Tax-Exempt Organizations May See More IRS Examination Activity

Thoughtware Alert Published: Mar 04, 2020
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On February 21, 2020, the TEGE Exempt Organizations Council held its annual seminar in Washington, D.C. Among other discussions, such as the repeal of unrelated business income on qualified transportation fringe benefits (aka the parking lot tax) and political campaign activity for the upcoming elections, much of the meeting addressed the IRS’ Exempt Organizations division’s strategic focus. Exempt Organizations Director Margaret Von Lienen and Exempt Organizations Examinations Director Maria Hooke were among the representatives from the IRS and Treasury to speak at the seminar.

Two Ways the IRS Is Supporting Its Exempt Organization Examinations Activity

  1. Increase Workforce
    In an effort to provide additional support for its exempt organization examinations activity, the IRS has hired 40 additional revenue agents and plans to hire more later this year. Currently, about 300 employees are dedicated to exempt organization examinations. With this increased workforce, additional examinations can be performed throughout the year, further highlighting the importance of tax compliance for these organizations.
  2. Data Use for Examination Selection
    The IRS also continues to rely on data-driven decision making for examination selection. This method uses a computer model with a series of more than 250 queries that analyzes each Form 990, 990-EZ and 990-PF filed with the IRS. During fiscal year 2019, approximately 3,700 examinations of public charities were closed, and about 2,000 of those were data-driven. The change rate was 85 percent, and there were 70 exemptions revoked as a result of the examinations. Areas requiring change included employment classification, unrelated business income and additional filing requirements. Private foundations had a 62 percent change mostly related to private inurement and self-dealing issues. Nonprofit hospitals, which are subject to rules outlined in Section 501(r) and required by Congress to have their 990s reviewed every three years, had about 800 reviews and 50 examinations with a change rate of 88 percent. These areas included requirements such as community health needs assessments and financial assistance policies.

With an increased workforce and data use to draw out riskier taxpayers, it’s important for exempt organizations to stay diligent with their tax compliance requirements and carefully review their Forms 990, 990-EZ and 990-PF for potential risks. Reach out to your BKD Trusted Advisor™ or submit the Contact Us form below if you have questions or would like assistance.

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