The IRS Tax Exempt & Governmental Entities (TE/GE) division released its Fiscal Year 2020 Program Letter earlier this week. In the Program Letter, TE/GE Commissioner Tammy Ripperda explains:
Each year, TE/GE works hard to deliver the best possible tax administration. It’s what we’re paid to do and what the public expects of us. TE/GE strives to ensure that service and enforcement co-exist throughout all taxpayer interactions. We protect the integrity of the tax system when we enforce the tax laws fairly, which is a service to taxpayers who voluntarily comply with the law. In FY20, we will continue to pursue the most egregious noncompliance by evolving our technology tools and data analytics. In addition, FY20 brings new tax laws passed by Congress that will affect our future course.
The Program Letter discusses the TE/GE compliance platform’s six portfolio programs: Compliance Strategies; Data-Driven Approaches; Referrals, Claims and Other Casework; Compliance Contacts; Determinations; and Voluntary Compliance and Other Technical Programs. It notes the emphasis on data collection and analysis “to identify and address existing and emerging high-risk areas of noncompliance and steer the decisions on how best to apply optimal [and limited] resources.”
Entries under the Exempt Organizations heading for three TE/GE portfolio programs are listed below along with brief summaries of the other three programs.
- Hospital organizations with unrelated business income (UBI): focus on unrelated business taxable income (UBTI) reported on Form 990-T, Exempt Organization Business Income Tax Return, where expenses materially exceed gross income.
- IRC 501(c)(7) entities: focus on investment and nonmember income by tax-exempt pleasure, social and recreation clubs.
- IRC Section 4947(a)(1) Non-Exempt Charitable Trusts (NECTs): organizations that under-report income or over-report charitable contributions.
- Previous for-profit: organizations formerly operated as for-profit entities prior to their conversion to IRC Section 501(c)(3) organizations.
- Private benefit and inurement: organizations show indicators of potential private benefit or inurement to individuals or private entities by way of private foundation loans to disqualified persons.
- Query sets (previously referred to as models): continue to improve compliance query sets based on information reported on Form 990, Return of Organization Exempt From Income Tax; Form 990-EZ, Short Form Return of Organization Exempt From Income Tax; Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation; and Form 5227, Split Interest Trust Information Return.
- RAAS [Research, Applied Analytics, & Statistics] collaboration: continue to review various items and activities, including private benefit/inurement.
Referrals, Claims and Other Casework
- Referrals: continue to pursue referrals received from internal and external sources that allege noncompliance by an exempt organization and pursue taxpayer and interagency referrals, including information items from sources within and outside the IRS that allege noncompliance with an employment tax law by an exempt organization.
- Claims: continue to address requests for refunds or credits of overpayments of amounts already assessed and paid, including tax, penalties, interest, or an adjustment of tax paid or credit not previously reported or allowed.
- Other casework: continue to examine entities that filed and received exemption using Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Additionally, support IRS-wide compliance efforts on IRC Section 4980H with respect to certain exempt employers.
Compliance Units are employed to address potential noncompliance, primarily using correspondence contacts known as “compliance checks” and “soft letters.”
A compliance check is correspondence with organizations to inquire about an item on a filed return to determine if specific reporting requirements have been met or to determine whether an organization’s activities are consistent with its stated tax-exempt purpose. It is not considered an examination, however, there may be situations when a compliance check is referred for examination.
A soft letter is correspondence with organizations that provides notification of changes in tax-exempt law or compliance issues. A response to these letters is not expected. However, responses may be received and converted into a compliance check. These contacts allow TE/GE to establish a presence in the taxpayer community in a manner that reduces the cost to the IRS while limiting taxpayer burden.
Determination letters are issued to exempt organizations on exempt status, private foundation classification and other determinations relating to exempt organizations and to retirement plans that satisfy the qualification requirements of federal pension law.
Exempt Organizations continues to expect a large volume of determination application receipts. We will continue to look at process efficiencies, as well as expect to hire more revenue agents to address the work and offset anticipated attrition losses.
Voluntary Compliance and Other Technical Programs
The Voluntary Correction Program (VCP) enables a plan sponsor (at any time before audit) to pay a limited fee and receive IRS approval for correction of plan failures. Other technical programs, including Knowledge Management, work to ensure the quality and consistency of technical positions, provide timely assistance to employees and preserve and share TE/GE’s knowledge base.
Electronic Form 1023
Coinciding with the release of the Program Letter, Ripperda announced in a conference call that the IRS Form 1023 (Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code) would be offered in electronic format in January 2020. This had also been discussed by IRS representatives at the American Bar Association Tax Section Conference earlier this month where attendees had many unanswered questions to share.
See IRS Sets 2020 Priorities For Tax-Exempt Organizations (Nonprofit Times):
Ripperda said that IRS Form 1023 will begin to go electronic during January 2020, although there is not yet a date certain when the process will be digital only. The Form 1023 is the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.