03 April 2018 IRS Exempt Organizations issues report reviewing examination activity in FY 2017 The IRS has released a report, "Tax Exempt and Government Entities FY 2017 Accomplishments" (the FY 2017 Report or the Report), that reviews examination and other exempt organizations-related compliance activities completed by the agency in fiscal year 2017. The IRS Tax Exempt and Government Entities division (TE/GE) released its 2018 Work Plan (the Work Plan) in September 2017 (see Tax Alert 2017-1643). In addition to outlining compliance-related strategies and other plans for FY 2018, the Work Plan highlighted several FY 2017 accomplishments. The Work Plan announced that a complete report on FY 2017 accomplishments would follow once final results were available. The FY 2017 Report reviews those final results. The Report states that IRS Exempt Organizations completed 6,101 examinations in FY 2017. The Report includes a breakout of these examinations by primary issue: — 843 examinations related to other issues, including miscellaneous excise tax on gaming returns, taxes on self-dealing and failure to distribute income, healthcare issues, Chapter 41 and 42 taxes, and other abatements and penalties The Report adds that FY 2017 examinations resulted in a total of 63 revocations. It includes a breakout for these revocations by issue: — 21 for other issues, including discontinued operations, failure to provide records and operating as a different subsection In FY 2017, the IRS completed 1,400 examinations of exempt organizations that filed Form 1023 or Form 1024 and were approved through the streamlined process. The examined returns were selected through a sampling process and resulted in changes for 43% of those selected. Fourteen organizations were revoked or terminated. The IRS completed post-determination compliance examinations of a random sample of a further 1,182 exempt organizations that were granted tax-exempt status through submission of Form 1023EZ. Of these examinations, 51% closed with amendments to organizing documents or other written advisories. Five of these examinations resulted in terminations or revocations. TE/GE also mentioned it continues to find success with a Form 990 series return case selection modeling technique that uses a data-driven filter, with a change rate of 83%. During FY 2017, the IRS Federal, State and Local Governments (FSLG) function closed 1,627 examinations. Most of these examinations involved employment tax issues, including unreported compensation, worker reclassifications, noncompliance with accountable plans, FICA coverage and backup withholding requirements. The Report states that the IRS completed 1,193 reviews of hospitals for compliance with Section 501(r), referring 388 of these hospitals for field examination. Referrals for examinations were made for issues including: The IRS Tax Exempt Bonds (TEB) function closed 717 examinations in FY 2017. TEB examinations focused on claims, referrals, prison financings, small issue bonds, private placement governmental bonds and Section 501(c)(3) bonds. The Exempt Organizations Compliance Unit (EOCU) function closed 1,289 compliance checks in FY 2017, and compliance projects included: These FY 2017 accomplishments offer a report of the TE/GE undertakings during FY 2017, and work as a mid-year follow up to the TE/GE FY 2018 work plan, issued in October 2017, which highlighted TE/GE strategies heading into the new fiscal year. The FY 2017 accomplishments outlined by TE/GE are consistent with its FY 2018 work plan. TE/GE had a relatively high volume of examinations regarding employment tax issues and Section 501(r)-related compliance issues, showing its continued efforts to monitor and enforce the rules governing these matters. Hospitals should continue to monitor their compliance with Section 501(r) requirements, which remains a priority for TE/GE. The TE/GE examination selection modeling technique (which implements a data-driven approach) has also been a success, and organizations should expect to see continued compliance checks and examinations related to the areas previously referenced (e.g., filing, organizational and operational issues; employment tax issues; Section 501(r) matters; non-exempt charitable trust compliance). TE/GE's need for efficiency due to a decreased budget means the selection process will be more analytical, and organizations should continue to adequately report mission and financial activities on their Forms 990 filed annually. TE/GE continues to use the post-determination compliance program to improve the Form 1023 and Form 1024 application for exemption process, with a focus on continued improvement in use of the streamlined Form 1023-EZ application. Further, with the recent addition of Form 1024-A, Application for Recognition of Exemption, specifically for organizations applying for exemption under Section 501(c)(4) (see Tax Alert 2017-2099), TE/GE may consider reviewing Section 501(c)(4) organizations that have recently applied for exemption with the Form 1024-A under the post-determination compliance program. — For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg.
Document ID: 2018-0721 | |||||||||||||||||||
