonprofit resources improperly benefit insiders like board members, executives, or staff.
- Risk Examples: Paying excessive salaries, giving below-market loans, or providing personal perks.
- Why It Matters: Even small violations can put your tax-exempt status at risk.
- Leader Action: Review executive pay policies. Use independent data and document decisions to show compensation is reasonable.
2. Public Charity Classification (TG 3-27)
- Focus: How the IRS determines whether an organization qualifies as a public charity rather than a private foundation.
- Risk Examples: Misclassifying your organization on Form 1023 or Form 990.
- Why It Matters: Your classification affects reporting, governance rules, and donor deductibility.
- Leader Action: Make sure your filings clearly explain your organization’s funding sources and activities. Keep strong board minutes and records to support your status.
3. Charitable Trusts (TG 70)
- Focus: Compliance expectations for nonprofits organized as trusts (including charitable remainder and lead trusts).
- Risk Examples: Missing clauses in trust documents, trustees receiving excessive compensation, or misuse of assets.
- Why It Matters: Trusts face special rules around governance and fiduciary duties
- Leader Action: If you operate as a trust, review your trust documents to confirm they clearly state charitable purposes and include a proper dissolution clause.
Next Steps
The IRS’s new Technical Guides show how examiners are thinking about nonprofit compliance today. Leaders should:
- Review the guides most relevant to their organization.
- Revisit policies on compensation, governance, and recordkeeping.
- Train board and staff on IRS hot-button issues like insider benefits and classification.
- Seek outside expertise if you’re unsure how these rules apply to your organization.
Han Group can help your nonprofit interpret IRS guidance, update policies, and prepare filings that align with best practices. Contact us today to strengthen your compliance and protect your mission.
