The IRS Tax Exempt & Government Entities Division (TE/GE) has updated its 2021 Program Letter to announce eight new compliance initiatives. Click here for our prior coverage of the TE/GE 2021 Program Letter. These initiatives address potential areas of noncompliance for both small and large exempt organizations.
The eight new TE/GE compliance initiatives are:
- Small Exempt Organizations that Sponsor Retirement Plans. This strategy reviews retirement plans of small exempt organizations to determine whether the plan investments are properly administered, whether there are any party-in-interest transactions in the plan trust, and whether any participant loans violate section 72(p).
- One-Participant 401(k) Plans. This strategy reviews one-participant 401(k) plans to determine if there are operational or qualification failures, income and excise tax adjustments, or plan document violations.
- Employee Plans: Worker Classification. This strategy focuses on retirement plans of employers that were determined to have misclassified employees as independent contractors.
- Officers Treating EOs as Schedule C Business. This strategy is to determine if officers and insiders of exempt organizations are claiming expenses of exempt organizations as Schedule C business deductions. Issues of focus are potential private benefit and inurement related to the exempt organization and potential adjustments to Forms 1040.
- Form 990-N Filers/Gross Receipts Model. This strategy is to determine if an exempt organization was eligible to file Form 990-N where related filings indicate the $50,000 gross receipts threshold was not met.
- Tax Exempt Bonds: Student Loan Bonds Market Segment. This strategy is to determine if the section 144(b) requirements are met to be considered a student loan bond.
- Tax Exempt Bonds: Form 8038-G Yield Restriction. This strategy reviews bond proceeds yield restrictions after the statutory temporary period to determine whether proceeds are restricted to the yield of the issue.
- Employee Plans: Plan Liabilities and Unrelated Business Income. This strategy is to determine if plan sponsors who reported plan liabilities on their Form 5500-series return are engaging in activities that result in unrelated business taxable income (UBTI) under section 512. Large, unusual, and questionable liabilities may result from prohibited transactions, UBTI, or failure to value assets properly.