Received CP171 Letter of Balance Due for a 990EZ filing - confusion?

Do you know if there could be any issues with unrelated business income that might trigger this? Our church got something similar last year and it turned out we needed to file a 990-T for some rental income.

Yes, unrelated business income is definitely another common trigger. If the nonprofit had any income not directly related to their exempt purpose (even relatively small amounts), they may need to file Form 990-T and pay Unrelated Business Income Tax (UBIT). This includes things like rental income from debt-financed property, advertising revenue, or merchandise sales unrelated to their mission. Check if they had any activities that might be considered outside their exempt purpose. The IRS is particularly vigilant about this area in recent years. Even if they didn't file a 990-T, you can still resolve it - you might need to file one now along with a reasonable cause explanation for the delay.

Wait, how does the system know what the IRS is looking for? Does it actually connect to IRS databases or something?

Does it work for other tax forms too? We mostly handle individual returns but sometimes get business clients with IRS notices.

The system doesn't connect to IRS databases - it analyzes the structure and content of tax forms based on the latest IRS requirements and common compliance issues. It's basically using pattern recognition to find discrepancies or missing elements that typically trigger automated notices. Yes, it works with pretty much any tax form or IRS notice. It's particularly helpful for complex forms like 990s, business returns, and international filings, but I've used it for individual returns too. It's saved me countless hours on amended returns because it spots things like mismatched entries between schedules or missing forms before they become bigger problems.

This sounds too good to be true. Is this actually legit? How do they get through when regular calls don't work?

I've seen these "get through to the IRS" services before and always assumed they were scams. Has anyone else actually verified this works? Seems like if it did, everyone would be using it.

It's completely legitimate - they use an automated system that continuously redials and navigates the IRS phone tree until it gets through. Basically doing exactly what you would do, but with technology that can keep trying hundreds of times if needed. They don't have any special backdoor access - they're just more persistent than a human could reasonably be. I was skeptical too, which is why I tried it myself first before recommending it to clients. They only charge if they actually get someone on the line, and they don't ask for any sensitive tax information - just your phone number to call you back when they reach an agent.

Thanks for this suggestion. I double-checked and they did file their Form 8868 for an extension, and the 990EZ was submitted before the extended deadline. They don't have any employees, just a handful of independent contractors who received 1099s. I'll dig deeper into their contractor situation though. Maybe there's something there I'm missing. Really appreciate everyone's help!

You're welcome! If they have independent contractors but no employees, that's actually another area to check. The IRS sometimes questions contractor classifications, especially for nonprofits. Make sure those 1099s were properly filed and that the contractors truly meet the IRS definition of independent contractors rather than employees. Another possibility is if they filed paper returns rather than electronically. Paper returns have a much higher error rate in processing, and sometimes the IRS scanner misreads information or loses pages. If that's the case, you might need to submit a copy of the original return with a letter of explanation.

This! I worked with a small foundation last year that got hit with a huge penalty because they were required to file Form 4720 for some investments but had no idea. Their regular accountant missed it entirely.

Yes, this is unfortunately common. The rules around private foundations and certain types of investments are complex, and many accountants who don't specialize in nonprofit work miss these requirements. Form 4720 covers excise taxes on things like: - Self-dealing transactions - Failure to distribute income (for private foundations) - Excess business holdings - Investments that jeopardize charitable purpose - Taxable expenditures (including certain grants and political activities) Even public charities can be subject to some of these taxes. The IRS has been paying more attention to this area in recent years, so it's becoming a more frequent issue.

This is really helpful context about the automatic matching programs - I hadn't considered that angle! The nonprofit did receive a small grant from the state arts council last year, and now that you mention it, I'm wondering if that might have generated a 1099-G that we didn't account for properly on the 990EZ. I'll definitely check their records for any government payments or 1099 forms they might have received. It's frustrating how these automated systems can create such confusion, but at least now I have a better roadmap for troubleshooting this issue. Thanks to everyone who contributed suggestions - this community is incredibly helpful for navigating these tricky IRS situations!

Thanks Jade! That's really valuable information about the IRS online account option. I didn't know exempt organizations could access their account transcripts that way - that could save a lot of time trying to figure out what the IRS actually has on file versus what we think we submitted. I'm definitely going to have them set that up right away. It would be so helpful to see exactly what triggered this CP171 before spending more time guessing or waiting on hold with the IRS phone lines. The dedicated email option for exempt orgs is also news to me - that might be a good backup plan if the phone route doesn't work out. Really appreciate you sharing these resources! This whole thread has been incredibly educational.

That's great advice about the IRS online account! I actually helped another nonprofit client set one up last month and it was incredibly useful for seeing their payment history and any outstanding issues. The account transcripts show you exactly what the IRS has processed, including any automatic adjustments or penalties they've applied. One tip for setting it up - make sure you have the organization's current EIN letter handy, as they often require that for verification. Also, if there are multiple people who need access (like board members or accountants), each person needs their own separate login tied to their individual SSN, but they can all be authorized to view the organization's account. The email option Jade mentioned is particularly helpful because you get a paper trail of your communication with the IRS, which can be valuable if you need to reference it later or if there are any disputes about what was discussed.