IRS Tax-Exempt Priorities for Fiscal Year 2016
Sunita Lough, the IRS tax-exempt/governmental entities (TE/GE) commissioner, recently released a list of priorities for fiscal year 2016. The plan included several general goals:
- Serving self-sufficient and compliant taxpayers
- Addressing significant noncompliance and aggressive taxpayer behavior
- Optimizing revenue allocation
- Continuing to develop a well-trained, flexible and collaborative workforce
- Continuously looking for improvement through feedback
As in 2015, the 2016 initiatives specifically concentrate on five areas to continue building the IRS of the future: continuous improvement, knowledge management, risk management, data-driven decision making and employee engagement.
Many initiatives focus on improving the agency’s internal processes, procedures and knowledge base. Other key areas having more direct impact on exempt and governmental organizations include:
- Evaluating the Form 1023-EZ process to determine potential improvements to the application and review process
- Developing a program to make Form 990 available in modernized e-file format
- Examination plans focused on strategic areas or issues with greater noncompliance risk
- Identification of tax-exempt bonds in certain market segments with a higher risk of noncompliance
In the employee plans area, resources will be focused on the Internal Revenue Code (IRC) 403(b) and 457(b) plans. Historically, these plans have been noncompliant. Any remaining resources will be applied toward cash balance plans, 401(k) plans and employee stock ownership plans. The voluntary compliance program for employee plans continues to increase in complexity, requiring more processing time.
For exempt organizations, the strategy continues to focus on compliance with exemption requirements and adherence to tax laws. High-risk areas will be identified that can be resolved with optimal use of IRS resources. There are five strategic issue areas to be addressed:
- Exemption issues, including nonexempt purpose activity and private inurement
- Protection of assets, including self-dealing, excess benefit transactions and loans to disqualified persons
- Tax gap involving employment tax and unrelated business income tax
- International issues on grants to foreign organizations, FBAR filings and foreign conduits
- Emerging issues for nonexempt charitable trusts and IRC 501(r), including compliance with the Affordable
For federal, state and local governments, the IRS will focus on areas providing the greatest impact given the limited resources. Large-entity examinations will continue to be a focus. The focus on larger entities directly correlates with the need to address the tax gap. The examination work plan will continue to be based on wage categories using the quarterly payroll tax filings. Entities with more than $10 million of gross wages will be the focus of roughly 75 percent of all examinations. Other areas of higher noncompliance risk also will be targeted, such as early retirement incentive plans, rapid growth governments, reduction of payroll and the increase in Form 1099-MISC filings.
Tax-exempt bonds (TEB) will continue to be an area of focus for the IRS, with half of the TEB resources being allocated to examination casework. Examination casework will include referrals and claims, a market segment program, i.e., private activity bonds, and compliance checks and soft letters. Remaining resources in the TEB division will focus on the Voluntary Compliance Agreement Program, customer education and outreach and direct pay bond activity.
A complete copy of this report is available on the IRS website. If you have additional questions, contact your BKD advisor.