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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 >>

Kenney, Laura 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 2017 Work Plan

The Tax Exempt and Government Entities Group (TE/GE) of the Internal Revenue Service (IRS) recently released its Fiscal Year 2017 (FY2017) Work Plan. The work plan summarizes the IRS’s accomplishments for FY2016 and outlines its focus for FY2017.

TE/GE explains that it is focusing on improving processes and doing more with less. The work plan states that the department’s gold standard for any new program or process change will be that it is transparent, efficient and effective.

The use of “data-driven decision making” for audit selection is one iStock_000010827673_Smallof the IRS’s more important and effective process changes. The IRS previously indicated that there are over 190 queries in its data-driven case selection technique for Form 990, Return of Organization Exempt From Income Tax. The filters used in its return selection modeling process for examination of Forms 990 have not been made public, though tax-exempt organizations and their tax advisors are certainly aware of many of the exposure areas. Please see our blog published in February 2016 that highlights some common audit selection indicators.

The five strategic issue areas for FY2017 are a continuation of the FY2016 IRS work-plan focuses, and include the following:

Exemption – issues such as non-exempt purpose activity and private inurement.

Protection of assets – issues including self-dealing, excess benefit transactions and loans to disqualified persons.

Tax gap – tax liabilities arising from employment tax and from unrelated business income tax – audit adjustments for items such as excessive expense allocations, net operating loss deductions, rental activity, advertising, debt-financed rental and investment income.

International – issues such as funds spent outside the U.S., exempt organizations operating as foreign conduits and Report of Foreign Bank and Financial Accounts (FBAR) filing requirements.

Emerging issues – such issues as non-exempt charitable trusts and the new compliance requirements for tax-exempt hospitals.

The Exempt Organizations Rulings and Agreements group is expecting to continue to improve processing and timeliness of applications for tax-exemption. To increase its efficiency, last year the IRS began to reject incomplete applications, which they return with an explanation of the reason for the rejection. This ensures that only completed applications are assigned to review agents for review, thereby allowing for a more efficient and speedy process.

The IRS’s examination group is expecting to review private foundation returns that have irregularities. They are also planning on developing an “ongoing rolling statistical sample” review of tax-exempt organizations to assess the overall level of compliance of the exempt organization community. The IRS’s Exempt Organizations Examinations plans are expected to identify and address high-risk areas of noncompliance with the federal tax laws applicable to tax-exempt organizations.

Please contact us if you would like to discuss how the FY17 IRS work plan may affect your organization

For more information please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

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 expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with state and federal grant requirements, charitable giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

Laura J. Kenney, CPA
Tax Director

View Laura’s Bio Here >>

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.