November 10, 2022
FY2023 priorities for IRS Tax Exempt & Government Entities division provided in annual Priority Guidance Plan and TE/GE Program Letter
- The recently appointed commissioner and deputy commissioner of the IRS Tax Exempt & Government Entities division have released their annual Program Letter highlighting priorities for the coming fiscal year.
- The IRS and Department of Treasury have also released their 2022–2023 Priority Guidance Plan, which highlights 10 priority guidance items for tax-exempt organizations.
- A significant funding boost is anticipated at the IRS due to enactment of the Inflation Reduction Act, which should enable enhanced taxpayer service and enforcement efforts.
- Tax-exempt organizations should pay close attention to compliance-related updates and areas of focus for fiscal year 2023, as well as the implementation of IRA provisions and the availability of IRA-related tax credits.
The IRS Tax Exempt & Government Entities (TE/GE) division recently published its Fiscal Year 2023 Program Letter listing current TE/GE priorities, which align with the IRS Strategic Plan FY2022–2026 Goals & Objectives and the IRS's four strategic goals — Service, Enforcement, People and Transformation.
In the introduction to the FY2023 Program Letter, recently appointed TE/GE Commissioner Edward Killen and Deputy Commissioner Robert Choi emphasize the impact that $80m in new funding under the Inflation Reduction Act of 2022 (IRA) will have on the IRS over the next 10 years. They "are committed to being transparent and communicating as often as possible to keep [stakeholders] apprised" as the agency strategically plans how to best use "the increased funding to enhance taxpayers' experience, pursue the most substantive areas of non-compliance, and support [IRS] employees in their development," the new Commissioners state.
Aligning with the framework of the IRS's strategic goals, the Program Letter lists pertinent TE/GE priorities for the coming year as follows:
- Enhance Taxpayer Service: Provide excellent service to stakeholders, in part by using educational letters, compliance checks, and exams and promoting the use of taxpayer digital communications
- Strengthen Compliance Activities: Continue to collaborate with other IRS divisions in developing compliance strategies (e.g., examinations of high-income/high-wealth individuals) and using data, machine learning and artificial intelligence algorithms in selecting and examining returns for exams and other compliance action
- Workforce Development: Hire more new TE/GE employees in FY2023 than were hired in FY2022 (187), create an inclusive and engaging environment for employees, and support the roll-out of new Equity, Diversity, Inclusion, and Accessibility (EDIA) training for employees
- Transform Operations: Enhance flexibility and resilience to meet the challenges of transforming the Internal Revenue Manual (IRM), converting additional forms (e.g., 5227, 5330) to electronic filing, and implementing tax provisions of the Inflation Reduction Act (IRA) that impact TE/GE "customers"
Treasury's Priority Guidance Plan projects for tax-exempt organizations
Shortly before TE/GE published its FY2023 Program Letter, the IRS and United States Department of the Treasury (Treasury) released their 2022–2023 Priority Guidance Plan (PGP) for the fiscal year beginning July 1, 2022 and ending June 30, 2023. The PGP describes 205 priority tax compliance projects, 10 of which focus specifically on guidance for tax-exempt organizations:
- Guidance revising Revenue Procedure 80-27 regarding group exemption letters (proposed guidance — Notice 2020-36 — was issued on May 18, 2020)
- Final regulations on IRC Section 509(a)(3) supporting organizations (proposed regulations were published February 19, 2016)
- Regulations under IRC Section 512 regarding the allocation of expenses in computing unrelated business taxable income (UBTI) and addressing how changes made to IRC Section 172 net operating losses by Section 2303(b) of the CARES Act apply for purposes UBTI siloing calculations under IRC Section 512(a)(6)
- Guidance under IRC Section 4941 on a private foundation's investment in a partnership in which disqualified persons are also partners
- Regulations under IRC Section 4966 on donor advised funds (DAFs), including excise taxes on sponsoring organizations and fund management
- Regulations under IRC Section 4967 on prohibited benefits from DAFs, including excise taxes on donors, donor advisors, related persons and fund management
- Regulations under IRC Section 4958 on DAFs and supporting organizations
- Guidance on the public-support computation for distributions from DAFs
- Regulations under IRC Section 6104(c) on IRS disclosure of certain actions (e.g., proposed exemption application denials, proposed tax deficiency notices): Published on August 16, 2022
- Regulations designating a high-level Treasury official to approve examinations of churches under IRC Section 7611 (proposed regulations were published on August 5, 2009)
Most of these projects are carryovers from 2021–2022 PGP projects, except that numbers 5-8 replace and expand on last year's item: "Regulations regarding the excise taxes on donor advised funds and fund management."
The annual Priority Guidance Plan and the TE/GE Program Letter provide insight into what projects Treasury and the IRS TE/GE division will prioritize for the upcoming fiscal year. For instance, increased examinations of high-income/high-wealth individuals could focus on, among other issues, whether exempt organizations provided sufficient donation acknowledgement letters to high-income individuals and/or continue to qualify as public charities (or tip to private foundation status) after receiving such donations. The expansion of the DAF project to four separate guidance projects on the PGP may suggest that Treasury is actively working on DAF guidance that it will release in stages, rather than all at once. Please contact your EY professional for further information.
For additional information concerning this Alert, please contact:
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor