Archive for December 15, 2016

Tax Exempt and Government Entities Group FY2017 Work Plan – Part 2

shutterstock_117815818In one of our previous blogs we discussed that the Tax Exempt and Government Entities Group (TE/GE) of the Internal Revenue Service (IRS) released its Fiscal Year 2017 (FY2017) Work Plan. The work plan summarizes the Service’s accomplishments for fiscal year 2016 and outlines its focus for FY2017.

In addition to the five areas of focus for the TE/GE FY2017 work plan, there are a few additional areas of the IRS’s TE/GE FY2017 work plan that may be of interest to tax-exempt organizations, including:

  • 403(b) plan document requirement compliance checks;
  • Tax-exempt bond compliance; and
  • Fringe benefit tax exposure, unreported income and worker classification tax audits.
403(b) plan document requirement compliance checks

The IRS’s Employee Plans Examination Group will identify areas of noncompliance with employee benefit plans, and in FY2017 its compliance check projects will include a focus on reviewing 403(b) plan document requirements.

Tax-exempt bond compliance

The IRS’s Tax-Exempt Bond Group plans to continue to focus resources on areas of higher risk of noncompliance, new areas of noncompliance, and noncompliance identified through revised market segment areas. The principal exposure areas found in FY2016 referrals were “private use of bond financed property and arbitrage compliance failures.”

Fringe benefit tax exposure, unreported income and worker classification audits

The IRS is also planning to conduct specific Compliance Initiative Projects (CIP) in these high-risk noncompliance areas:

Fringe benefit tax exposure – this is a project to identify patterns of noncompliance with treatment of taxable fringe benefits and other unreported income.

Early retirement incentive plans – this project, due to constructive receipt rules, often results in employment tax exposure.

Worker classification project – this project identifies payments that are incorrectly reported on Forms 1099-MISC as consulting income rather than as Form W-2 employee wages, as well as identification of individuals whose primary source of earned income is from large dollar amounts reported on Form 1099-MISC.

As noted in our previous blog published, the IRS’s TE/GE group explained that it is focusing on improving processes and doing more with less.

Interestingly, one of the IRS’s newest transformational processes is for the TE/GE’s Knowledge Network teams to publish “Issue Snapshots.” These are brief technical analyses of specific audit issues commonly come across in examinations. These snapshots are published on the IRS website in furtherance of transparency to the public, which increases voluntary compliance. The IRS anticipates this will increase efficiency as IRS auditors will now have a starting point in developing tax positions and resolving audit issues raised in examinations. It will also allow the IRS to be more effective in ensuring consistency in their treatment across taxpayers.

The TE/GE has recently published a number of Issue Snapshots and is currently developing more than 20 additional snapshots applicable to tax-exempt organizations. One of the Issue Snapshots is an analysis of the difference between acknowledgements for corporate sponsorships of charitable events (charitable contribution revenue to the charity) versus advertising for the payors (unrelated business taxable income to the charity). Another Issue Snapshot is an analysis of tax guidance regarding what constitutes “reasonable cause” to eliminate penalties in certain situations for failure to file returns or to pay taxes. Click here to view TE/GE’s Issue Snapshots >>

Conclusions to tax issues are usually dependent on the specific facts and circumstances in a particular case, but tax-exempt organizations and their advisors should find the IRS’s thinking in these Issue Snapshots to be very informative guidance.

BlumShapiro offers the accounting, tax and business consulting expertise non-profits need today. We are one of the largest non-profit accounting service providers in New England. Our blend of accounting and tax expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with federal tax requirements, state and federal grant requirements, unrelated business income regulations, employment tax rules, charitable contribution giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

Laura Kenney is a Tax Director at BlumShapiro and has over thirty years of experience providing tax compliance and consulting services for public charities, higher education institutions, cultural institutions, foundations, individuals, estates and trusts, nonprofit organizations and healthcare organizations.

For more information or to discuss your organization’s tax matters or how the FY2017 IRS work plan may affect your organization please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

The Tax Exempt and Government Entities Group (TE/GE) Releases New Tax Procedures for Examinations of Tax-exempt Organizations

Business people working in their office

The IRS’s Tax Exempt and Government Entities (TE/GE) division has recently issued significant new tax procedures for its examinations of tax-exempt organizations. The new process is expected to increase efficiency and accountability for both the IRS and the taxpayer. The Commissioner of TE/GE indicated that “(t)his process seeks to overcome issues that lead to prolonged cycle time and undue taxpayer burden.”

Highlights in the new tax procedures that specifically increase efficiency include:
  • The IRS examiner will research and identify the taxpayer’s specific potential audit issue(s) before he or she sends the audit letter to the taxpayer.
  • The auditor will call the taxpayer to discuss the issue(s) being audited and the items on the draft Information Document Requests (IDR), and will clarify the IDR, if needed, before finalizing.
Accountability will increase due to the following:
  • The taxpayer and auditor will agree on dates – taxpayer’s response date and examiner’s date to review the IDR response for completeness.
  • If the taxpayer’s response is complete, the examiner will let the taxpayer know that the response is complete, and the examination will proceed.
  • If the response is not complete, the examiner may grant certain extensions.
  • If the information request response remains incomplete, the examiner will follow certain enforcement steps, and will provide notification before each step –
    • Issuing a Delinquency Notice
    • Proposal of audit adjustment, summons for information, or proposal of revocation
    • If a summons will be issued, the IRS will first issue a “Pre-Summons Notice”.
  • If the taxpayer provides complete information prior to the response dates required for each of these enforcement steps, the examiner will notify the taxpayer, enforcement will end, and the examination will proceed.

In addition to these new procedures which will be in effect on April 1, 2017, the Commissioner of TE/GE also issued best practices as an attachment to its internal memo on the new IDR process.  Here is a link to the IRS‘s internal memo for the new required IDR process and suggested best practices.


Read Next: The Tax Exempt and Government Entities Group (“TE/GE”) Releases 2017 Work Plan

BlumShapiro offers the accounting, tax and business consulting expertise non-profits need today. We are one of the largest non-profit accounting service providers in New England. Our blend of accounting and tax expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with federal tax requirements, state and federal grant requirements, unrelated business income regulations, employment tax rules, charitable contribution giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

 Laura Kenney is a Tax Director at BlumShapiro and has over thirty years of experience providing tax compliance and consulting services for public charities, higher education institutions, cultural institutions, foundations, individuals, estates and trusts, nonprofit organizations and healthcare organizations.

For more information or to discuss your organization’s tax matters please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.