IRS Releases FY 2018 Work Plan

IRS Releases FY 2018 Work Plan

FY 2017 Accomplishments

The Work Plan details some of the accomplishments that arose as a result of the IRS’ FY 2017 Work Plan including, but not limited to, the following:

• The Exempt Organizations Division of TE/GE (“EO”) 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. An organization may not use a Form 1023-EZ to apply for recognition of tax-exemption under Internal Revenue Code (“IRC”) §501(c)(3) if they are exempt under a subsection other than IRC §501(c)(3). In addition, if an organization submitted a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, that is currently pending, this organization may not submit a Form 1023-EZ.
• Employment Tax Knowledge Network (“K-Net”) was realigned with the other five EO K-Nets. Issue podcasts were created by the EO K-Nets for employees and snapshots were created to provide analysis and resources on technical tax issues for charities and non-profits.
• For organizations that did not provide complete responses to requested information, the EO issued proposed adverse determination letters. This provides the organization with an opportunity to protest the proposed adverse determination and exercise its right to appeal with the Office of Appeals.
• EO continued to improve the processing of Form 8976, Notice of Intent to Operate Under Section 501(c)(4), pursuant to newly enacted IRC §506 which requires organizations whose intent is to operate under IRC §501(c)(4) to notify the IRS within sixty days of formation. Rejections of the Form 8976 reached 17 percent since implementation due to non-payment of the required user fee and pre-existing exemptions.
• 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.
• Employee Plans (“EP”) converted paper case files to an electronic case management system in order to streamline the process for voluntary compliance cases.
• Snapshots were created and posted by EP to provide analysis and resources on technical tax issues related to retirement plans.
• Indian Tribal Governments and Tax Exempt Bonds (“ITG/TEB”) updated Publication 4268, ITG Employment Tax Desk Guide and completed several educational tools and content enhancements for its customers.
• In order to inform employees of recent changes to regulations affecting arbitrage, safe harbors for management contracts, and issue price, ITG/TEB conducted K-Net events and issue snapshots for tax-advantaged bond issuers.

Summary of EO FY 2018 Compliance Program

As noted in the Work Plan, “In FY 2018 we will launch the Compliance Strategy Tool and an Internal Submission Portal, to collect, or “crowdsource,” your input into areas on non-compliance.” This will be a critical tool in determining the TE/GE’s Compliance Strategies in the coming years. TE/GE will also create a new governance board that will review recommended Compliance Strategies, and determine the most viable options to pursue.

The Work Plan details some of the Compliance Programs for EO, EP and ITG/TEB.

EO Compliance Program

• Compliance Strategies: EO will examine: (1) Supporting organizations which filed the Form 990-N, Electronic Notice for Tax-Exempt Organization Not Required to File Form 990, Return of Organization Exempt From Income Tax, or Form 990EZ, Short Form Return of Organization Exempt From Income Tax; (2) Organizations that operated as for-profit entities prior to converting to an IRC §501(c)(3) tax-exempt organization; and (3) Organizations that reflect possible private benefit or inurement to individuals or private entities.
• Data-driven approaches: EO will continue to improve its compliance models for Forms 990, 990-EZ and 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation, and test a new model for Form 5227, Split-Interest Trust Information Return. EO will review Form 990-PF filings for anomalies in their filings.
• Compliance Checks: EO will perform the following compliance checks to ensure whether an entity is adhering to recordkeeping and information reporting requirements: (1) Discrepancies between Form W-2, Wage and Tax Statement, and Form 941, Employer’s Quarterly Federal Tax Return/Form 944, Employer’s Annual Federal Tax Return, and organizations which are required to but fail to file Form 940, Employer’s Annual Federal Unemployment Tax Return; (2) IRC §501(c)(7) organizations who did not file a Form 990-T, Exempt Organization Business Income Tax Return, when required; and (3) Tax-exempt hospital organizations that are not in compliance with IRC §501(r)(4) requirements.
• FSL/Employment Tax (“ET”): FSL/ET will focus on the following: (1) Entities that had payments reported on Forms 1099-MISC, Miscellaneous Income, and if those payments should have been treated as wages pursuant to Federal Insurance Contribution Act (“FICA”) tax and income tax withholding; (2) Identify situations in which an IRC §501(c)(3) organization handles the payroll function which includes employees of a related IRC §501(c)(4) organization, but does not pay the Federal Unemployment Tax Act (“FUTA”) tax for the employees working for the IRC §501(c)(4) organization; and (3) Entities that fail to comply with backup withholding requirements resulting from mismatched and/or missing Taxpayer Identification Numbers on Form 1099.

EP Compliance Program

• Compliance Strategies: EP will examine: (1) Plans that have transferred assets or liabilities due to a merger or acquisition; (2) Plans that failed to properly provide timely notice to participants, failed to provide the required safe harbor contribution to all eligible participants, failed both the Actual Deferral Percentage and Actual Contribution Percentage tests and failed to comply with the gateway test or the exception under §1.401(a)(4)-8(b) of the regulations; (3) Plans that failed to satisfy the minimum age and/or service requirements; (4) Plans that failed to distribute per plan terms or failed to make required distributions under IRC §401(a)(9); (5) Trusts which failed to properly reflect all plan assets or properly value all assets at fair market value; (6) Plans that failed to satisfy IRC §411(b) accrual rules; (7) Plans which failed to make the necessary matching contributions per the plan terms or plans that made incorrect allocations of contributions and or forfeitures; and (8) Plans that failed to withhold the proper amount of elective deferrals per plan terms.
• Data-driven approaches: EP will continue to select profit sharing, money purchase, IRC 401(k) plans and defined benefit plans for review by using data queries and models designed to identify plans of non-compliance.
• Compliance Checks: FY 2018 compliance checks will focus on the following projects:
  • SIMPLE IRA plans;
  • SEP plans with required minimum distribution failures;
  • Plans with partial terminations;
  • Plans with non-participant loans;
  • IRC §403(b) plan document requirements; and
  • IRC §457(b) plans with excess deferrals.

ITG/TEB Compliance Program

• Compliance Strategies: ITG/TEB will examine: (1) Bonds with investments beyond a temporary period and tax-advantaged bonds with guaranteed investment contracts and/or qualified hedges; (2) If the rehabilitation requirement was satisfied on private activity bonds; (3) Excessive private business use and dispositions of financed facilities; and (4) Private activity bonds with excessive weighted average maturities and deep discount bonds.
• Data-driven approaches: ITG/TEB will continue to select tax-advantaged bonds and Indian Tribes for review by using data queries and models designed to identify non-compliance.
• Compliance Checks: ITG/TEB will perform the following compliance checks to ensure whether an entity is adhering to recordkeeping and information reporting requirements: (1) Casinos not selected for Tribal casino-based Bank Secrecy Act examinations; (2) Small Indian Tribal entities which have not been contacted for a compliance check on a five-year rotating basis; and (3) Small Federal, state and local governments and tax-exempt organizations employment tax returns.

Conclusion

TE/GE re-evaluates its goals on an annual basis to identify which strategies are making the greatest impact and which areas, both within the industry and internally within EO, need additional focus and improvement. As seen in the Work Plan, TE/GE is continuing its work on previous initiatives while simultaneously addressing new areas. EO utilizes data from multiple sources including return data, historical information, stakeholder input and public information, in order to gain perspective on its areas of focus. Please note that the above highlights are not all inclusive of all the items outlined in the Work Plan. As a result, we recommend that all tax-exempt organizations review the Work Plan to ensure they are operating in accordance with IRS rules and regulations.

A copy of the Fiscal Year 2018 Work Plan may be accessed here.

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