The Internal Revenue Service recently released its 2018 Exempt Organization Work Plan which sets the priorities for the division for the year. The overall strategic issues of the Exempt Organization (EO) division continue to be the same as prior years: particularly a focus on areas such as exemption issues, protection of assets, tax gap issues and international issues. However, specific priorities and strategies have been developed which will drive the efforts for the year.
The IRS has developed data-driven approaches for examinations that utilize information from the tax forms filed with the IRS. They will continue to improve their compliance models related to Form 990 and Form 990-EZ and will develop new models for Form 5227 (related to split-interest trusts) and Form 990-PF (related to private foundations). These models will be used to identify potential exposure areas which will be the trigger for examinations. The unit will also look at referrals from agents and other external sources as sources for examinations.
As a continuation of compliance strategies, the EO unit will focus on areas that have the highest risk for potential noncompliance. The work around these strategies may not result in field examinations, but instead may be addressed through compliance checks or educational letters. The areas of focus include supporting organizations that erroneously filed Form 990-N, organizations that operated as for-profit entities prior to converting to Section 501(c)(3) and organizations that show indicators of potential private benefit or inurement.
The EO unit will continue to use compliance checks as a method to determine if organizations are adhering to recordkeeping and information-reporting requirements. Specifically, they will continue compliance checks in the areas of consistency in W-2 and Form 941/944 reporting, proper filing for Form 940 related to unemployment tax, proper filing of Form 990T by 501(c)(7) organizations that reported investment income and hospital compliance with the requirements of 501(r).
EO Rulings and Agreements
EO intends to make changes to the Form 1023-EZ that will require additional information from applicants including a description of activities and more questions related to gross receipts, asset thresholds and foundation classifications. These questions are anticipated to address some of the initial issues identified in the compliance reviews of Form 1023-EZ filings in the past year. The EO unit expects to continue to do reviews on a statistical sample of the Form 1023-EZ applications to identify opportunities to improve this form and mitigate risks.
The EO will continue to publish podcasts and issue snapshots that will be posted on the IRS website. These snapshots include summaries of key case law, rulings and other authorities; analysis; and issue spotting and audit tips. Podcasts summarize certain areas of the EO practice and are accompanied by written materials. Issues to be addressed in 2018 include such things as gaming, unrelated business income, IRC Section 501(r), organizational test requirements and employment tax. These technical documents can be found here.
If you have any questions or would like more information, please contact your Eide Bailly tax professional.