IRS Criminal Investigation: What Nonprofits Must Know

For many years, nonprofit leaders have thought about the IRS as a civil regulator. The worst-case scenario was an audit, penalties, or in extreme cases, loss of tax-exempt status. Criminal enforcement was something that happened to bad actors or fringe organizations. That view no longer reflects reality.

Recent discussions among experienced tax and enforcement professionals make clear that the IRS, working closely with the Department of Justice and other federal agencies, is paying closer attention to nonprofits and is increasingly willing to pursue criminal cases when it believes charitable organizations are being misused. This shift matters for executive leadership, even at organizations that believe they are operating in good faith.

Why This Matters Now

IRS Criminal Investigation has expanded its focus on tax-exempt organizations. The concern is not simply whether a nonprofit made technical mistakes, but whether funds were used in ways that fall outside charitable purposes, whether filings were accurate and complete, and whether leadership knew or should have known about problematic activity.

In many cases, nonprofits are not the original target. Investigations often begin with donors, related entities, or broader federal inquiries where tax issues later come into play. Once tax compliance enters the picture, nonprofit filings and internal records can become part of a criminal tax investigation. This means that an organization can find itself under serious scrutiny even if taxes were not the original issue.

This Is Bigger Than the IRS

Another important development is the way tax enforcement is being tied into broader federal priorities. When federal agencies investigate activities involving public safety, national security, or organized misconduct, they are now instructed to pursue all federal violations they encounter. That includes tax violations.

For nonprofits, this means tax filings can become evidence in investigations that have little to do with traditional nonprofit compliance. Forms that were prepared years earlier may be reviewed by prosecutors, not just auditors.

How Organizations Learn They Are Under Investigation

Criminal tax investigations rarely begin with a warning letter. Nonprofits typically learn about IRS Criminal Investigation involvement through events such as search warrants, subpoenas for records, summonses, or interviews of staff, officers, or board members. By the time this happens, the investigation is already well underway. Early missteps can be costly. Decisions about who speaks to investigators, how documents are preserved, and when legal counsel is engaged can affect the outcome.

Routine Filings Can Carry Criminal Risk

Forms 990 and 1023 are often treated as compliance exercises delegated to staff or outside preparers. That approach is increasingly risky.

False or incomplete statements on these forms can support criminal charges if the government believes the errors were intentional or concealed important facts. This includes failures to disclose political or ideological activities, relationships with other organizations, changes in operations, or how funds are actually used.

From a leadership perspective, this reinforces an uncomfortable truth. These filings are sworn statements, and when things go wrong, they are reviewed as evidence.

Donors Are Part of the Picture

Donors are also under closer scrutiny. When contributions are misused, investigators look at whether donors were aware of or involved in that misuse. Nonprofits may be asked to produce donor communications, restrictions, and internal discussions.

This creates difficult situations for leadership, especially when balancing donor relationships with legal obligations. Strong donor vetting and clear documentation are no longer optional.

Compliance Programs Matter in Practice, Not on Paper

Federal prosecutors now evaluate compliance programs based on whether they are well designed, implemented in good faith, and effective in practice.

Policies that exist only in binders or on websites do not help. What matters is whether the organization actually identifies risks, monitors behavior, trains staff, and responds when problems arise.

For nonprofits, this includes oversight of how funds are used, how donors are vetted, how third parties are monitored, and whether compliance staff have real authority.

Importantly, prosecutors look at compliance both at the time of any misconduct and at the time a case is resolved. Organizations that improve systems after discovering problems can still benefit.

Voluntary Disclosure Requires Care

In some situations, correcting past errors or making voluntary disclosures can reduce exposure. In others, it can make things worse. These decisions require careful legal guidance. Attempting to quietly fix serious issues without understanding the risks can draw attention and accelerate enforcement.

What Nonprofit Executives Should Do Now

Executive leadership should treat this environment as a governance issue, not a compliance technicality. This includes reviewing disclosure practices, stress-testing compliance programs, strengthening donor due diligence, training leadership and staff on how to respond to investigations, and ensuring compliance personnel are empowered and supported. Most importantly, organizations should not wait until agents arrive to involve experienced counsel.

A Final Thought

The margin for error is shrinking. Strong governance, accurate disclosures, and meaningful compliance programs are no longer just best practices. They are increasingly the line between a manageable regulatory issue and a criminal tax investigation. For nonprofit leaders, the risk is not overreaction. The real risk is assuming that yesterday’s enforcement environment still applies today.

For nonprofit leaders, the risk is not overreaction. The real risk is assuming that yesterday’s enforcement environment still applies today. Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.