IRS Examinations: New Guidance and Issue Areas for Tax-Exempt Organizations
Tax-exempt organizations will soon receive guidance regarding the issues most likely to trigger an examination by the Internal Revenue Service (IRS), says Sunita Lough, Commissioner of the IRS Tax-Exempt and Government Entities Division (TE/GE). On a recent call discussing TE/GE’s newly released FY 2017 work plan, Ms. Lough indicated that this interim guidance, which will likely come in October, will be designed to provide nonprofits with a better understanding of how the IRS uses information document requests (IDRs) in order to more efficiently resolve compliance issues. The FY 2017 work plan includes a summary of the primary issue areas studied in the 4,984 examinations performed in FY 2016, including, among others, filing, organizational, operational, employment tax and unrelated business income tax issues. The FY 2017 work plan shows that during FY 2016, TE/GE focused its resources on five key areas: exemption, protection of assets, tax gap, international issues, and emerging issues. The FY 2017 work plan also noted that the implementation of a case selection modeling technique related to Forms 990, 990-EZ, and 990-PF resulted in additional taxes being owed in 90% of the 62 returns that were selected through this method.
Ms. Lough indicated that TE/GE is taking a more objective and data-driven approach to selecting which organizations it examines for private inurement, private benefit and unrelated business income tax issues. The FY 2017 work plan states that TE/GE will “utilize data sources to identify organizations at risk for inurement and private benefit issues and to identify anomalies on returns filed by private foundations.” According to the FY 2017 work plan, only 192 of 4,984 exempt organizations audits in FY 2016 were related to inurement and private benefit and only 6 revocations resulted from an inurement issue. In FY 2017, TE/GE plans to include 400 returns in the work plan found to have a high risk of private inurement and private benefit issues and 100 private foundation returns with anomalies detected.
We will keep you updated as to the release of any guidance on these issues. The FY 2017 work plan can be found here.