In the FY2013 Workplan released by the IRS Exempt Organizations (EO) unit, EO clearly spelled out its message to the nonprofit sector: The IRS uses the Form 990 responses to select returns for examination, so a complete and accurate return is in a tax-exempt organization’s best interest.
The twenty-four page annual report and workplan also set forth accomplishments and compliance statistics over the past year as well as plans for the upcoming year.
EO Examinations enforcement activities included both compliance and traditional examinations. The IRS continues to reciprocate information with numerous state charity regulators and tax agencies. In FY2011, the IRS received 104 referrals from state officials from 19 different states. Issues referred to the IRS involved: private benefit and inurement, nonfilers, political activity by an Internal Revenue Code Section 501(c)(3) organization, employment tax issues, and organizations not operated in furtherance of their tax exempt missions.
Based on the initial findings from analysis of 1,300 governance checklists from 501(c)(3) organizations, in FY2013, EO will examine a statistical sample of 501(c)(3) and 501(c)(4) organizations using a checksheet to gather information on the organizations' governance practices. The EO also reviewed tax filings and online information of 285 organizations that reported a significant diversion of assets on their 2009 Forms 990. In FY2013, exams will include a review of governance practices before and after any diversion event.
The FY2013 Workplan announced plans to continue monitoring public charity status qualifications to ensure that charities are computing their public support percentages correctly. EO also conducted a followup with about 240 organizations that had failed to file a Form 990 or Form 990EZ for tax year 2009. The EO outreach resulted in more than 230 delinquent filers submitting either a Form 990 or Form 990EZ. EO will continue to reach out to nonfilers for the 2010 tax year and has made this compliance effort part of its routine. Approximately 95% of 3,700 community foundations responded to a questionnaire sent by EO requesting information such as demographics, revenues, assets, investments, grantmaking and relationships with board members. Using the information provided by responding community foundations, EO selected a few for examination.
Ongoing compliance projects that EO will continue to focus on include analyzing more than 3,000 checksheets gathered as a result of implementing an unrelated business income examination checksheet in response to changes made to the Internal Revenue Code as a result of the Pension Protection Act of 2006; examining employment tax returns as part of its National Research Program (NRP); ensuring that the assets and income of domestic charities are not sent abroad for non-charitable purposes; and ensuring that domestic charities are in compliance with recordkeeping and reporting regulations.
EO will continue with tax compliance examinations of large private foundations as well as potential examinations of organizations with limited charitable activity and excessive compensation. In addition, EO will continue to monitor and review activities related to state-sponsored workers compensation organizations, group rulings, mortgage foreclosure assistance organizations, Form 990N misfilers, §501(c)(4), (5), and (6) "self declarers", colleges and universities, and the EO Services and Assistance research project.
Lastly, EO noted in its report that it is using data from the revised Form 990 for various compliance project efforts. Upcoming focus areas include a long-range charitable spending initiative study, political activities, compensation transparency, and Form 990-T/unrelated business income matters.
Looking ahead, the IRS is working on an interactive online version of the Form 1023, Application for Recognition of Exemption. The IRS is hopeful that the online tool will assist applicants as well as educate taxpayers during the completion process.
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