April 9, 2021
IRS TE/GE adds eight compliance initiatives aimed at exempt organizations, employee plans and exempt bonds
The IRS Tax Exempt Government Entities division (TE/GE) announced on April 5, 2021, that it has updated its Compliance Program and Priorities webpage to add eight new compliance initiatives. These eight new initiatives fall under two components of the TE/GE compliance program: seven of the initiatives are "compliance strategies" that will be handled through examinations pertaining to employee plans, tax-exempt organizations and tax-exempt bonds, and the other initiative is described as a "compliance contact" for employee plans.
New compliance strategies
Three of the new compliance strategies are geared toward employee plans.
Two of the new compliance strategies focus on tax-exempt organizations.
Two of the new compliance strategies are directed at tax-exempt bonds.
New compliance contact
The new compliance contacts initiative addresses employee plan liabilities and unrelated business income (UBI). Specifically, the IRS will perform compliance checks on employee plans to determine if plan sponsors that reported plan liabilities on Form 5500-series returns engaged in activities that generated taxable UBI.
In updating its Compliance Programs and Priorities webpage to announce eight new initiatives, TE/GE has signaled its intent to expand the subject matter of its examinations and compliance checks for newly identified issues. The Compliance Programs and Priorities webpage supplements the FY 2021 Program letter and is updated as new priorities arise. (For more on the 2021 Program Letter, see Tax Alert 2020-2656.)
Although the IRS already had compliance strategies in place for employee plans, exempt organizations, and tax-exempt bonds, the inclusion of additional strategies, especially in the employee plan and tax-exempt bond space, underscore TE/GE's resource commitment to these areas. Taxpayers operating employee plans or issuing tax-exempt bonds should be prepared for increased scrutiny.
The decision to add compliance strategies for small exempt organizations sponsoring retirement plans, one-participant 401(k) plans, and Form 990-N eligibility also indicates a willingness by TE/GE to examine smaller organizations that might otherwise have considered themselves outside the Service's scrutiny. As noted previously, each compliance strategy includes specific inquiries for examiners to make. Organizations should continue to focus on compliance within these areas.
TE/GE updated its compliance contacts initiative to include compliance checks for plan sponsors that reported plan liabilities on their Form 5500 to determine if they are engaging in activities that generate UBI. Organizations that file Form 5500 should review their plan investments to identify possible UBI-generating activities.
As TE/GE seeks to improve operational efficiencies and leverage technology and data analytics, organizations should expect a greater digital presence from the IRS. TE/GE's efforts to expand e-filing of the Form 990-series and unveil electronic determination letter applications will improve their access to information provided by filing organizations. Organizations can expect new online tools and resources as well as expanded digital communications from TE/GE in the coming months. Tax-exempt organizations' management should review the Compliance Programs and Priorities webpage from time to time as TE/GE will continue to update the site with new compliance strategies.
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