The Internal Revenue Service (“IRS”) Tax Exempt & Government Entities Division (“TE/GE”) released its Fiscal Year 2017 Accomplishments Report (“Accomplishments Report”) on March 19, 2018. The IRS Accomplishments Report provides a summary of TE/GE’s past year’s accomplishments with respect to the TE/GE fiscal year (“FY”) 2017 Work Plan (“Work Plan”).
FY 2017 Work Plan Accomplishments
The FY 17 IRS Accomplishments Report details some of the accomplishments that arose as a result of the IRS’ FY 2017 Work Plan including, but not limited to, the following:
Exempt Organizations
The Exempt Organizations Division of TE/GE (“EO”) completed 6,101 examinations which focused on Filing, Organizational, Operational; Employment Tax Issues; Unrelated Business Income; Revocation/Termination; Inurement/Private Benefit; Political, Legislative, Governance and Other Miscellaneous items.
The EO Division revoked the tax-exempt status of 63 organizations due to these organizations not operating for an exempt purpose; inurement/private benefit; non-member use of facilities and other instances including due to discontinued operations, failure to provide records and/or record requests and operating as a different subsection.
The EO Division modified certain eligibility criteria for Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, applicants. A stratified random sample of 418 exempt organizations which were granted exemption under the streamlined determination process were selected for compliance exams. As of September 2017, 38 of the organizations had been examined and closed, while 45% of those examined returns were closed with no changes and the remaining 55% were closed following the organization making amendments to their organizing documents or other written advisories.
In addition, the EO Division implemented Forms 990, 990-EZ and 990-PF case selection modeling techniques that use filters previously tested and closed 1,505 examinations of returns selected through this process. This equated to an examination change rate of 83% which was an improvement from an 82% examination change rate for all cases closed for the FY 2017.
In May 2017, TE/GE moved the Federal, State and Local Government (“FSL”) division into EO in order to leverage resources and achieve efficiencies in examining employment tax issues within the tax-exempt and government entities sector. The FSL Division closed 1,627 examinations which focused on unreported compensation, worker reclassifications, non-compliance with accountable plans, Federal Insurance Contributions Act coverage and back-up withholding requirements.
Due to a requirement by the Patient Protection and Affordable Care Act (“ACA”), the EO Division continues to review tax-exempt hospitals compliance with Internal Revenue Code (“IRC”) §501(r) requirements. During the FY 2017, EO Division completed 1,193 reviews and referred 388 hospitals for field examination. Referrals were made due to the following issues:
- Community Health Needs Assessments under IRC 501(r)(3) not being completed or appropriately being displayed;
- No Financial Assistance and/or Emergency Medical Care Policies under IRC §501(r)(4); and
- Billing and Collection Requirements under IRC §501(r)(6).
The EO Compliance Program completed 1,289 Compliance Check Closures during FY 2017 related to the following projects: Forms 990-T, 990-PF, 5227 and/or 1041 non-filers; Combined Annual Wage Reporting Employment Tax Non-Filers and Modernized Electronic Filing Enforcement.
During FY 2017 the EO Division received more applications for tax-exemption than projected. Out of the 95,177 applications received, 91,975 were approved and 68 organizations were denied tax-exemption.
Employee Plans
Employee Plans (“EP”) Compliance Program completed 6,487 examinations which focused on specialty programs; traditional casework which includes profit sharing, money purchase, IRC §401(k) plans and defined benefit plans and focused supplemental work.
EP initiated 3,564 compliance checks and 3,768 compliance checks were closed during FY 2017. EP Compliance Checks focused on the following projects:
- SIMPLE IRA plans;
- SEP plan issue including coverage of employees;
- Merger/consolidations/transfers/spinoffs relating to Form 5310A filings;
- Issues surrounding terminated/partially terminated plans;
- Inflated assets and/or unusual investments; and
- IRC §403(b) plan document requirements.
Indian Tribal Government & Tax-Exempt Bonds
Indian Tribal Government (“ITG”) & Tax-Exempt Bonds (“TEB”) Compliance Program with support from the Government Entities Compliance Unit (“GECU”) focused on employment tax and fraud investigations, claims, referrals, prison financing, small issue bonds, private placement government bonds and IRC §501(c)(3) bonds. The ITG, TEB and GECU closed a total of 1,182 examinations during FY 2017. In addition, the ITG and GECU completed a total of 634 compliance checks during FY 2017 which included employment tax compliance checks and tip agreement work.
Conclusion
TE/GE continues to work on previous initiatives while simultaneously addressing new areas which were identified in the FY 2017 Work Plan and provide the results and accomplishments of their tax administration programs. Please note that the above highlights are not all inclusive of all the items outlined in the Accomplishments Report. As a result, we recommend that all tax-exempt organizations review the IRS Accomplishments Report to review the compliance areas the IRS is focusing on to ensure they are operating in accordance with IRS rules and regulations.
A copy of the Fiscal Year 2017 Accomplishments Report may be accessed here.
Author: John A. Smith, Jr. | [email protected]
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