Sunita B. Lough, TE/GE Commissioner, and Edward T. Killen, TE/GE Deputy Commissioner, released the IRS Tax Exempt and Government Entities Division's Fiscal Year 2021 Accomplishments Letter, which includes a summary of the accomplishments of the Exempt Organizations (EO) segment of the division. The letter provides insight into EO's enforcement priorities and methods for initiating examinations.
Highlights described in the letter include:
- EO closed examinations of 3,249 filings in fiscal year 2021, including the Form 990 series and their associated employment and excise tax returns, with 82% of closed examinations resulting in a tax change.
- EO proposed revocations (agreed and unagreed without protest) for 94 tax-exempt entities as a result of these examinations, generally for failure to meet the organizational and/or operational tests or for excessive private inurement. One revocation was for impermissible political activity.
- EO's compliance strategy examinations (accounting for 530 closed examinations) were focused on hospital organizations where UBIT-related expenses materially exceeded gross income; investment and nonmember income of 501(c)(7) tax-exempt pleasure, social and recreation clubs; non-exempt charitable trusts that under-reported income or over-reported charitable contributions; organizations that formerly operated as for-profit entities prior to their conversion to 501(c)(3) organizations; and private foundation loans to disqualified persons.
- The most prominent issues found in EO's data-driven examinations (accounting for 1,035 closed examinations) were related to failure to comply with filing requirements and under-reported UBIT.
- The remaining 1,684 closed examinations resulted from referrals, claims and other case work, including hospital examinations referred from reviews conducted by TE/GE for compliance with section 501(r); tax-shelter promoter investigations; and criminal fraud investigations.
- EO closed 94,466 determination applications in fiscal year 2021, including 81,589 approvals, 76,852 of which were approvals for 501(c)(3) status.