Tax-Exempt and Governmental Entities (TE/GE) Priorities for FY 2016
Background
In order to maintain continuous improvement, TE/GE focuses on understanding taxpayer’s needs and allocates resources in the most effective way possible. As noted in the Report “One of our guiding principles involves sustaining a continuous improvement feedback loop so we can understand our taxpayers’ needs and allocate resources to where they will be most effective.”
With respect to exempt organizations, TE/GE is instituting several long-term projects to better serve taxpayers during FY 2016 including, but not limited to, creating a program wherein data reported on Form 990, Return of Organization Exempt from Income Tax, will be made available in a “Modernized” e-file format.
TE/GE, in FY 2016, will continue to use data received to further improve the decision making processes.
TE/GE has made significant progress in developing its Knowledge Management framework and will continue to expand, develop and staff its Knowledge Network (“K-Net”) teams during FY 2016.
In the area of risk management, for example, TE/GE will continue to utilize its Risk Assessment Form and Tool to further document any risk-based decisions that are made.
Another area in which TE/GE is focusing is in the assignment of determination applications directly to specialists rather than waiting for a request to be made by an agent or manager regarding new cases. As part of the new process, if an applicant fails to respond to the IRS’ request for additional information, the case will be closed within a 35 day timeframe, rather than previously holding cases open for 90 days. As noted in the Report, these changes have reduced cycle time, benefiting both the applicant and the IRS.
With respect to employee engagement, TE/GE will continue to provide its employees with the necessary tools to help them perform their job functions in an efficient manner. In addition, TE/GE will look to increase its employee involvement and feedback.
Exempt OrganizationsExaminations
In the Report, TE/GE indicates that it’s Exempt Organizations Division (“EO”) “overarching compliance strategy is to ensure organization’s enjoying tax-exempt status comply with the requirements for exemption and adhere to all applicable federal tax laws.” EO works to accomplish this strategy by focusing on significant compliance issues and not just the number of cases closed.
EO will work to ensure compliance in five strategic issue areas utilizing educational efforts, compliance reviews, compliance checks, correspondence examinations and field examinations including:
- Exemption: Issues include non-exempt purpose activity and private inurement, enforced primarily through field examination;
- Protection of Assets: Issues include self-dealing, excess benefit transactions, and loans to disqualified persons, enforced primarily through correspondence audits and field examinations;
- Tax Gap: Issues include employment tax and unrelated business income tax liability, enforced through compliance checks, correspondence audits, and field examinations;
- International: Issues include oversight on funds spent outside the United States, including funds spent on potential terrorist activities, exempt organizations operating as foreign conduits, and Report of Foreign Bank and Financial Accounts (FBAR) requirements, enforced through compliance reviews, compliance checks, correspondence audits, and field examinations; and
- Emerging Issues: Issues include non-exempt charitable trusts and Internal Revenue Code (“IRC”) §501(r), enforced through compliance reviews, correspondence audits, and field examinations.
EO will continue to oversee certain compliance issues of tax-exempt hospitals related to the Patient Protection and Affordable Care Act. Lastly, with respect to examinations, EO will continue to review organizations that were granted tax-exemption through its streamlined determination process and will start to enforce post-determination compliance on organizations that were granted tax-exempt status through the filing of a Form 1023-EZ.
Determinations
As it expects a 3% increase in applications for exemption in FY 2016, the Rulings and Agreements Division of EO expects to have approximately 100 specialists that will be responsible for reviewing Form 1023 and Form 1024 applications received and to participate in pre-determination reviews of Forms 1023-EZ. In addition, 25 examiners will be assigned to review Forms 1023-EZ received.
Moreover, due to increased efficiencies and streamlining of the exemption application processing, 30 determination specialists will be reassigned to the EO Examinations Division.
Processing
As stated in the Report, EO will continue to reduce its correspondence inventory, and has implemented a new, customer service-focused process to help prevent erroneous revocations.
Technical
As outlined above, TE/GE has made significant progress in developing it Knowledge Management framework and will continue to expand, develop and staff its K-Net teams during FY 2016. K-Nets, in FY 2015, were established for private foundations, hospitals and other healthcare organizations, IRC §501(c)(3) issues and unrelated business income tax liabilites. TE/GE believes that a “fully functional Knowledge Management Program will improve collaboration between employees, which will mitigate risks and benefit employee engagement. Additionally, we expect the overall knowledge base of employees to improve, which will drive improvements in technical quality and consistency of work completed within EO.”
A copy of the Report can be accessed here.
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