Exempt Organizations Advisory - IRS Exempt Organizations Division Releases 2009 Work Plan

Catherine W. Wilkinson (cwilkinson@steptoe.com)
Suzanne Ross McDowell (smcdowell@steptoe.com)

On November 25, the IRS posted the Exempt Organizations Annual Report and FY 2009 Work Plan, which describes the Tax Exempt and Government Entities group's accomplishments, as well as the initiatives and projects to be undertaken in the coming year.

According to the IRS, the two most momentous changes to the tax-exempt community were the Pension Protection Act of 2006 (PPA) and the redesign of the Form 990.  The FY 2009 Work Plan addresses the impact of these changes in the coming year, introduces new initiatives, and discusses projects about to come to fruition.

The following is a summary of the IRS’s Exempt Organizations 2009 Work Plan:

Improved Service to Achieve Voluntary Compliance

Preparing and Helping to File the Form 990: The IRS will continue to provide speakers for speeches, workshops, and tax forums and will offer on-line mini-courses on StayExempt.org, a Tax Talk Today program on the Form 990, and webinars.

Form 990-N (e-Postcard):  The IRS will continue outreach efforts to ensure that small tax-exempt organizations are aware that they are required to file an annual electronic information notice, Form 990-N.

Guidance:  The IRS will issue new guidance on the following topics:

• Guidance on a voluntary compliance program for exempt organizations;

• Revenue procedure to modify the publication requirement by a private school of its nondiscriminatory policy, contained in Revenue Procedure 75-50;

• Proposed regulations on new requirements for supporting organizations as added by the PPA;

• Final regulations on excise taxes on prohibited tax shelter transactions and related disclosure requirements;

• Proposed regulations on excise taxes on donor advised funds, as added by the PPA;

• Regulations to implement Form 990 revisions (published on Sept. 9, 2008);

• Proposed regulations to update regulations under Code section 6104(c) relating to disclosure to state charity agencies for changes made by the PPA; and

• Guidance on church plans.

Exempt Organizations Voluntary Compliance Program (EOVCP):  The IRS intends to implement a voluntary compliance program to help bring non-filers into compliance before the automatic revocation process begins.

Looking Through the Eyes of the Exempt Community: Improving IRS.gov/eo: The IRS will seek input from the public, using focus groups, usability studies, and surveys, to garner ideas for making improvements to its website.

Helping to Prepare Future Non-Profit Leaders:  The IRS will develop a new educational tool for academic institutions, research centers and other entities that work to develop, cultivate and promote professionals who shape the nonprofit sector.

Enforcement of the Tax Law and Tax Compliance Initiatives

New FY 2009 Compliance Initiatives

Charitable Spending Initiative: The IRS will begin a long-range study to learn more about sources and uses of funds in the charitable sector and their impact on the accomplishment of charitable purposes, including fundraising, public contributions, grants, revenues from related or unrelated trades or businesses, types and amounts of direct and indirect unrelated business income expenses, officer compensation, fundraising expenses, and program service activities.

Gifts In-Kind:  The IRS will examine non-cash gift valuation issues, such as how non-cash gifts are valued, the expenditures involved in the transactions, and the accuracy of Form 990 reporting.

Governance:  The IRS will train its employees on the impact of governance practices on tax compliance issues; on governance implications in the determinations, rulings and agreements, and education and outreach areas; and on compliance initiatives, such as those involving executive compensation, transactions with interested persons, solicitations of noncash contributions, or diversion or misuse of exempt assets.

Mutual Organizations:  The IRS will send compliance check letters to 501(c)(12) organizations to ensure that the organizations have not failed the member income test, or if so, have filed a Form 1120.

Student Loan Organizations:  The IRS will identify student loan organizations with related for-profits that may be providing impermissible benefits to insiders or third parties, including a review of executive compensation.

On-going Compliance Initiatives

Colleges and Universities:  The IRS will issue a public report of the results of the 400 questionnaires that were sent to public four-year colleges and universities in October, 2008 and will conduct examinations focused on unrelated business income and executive compensation on a sample of the organizations.

Political Activities Compliance Initiative (PACI):  The IRS will prepare a PACI report which will: summarize the types of 2008 allegations of political intervention; report the results of the on-going PACI efforts; make recommendations for the future direction of the PACI program; assess the effectiveness of the statutory tools available to address instances of political intervention; and identify any troubling trends.  The EO Division will also consider a project to review the flow of funds and other resources between affiliated groups of organizations that include one or more section 501(c)(3) organizations, one or more section 501(c)(4) organizations, and one or more section 527 organizations to ensure that campaign activity is not being subsidized by the 501(c)(3) organization and/or flowing to alternative sources to avoid disclosure.

Hospitals: The IRS will issue a follow-up report discussing the results of its analysis on the community benefit issue, as well as the results of the executive compensation examinations conducted in the nonprofit hospital project.

Community Foundations: The IRS will follow-up on the 3,000 compliance questionnaires that it sent out to community foundations in an effort to properly classify those organizations and will begin examinations of those community foundation organizations identified through the compliance checks.

Non-Filer Initiatives – Ongoing: The IRS will continue three on-going initiatives specifically developed to secure delinquent returns from the following three categories of exempt organizations: those involved in gaming; those using the Combined Annual Wage Reporting (CAWR) computer program; and intermittent Form 990 and 990-PF filers, Form 990-T filers with substantial unrelated business income without a corresponding 990 filing, and Form 1098-C filers without a corresponding 990 filing.

Determinations

Public Charity Status: The IRS will develop post-advance ruling procedures to monitor the public charity status of 501(c)(3) organizations after eliminating the advance ruling process with the redesign of the Form 990.

Cyber Assistant: Web-Based Application for Tax-Exemption: The IRS will be testing a new web-based tool which guides an applicant for tax-exemption through the application process.