Kelly Postlewaite

The first report for 2010 was recently released by National Taxpayer Advocate Nina Olson for the coming fiscal year. The report expressed concern about the adequacy of the IRS in several areas and addressed two issues of particular interest to exempt organizations:  inadequate outreach and education and expanded Form 1099 reporting requirements for businesses, charities and government agencies.

The TA stated in the report that the IRS may not be conducting sufficient outreach and education to important taxpayer groups including small businesses and exempt organizations. In its report, the TA cited the recent requirement for tax-exempt organizations with gross receipts of $25,000 or less to file returns. Because it may not have effectively communicated this new requirement, the IRS now must provide retroactive relief for organizations that had their exempt status revoked for failure to file. This relief effort will consume more resources to process paperwork from organizations that have received revocations.

A provision in the Patient Protection and Affordable Care Act added a new information reporting requirement that may present significant administrative challenges to taxpayers and the IRS. In particular, for goods purchased after 2011, businesses will have to issue Forms 1099 to vendors from whom they purchase goods totaling $600 or more during a calendar year. This provision will be far-reaching and, according to a TA analysis, will affect more than 1 million charities and other tax-exempt organizations. The TA is concerned the new reporting burden may turn out to be disproportionate compared with any resulting improvement in tax compliance. The TA plans to study the impact of this requirement further in fiscal year 2011. In addition, Notice 2010-51, just released by the IRS, invites public comment on the forthcoming guidance concerning these new requirements.

The report also mentioned the IRS goal related to telephone inquiry response. After recording just a 53 percent response rate to calls in FY2008, the IRS has a goal to improve that rate to 71 percent. The report notes further that the Obama administration’s FY2011 budget proposal projects funding for taxpayer services will decline another 7.2 percent through FY2013, while funding for enforcement will increase 13.7 percent.

Please contact your BKD tax advisor with questions regarding this information.