The Tax Exempt and Government Entities Group (TE/GE) of the Internal Revenue Service (IRS) recently released its Fiscal Year 2017 (FY2017) Work Plan. The work plan summarizes the IRS’s accomplishments for FY2016 and outlines its focus for FY2017.
TE/GE explains that it is focusing on improving processes and doing more with less. The work plan states that the department’s gold standard for any new program or process change will be that it is transparent, efficient and effective.
The use of “data-driven decision making” for audit selection is one of the IRS’s more important and effective process changes. The IRS previously indicated that there are over 190 queries in its data-driven case selection technique for Form 990, Return of Organization Exempt From Income Tax. The filters used in its return selection modeling process for examination of Forms 990 have not been made public, though tax-exempt organizations and their tax advisors are certainly aware of many of the exposure areas. Please see our blog published in February 2016 that highlights some common audit selection indicators.
The five strategic issue areas for FY2017 are a continuation of the FY2016 IRS work-plan focuses, and include the following:
Exemption – issues such as non-exempt purpose activity and private inurement.
Protection of assets – issues including self-dealing, excess benefit transactions and loans to disqualified persons.
Tax gap – tax liabilities arising from employment tax and from unrelated business income tax – audit adjustments for items such as excessive expense allocations, net operating loss deductions, rental activity, advertising, debt-financed rental and investment income.
International – issues such as funds spent outside the U.S., exempt organizations operating as foreign conduits and Report of Foreign Bank and Financial Accounts (FBAR) filing requirements.
Emerging issues – such issues as non-exempt charitable trusts and the new compliance requirements for tax-exempt hospitals.
The Exempt Organizations Rulings and Agreements group is expecting to continue to improve processing and timeliness of applications for tax-exemption. To increase its efficiency, last year the IRS began to reject incomplete applications, which they return with an explanation of the reason for the rejection. This ensures that only completed applications are assigned to review agents for review, thereby allowing for a more efficient and speedy process.
The IRS’s examination group is expecting to review private foundation returns that have irregularities. They are also planning on developing an “ongoing rolling statistical sample” review of tax-exempt organizations to assess the overall level of compliance of the exempt organization community. The IRS’s Exempt Organizations Examinations plans are expected to identify and address high-risk areas of noncompliance with the federal tax laws applicable to tax-exempt organizations.
Please contact us if you would like to discuss how the FY17 IRS work plan may affect your organization.
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