“Food for the Hungry”, a nonprofit organization based in Arizona has encountered some problems with the IRS. The IRS believes that “Food for the Hungry” has overestimated the value of the medicine they distributed throughout the year. The IRS has issued the organization a $50,000 tax penalty for overvaluing their medicinal distributions. “Food for the Hungry” is attempting to appeal this fine. They are claiming that they did not perform any illegal activities and did not overvalue the cost of the medicine they distributed to the public.
According to “Food for the Hungry’s” records, they distributed pills valued at $10 per pill. “Food for the Hungry’s” website is claiming the pills they distribute can be purchased for $.05 per pill. The organization is currently claiming that the pills are valued at $1.50 per pill. The discrepancies in the cost of the pills that they are distributing have led the IRS to investigate “Food for the Hungry’s” IRS Form 990 (Return of Organization Exempt from Income Tax).
On IRS Form 990, “Food for the Hungry” reported $46.4 million. The IRS believes that the $46.4 million was an overestimation by tens of millions of dollars. In 2008 “Food for the Hungry” reduced their $86.8 million reported on their IRS Form 990 to $49.4 million when they made a report to Charity Navigator (charity watchdog group). “Food for the Hungry” is claiming that the values were adjusted do to the accounting standards of Charity Navigator’s method. They are also claiming that they did not under-report their finances to the IRS and the discrepancies on the tax returns are due to the fluctuations in the value of the pills they distributed to the public.
Under-reporting income to the IRS can be considered tax evasion. The charge of tax evasion in court will usually result in taxpayer having to pay more money than the total amount of taxes they avoided paying to the IRS and will also usually involve criminal charges. The publicity that can result from being taken to court with the IRS can have a negative impact on the image of the company, especially a nonprofit organization that heavily relies on taxpayer dollars to operate.