House Ways and Means Subcommittee Discusses Issues Facing Tax-Exempt Organizations
Author: Kristin Tynon
The Oversight Subcommittee of the House Ways and Means Committee recently met regarding the tax issues facing exempt organizations. This series of meetings stemmed from a letter sent by subcommittee Chairman Rep. Charles W. Boustany Jr., R-La., sent to the IRS last fall requesting information related to the oversight of tax-exempt organizations.
Tax-exempt organizations continue to serve as an integral part of their communities and our economy. As of 2008, charitable organizations held $2.5 trillion in assets, and tax-exempt organizations employed approximately 10 percent of the U.S. work force. As charitable organizations have grown larger and more complex, there has been increased scrutiny from Congress and the IRS regarding their operations. The hearings are meant to provide insight regarding the growing complexity of tax-exempt organizations and the new IRS compliance efforts.
The first hearing, held on May 16, 2012, focused on the following topics:
- IRS compliance initiative related to colleges and universities
- Recently enacted reporting requirements for tax-exempt hospitals
- Efforts by exempt organizations to implement good governance standards
- Redesigned IRS Form 990
The second hearing, held on July 25, 2012, centered on organizational and compliance issues, such as:
- Increased complexity of charitable organizations
- Rules governing unrelated business income (UBI) tax and the need for further clarification in this area
- Effectiveness of the redesigned Form 990 in promoting compliance and transparency
Speakers at the second hearing included experts in the tax-exempt community—various tax practitioners, law professors and attorneys—as well as the Honorable Steven T. Miller, IRS Deputy Commissioner for Services and Enforcement. Miller focused mainly on the purpose of Form 990 and how the redesign has helped promote compliance through increased transparency. He also spoke on the current UBI tax rules, saying further guidance related to this area is unlikely from the IRS in the near future.
One expert spoke on the lack of legal clarity in the UBI tax area, suggesting the IRS develop a consistent definition for “charitable activities.”
Additional recommendations to improve the Form 990 included:
- Simplify Schedule L, Transactions with Interested Persons, with improved instructions
- Eliminate or reduce reporting on Schedule F, Statement of Activities Outside the United States
- Increasing the filing threshold for Form 990-EZ to $1 million of gross receipts and $3 million in assets to reduce filing burdens for small organizations
The hearings have offered the subcommittee an opportunity to hear testimony from both the IRS and various experts in the tax-exempt community. In addition, the experts had a chance to make suggestions on future tax reform efforts to ease the burden on tax-exempt organizations. The hearings also have helped the subcommittee better understand the complexity of tax-exempt organizations and the compliance and UBI tax issues they face, and they may provide a framework for future tax reform efforts.
The redesigned Form 990, which has now been in place since 2008, has provided the IRS and Congress with more detailed information on tax-exempt organizations. The recent hearings also have provided Congress additional information on colleges and universities, tax-exempt hospitals and issues such as UBI. Stay alert for information regarding additional hearings and any potential tax law or Form 990 changes.
If you have any additional questions, contact your BKD advisor or Jason Bombeck.