October 10, 2018 IRS Exempt Organizations 'Program Letter' highlights compliance efforts for FY2019 The IRS Tax Exempt and Government Entities division (TE/GE) has released its Fiscal Year 2019 Program Letter (referred to in prior years as "the Work Plan"), outlining compliance-related strategies and other plans for FY 2019. Commissioner's message In the opening message, Acting TE/GE Commissioner David W. Horton and Acting TE/GE Deputy Commissioner Robert S. Choi highlight TE/GE's efforts to execute compliance strategies, build better processes and provide useful information and guidance on the Tax Cuts and Jobs Act (the TCJA). TE/GE is onboarding a significant number of new employees and is cross-training employees to allow greater flexibility to direct resources to shifting needs. In addition, TE/GE seeks to advance data and analytics to drive decisions about identifying and addressing existing and emerging high-risk areas of noncompliance. FY 2019 compliance program The Program Letter defines six areas of TE/GE's compliance program and outlines priorities in each, as described next. Compliance strategies Compliance strategies are used to identify priority compliance issues and allocate resources. TE/GE employees may suggest compliance strategies, which are approved by TE/GE's Compliance Governance Board. As part of TE/GE's overall compliance program, these strategies are intended to ensure that the IRS is focused on the highest priority issues and emerging risks. Current approved compliance strategies include:
Data-driven approaches With data-driven approaches, TE/GE uses quantitative criteria to identify high-impact issues and allocate resources. These approaches use procedures and models to analyze data from returns and other historical information to identify areas of noncompliance. Current priorities in data-driven approaches include the following:
Referrals, claims and other casework Referrals are received from sources both inside and outside the IRS and allege noncompliance by an exempt organization. Claims are requests for refunds or credits of overpayments of amounts already assessed and paid. TE/GE priorities in this compliance area include:
Compliance contacts Compliance contacts use correspondence including "compliance checks" and "soft letters" to address potential noncompliance. A compliance check is a non-examination correspondence with an organization to ask about an item on a filed return, to determine if reporting requirements have been met, or to assess if an organization's activities are consistent with its tax-exempt purpose. A soft letter is correspondence to notify an organization of a change in law or a compliance issue; responses are not expected, but may be received and converted into a compliance check. Compliance checks and soft letters are used to determine whether an exempt organization is adhering to various recordkeeping and information reporting requirements, including:
Determinations TE/GE issues determination letters to exempt organizations on exempt status, private foundation classification and other issues. With increasing demand for determinations, TE/GE is working on developing strategies to reduce the filing burden and case processing time while also hiring and training additional revenue agents to review determination letter requests. Voluntary compliance and other technical programs The Employee Plans (EP) Voluntary Correction Program (VCP) enables a plan sponsor to pay a fee and receive IRS approval for correction of plan failures at any time before audit. EP is looking into implementing a fully electronic submission process for VCP. Implications The 2019 Program Letter provides exempt organizations valuable insight into TE/GE's priority compliance issues for the coming year and how it intends to approach these issues. Highlights of the FY 2019 Program Letter include the following: 1. TE/GE remains committed to providing additional guidance and education on the tax implications of the TCJA for exempt organizations. 2. TE/GE continues use advanced statistical models and data analytics for case identification and selection. In furtherance of these efforts, the IRS has partnered with RAAS to design and test data-driven approaches to identify noncompliance within exempt organizations. 3. Despite the IRS's increased reliance on data-driven analytics, TE/GE continues to pursue referrals regarding noncompliance from both internal and external sources. 4. TE/GE's data-driven approach will focus on identifying returns with the highest risk of employment tax noncompliance. Exempt organizations should be mindful of the methods used to classify workers as independent contractors, especially those in executive positions, because the misclassification of employees as independent contractors can give rise to employment tax issues. 5. TE/GE continues to focus on organizations previously operating as for-profit entities, self-dealing by private foundations, and investment income and non-member income of social clubs exempt under Section 501(c)(7). 6. Organizations and practitioners can continue to use and rely on Pay.gov and secure messaging as the IRS intends to expand upon these services. 7. Organizations that under-report or over-report charitable contributions, particularly Section 4947(a)(1) non-exempt charitable trusts, will be targeted for examination. 8. TE/GE plans to increase examination of mismatched/missing reporting information, including information reported on Forms W-2 and/or 1099, wage and tax statements, and withholding statements. 9. Tax-exempt employee plans will face heightened scrutiny from TE/GE regarding their distribution processes, procedures and reporting, including excessive contributions and appropriate deductions. Simplified Employee Plans and terminated cash balance plans will also face additional scrutiny. 10. TE/GE intends to continue its FY 2018 Work Plan by focusing on tax-exempt bonds, including issues that adversely affect the tax-exempt status of bonds. 11. TE/GE is onboarding a significant number of new employees, thereby signaling a potential increase in examination and enforcement action. Exempt organizations' management should evaluate the potential implications that each of the areas identified by TE/GE in its FY 2019 Program Letter may have on those organizations. Please contact your EY professional for further information. ———————————————
| |||||||||||||||||||||||||||
| |||||||||||||||||||||||||||
