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The IRS Tax Exempt & Government Entities division (TE/GE) has released a streamlined Program Letter for fiscal-year 2021, listing its priorities for the new year. Although past years’ program letters were longer, TE/GE Commissioner Tammy Ripperda and Deputy Commissioner Edward Killen explain, this one will be updated regularly as circumstances require. The commissioners also cite TE/GE’s new Compliance Programs and Priorities webpage, to be used alongside the 2021 Program Letter, as a resource for information on additional priorities at the end of each fiscal quarter.

TE/GE Program Letter for FY 2021

The Program Letter lists six general priorities for 2021:

1. Strengthen compliance activities
2. Improve operational efficiencies
3. Maintain a taxpayer-focused organization
4. Ensure awareness and collective understanding
5. Leverage technology and data analytics
6. Develop the TE/GE workforce

TE/GE’s plans to satisfy these priorities are laid out simply as bullet points, including:

• Strengthen compliance activities
• Collaborate across the IRS on issues such as syndicated conservation easements and abusive charitable remainder annuity trusts
• Support tax compliance in the global high-wealth arena, especially for private foundations and retirement plans of closely held businesses
• Encourage voluntary compliance by using “enhanced techniques” to identify and develop investigation cases involving civil and criminal fraud, and recommend criminal prosecutions and/or civil penalties or injunctions against taxpayers or promoters who evade the assessment or payment of taxes
• Improve operational efficiencies
• Review systems and processes to improve TE/GE efficiencies and internal controls
• Expand assessment of TE/GE strategic risks according to the IRS strategic goals and establish key risk indicators
• Maintain a taxpayer-focused organization
• Expand e-filing of Forms 990-series, 8038-CP and 5500-EZ, and continue to work toward electronic determination letter applications
• Develop additional online tools and resources (e.g., an online tool to help taxpayers avoid making excess 401(k) contributions)
• Ensure awareness and collective understanding
• Expand outreach to encourage compliance with the tax laws
• Leverage stakeholder partnerships to enhance tax administration
• Strengthen increased voluntary compliance in underserved communities through the TE/GE Small Entity Compliance Initiative
• Increase the use of cross-functional teams to address business change initiatives
• Leverage technology and data analytics
• Use noncompliance research and data analytics to detect emerging issues
• Expand taxpayer digital communications efforts and use robotic process automation to make processes more efficient and effective
• Collaborate with Research Applied Analytics & Statistics to improve identification of issues with a high risk for noncompliance
• Partner with Health and Human Services/Centers for Medicare and Medicaid to develop a systematic method to identify the universe of hospitals subject to Affordable Care Act review
• Continue comparative data analysis of Form 990-N and Form 1023-EZ filings to identify trends and emerging issues
• Develop the TE/GE workforce
• Merge TE/GE Knowledge Management into the IRS Knowledge Management platform to encourage information sharing
• Actively assess TE/GE employees’ training needs and determine how to meet them
• Enhance employee and manager development through training, coaching and mentoring

Compliance Programs and Priorities webpage

TE/GE launched a new webpage titled “Tax Exempt & Government Entities – Compliance Programs and Priorities” (the Webpage), which is to be used in conjunction with the 2021 Program Letter. The Webpage’s purpose is to provide an avenue for TE/GE to post quarterly updates on changing plans and circumstances, with the goal of keeping stakeholders informed. The Webpage already contains four additional priorities not outlined in the FY 2021 Program Letter:

1. Employee plans: Participant loans
• TE/GE plans to verify, through issue-based examinations, “whether participant loans made by retirement plans that hold a high percentage of participant loans to total assets of the trust are being repaid timely if the loan balance remains consistent or increases for more than one year.”
• Noncompliance may result in deemed distributions under IRC Section 72(p) and/or prohibited transaction excise taxes under IRC Section 4975.
2. Tax-exempt organizations: Excise tax on excess compensation
• TE/GE plans to review the impact of the new IRC Section 4960 excise tax on excess compensation through ongoing examinations of Forms 4720.
• Data will be examined to confirm that any tax-exempt organization paying more than $1 million in compensation to at least one covered employee has filed Form 4720.
3. Tax-exempt organizations, federal, state and local government, and Indian tribal governments: Forms W-2 and 1099-MISC to the same payee
• When payors issue both a Form W-2, Wage and Tax Statement, and Form 1099-MISC, Miscellaneous Income, to the same payee in the same calendar year, TE/GE will examine possible misclassification of wages.
• The examinations will stem from analyzing Form 941, Employer’s Quarterly Federal Tax Return.
4. Tax-exempt bonds: Arbitrage violations
• TE/GE will review potential arbitrage violations of IRC Section 148 when bond proceeds have been invested in higher-yielding investments beyond the allowable temporary period under Treasury Reg. Section 1.148-2(e).
• Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues, will be examined to determine compliance.

Implications

The TE/GE FY 2021 Program Letter and Compliance Programs and Priorities webpage provide tax-exempt organizations with insight into TE/GE's priority compliance issues for the coming year and how TE/GE intends to approach these issues, including TE/GE’s continued focus on the implementation of technology and data analytics into its compliance programs. The Compliance Programs and Priorities webpage was updated shortly after the Program Letter was released and contains additional priorities not outlined in the Program Letter, demonstrating that TE/GE is working to remain timely and transparent when new priorities are identified.

Tax-exempt organizations' management should evaluate the potential implications that each identified area in TE/GE's FY 2021 Program Letter and Compliance Programs and Priorities webpage may have on their organizations. Management should also check the Compliance Programs and Priorities webpage from time to time to evaluate any new priorities outlined by TE/GE.

Please contact your EY professional for further information.

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RELATED RESOURCES

— For more information about EY's Exempt Organization Tax Services group, visit us here.

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