The following list of accomplishments of the Exempt Organizations (EO) division of the IRS in 2004 is excerpted from the IRS Letter to colleagues, members of the press and taxpayers dated as of November 10, 2004:
1. Improve understanding and compliance. Ensuring that the tax-exempt community understands and complies with applicable tax laws and regulations is crucial for maintaining public confidence and fairness in tax administration. Some of the initiatives launched in 2004 supporting this priority included:
• Credit Counseling Compliance Project;
• Identifying and Combating Abusive Tax Avoidance Transactions (ATAT);
• Tax Exempt Compensation Enforcement Project;
• Fundraising Expenses Education Project;
• IRC Section 527 Political Organizations Compliance Project.
• Published Guidance:
• Revenue Ruling 2004-51: provided guidance regarding ancillary joint ventures of section 501(c)(3) organizations.
• Notice 2004-35: proposed regulations excluding income distributions from trusts and estates from a private foundation’s net investment income under IRC section 4940.
• Notice 2004-36: proposed regulations excluding private foundations from the requirement to include the income portion of distributions from section 4947(a)(2) split-interest trusts in determining the distributable amount under section 4942.
• Notice 2004-12: proposed regulations and revenue procedure regarding student FICA exceptions.
• Notice 2004-30: identified abusive tax avoidance transactions (ATAT) involving S Corporations.
• Revenue Ruling 2004-6: provided guidance regarding public advocacy activities of tax-exempt organizations described in sections 501(c)(4), 501(c)(5) or 501(c)(6).
2. Reduce the burden of compliance. Ensuring compliance and maintaining the integrity of the tax system will necessarily impose certain burdens on all taxpayers. TE/GE is committed to reducing the cost of customers interacting with the Service while also minimizing the need to do so. EO initiatives to reduce the burden and cost of compliance in 2004 included:
• Modernized e-File (MeF). MeF was successfully launched on February 23, 2004, enabling tax-exempt organizations to file their annual Forms 990, 990 EZ, 1120 POL, and the extension Form 8868 electronically.
• EO Workshops. EO offered 18 “Small and Mid-sized Exempt Organization Workshops” and five “Applying for Tax Exempt Status Workshops” to the public. In addition, EO participated in the IRS Tax Forums, offering workshops on the application process and seminars on the “Do’s and Don’ts for Churches and Other 501(c)(3) Organizations” and “Tips for Completing the Form 990.”
• Improved Internet Presence. EO improved the structure and accessibility of the Charities and Non-Profit pages on IRS.gov. For example, EO added:
• Life Cycle of a Public Charity. This guide provides easy access to IRS forms and compliance guidance for charities from inception to ongoing operations and compliance.
• CPE Articles. An index, hyperlinked to all CPE articles, helps the public research training materials (e.g., 2004 Continuing Professional Education Index).
• Published Guidance. This new page helps the reader locate EO revenue rulings, regulations, revenue procedures and notices.
• Plain-Language Publications Issued.
• Applying for 501(c)(3) Tax-Exempt Status (Publication 4220).
• Compliance Guide for 501(c)(3) Tax-Exempt Organizations (Publication 4221).
• A Charity’s Guide to Car Donations (Publication 4302).
• A Donor’s Guide to Car Donations (Publication 4303).
3. Improve operational efficiency. To succeed in accomplishing its mission, TE/GE must build a qualified and satisfied workforce, and provide that workforce with access to timely and accurate customer information. In 2004, EO made significant adjustments to work practices and organizational structure aimed at improving efficiency and business results.
• Flat funding levels combined with rapid growth in the tax-exempt sector in recent years have resulted in understaffing and historically low examination levels in EO. To reverse this trend, EO hired more than 70 new revenue agents in the last quarter of the fiscal year; training for these new hires will conclude in the second quarter of FY 05.
• Exempt Organizations Compliance Unit (EOCU). The new EOCU addresses areas of noncompliance and improves the information provided on EO tax returns by using correspondence, reaching and impacting a greater number of exempt organizations than would be possible through traditional audits. Approximately 10,000 organizations were contacted in FY2004.
• Data Analysis Unit (DAU). This new unit uses databases and information to investigate emerging compliance trends to improve the identification and selection of casework for EO.
• Team Examination Program (TEP). EO completed the migration from the Coordinated Examination Program (CEP) to the Team Examination Program (TEP). This program establishes a dedicated large case staff under one manager, allowing for a flexible examination approach and better prioritization of resources to meet the needs of complex organizations.
• Dedicated Determination Screening Group. This group leverages the knowledge base of EO’s most experienced agents to improve efficiency in screening applications for exemption; by centralizing all screenings in this core group, consistency is improved and greater clerical processing savings are realized.
• Filing to Closure. A team was established to review EO’s examination processes and make recommendations for improving the quality of the returns selected for examination and reducing the time from filing a return to conclusion of an examination. The recommendations of this team will be implemented in FY 2005.
• TEGE Determinations System. A team was established to review EO’s determinations process and develop a system to streamline this process. This project continues in FY 2005.
4. Provide disclosable information to the public. EO has a unique responsibility to protect the public interest by making certain information about the tax-exempt community public. The following programs facilitate public review; such monitoring of exempt activities promotes voluntary compliance and helps to preserve the integrity of the tax system.
• Modernized E-filing. MeF addresses the need for faster and more complete data on exempt organizations, significantly reduces Form 990 submission error rates, and makes publicly disclosable EO data available sooner for both the public and law enforcement.
• Federal/State Liaison Efforts. In order to improve our services to our state partners, EO developed a new procedure to facilitate information sharing under IRC Section 6104(c).