IRS Releases FY 2017 Work Plan

IRS Releases FY 2017 Work Plan

Continuation of Certain FY 2016 Work Plan Initiatives

In FY 2016 the Exempt Organizations Division of TE/GE (“EO”) focused on five strategic areas including: exemption, protection of assets, tax gap issues, international issues and emerging issues. As stated in the Work Plan “We implemented a data driven case selection process with a goal of identifying and addressing existing and emerging high risk areas of noncompliance.”

In addition to many new initiatives, the Work Plan also addresses the following matters that, while begun in previous years, will continue to be studied throughout FY 2017:

• Examination – TE/GE will have a continued focus on non-compliance. As noted in the Work Plan “We are working with other IRS areas including Research, Applied Analytics and Statistics, Large Business and International, Small Business and Self-Employed, and Criminal Investigation to use data-driven decision-making process to more precisely focus case-selection.”
• Knowledge Management (“KM”) and Knowledge Network Teams (“K-Nets”) – TE/GE will continue to answer questions, develop resources, facilitate collaboration, and conduct discussion forums. EO will continue preparing and presenting three to four live CPE sessions or live technical events each quarter. KM will also continue preparing and posting technical Issue Snapshots for EO employees and the general public.
• Tax-Exempt Bonds – TE/GE will continue to test Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, and monitor its success.

Summary of the FY 2017 Work Plan

As noted in the Work Plan “We are currently working with TE/GE Research and the Research, Applied Analytics and Statistics office to utilize data sources to identify organizations at risk for inurement and private benefit issues.” During FY 2017 there will be 400 returns identified for high risk of private inurement and private benefit issues.

As part of the FY 2017 Work Plan there will be an implementation of “a statistical sampling methodology to assess compliance in the Exempt Organizations population.” In conjunction with other areas, a plan will be developed that will maintain an ongoing statistical sample of Internal Revenue Code (“IRC”) §501(c)(3) and other IRC §501(c) organizations which will assist TE/GE in monitoring overall compliance levels in the EO community.

The focus in FY 2017 will continue to be on the five strategic issue areas started in FY 2016 and outlined above. TE/GE will utilize feedback from field employees to make improvements to case selection models of Form 990, Return of Organization Exempt From Income Tax, Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, and Form 990-PF, Return of Private Foundation. TE/GE also indicated that they will implement newly developed models for Form 5227, Split-Interest Trust Information Return, and Form 990-T, Exempt Organizations Business Income Tax Return, and the post determination compliance program will be implemented.

Also included in the FY 2017 Work Plan are objectives for the TE/GE groups which include: EO, Employee Plans (“EP”), Federal, State, and Local Governments (“FSLG”), Indian Tribal Governments, Tax-Exempt Bonds, and Government Entities Compliance Services. The Work Plan objectives for EO, EP, and FSLG are expanded upon below.

EO Rulings and Agreements

In FY 2017 EO intends to focus on the following:

• Form 8976 – EO plans to improve the processing of Form 8976, Notice of Intent to Operate Under Section 501(c)(4), pursuant to newly enacted IRC §506 which requires organizations whose intent is to operate under IRC §501(c)(4) to notify the IRS within sixty days of formation.
• EO Determinations Quality Assurance (“EODQA”) – EODQA will continue to review and evaluate EO Determinations cases for consistency and accuracy. EO will utilize this information to identify areas of improvement and trends in EO Determinations.

EP Examinations

”In FY 2017, EP will continue to (1) develop, maintain and refine a comprehensive collection of enforcement strategies that identify and focus efforts on addressing retirement plan non-compliance; (2) leverage existing programs and learned best practices to enhance voluntary compliance; and (3) address and eliminate fraudulent and abusive schemes that undermine the retirement system.” EP plans to conduct the following categories of casework through field work and office correspondence:

• Specialty Programs – EP will focus on large case multiemployer plans, IRC §403(b)/457(b) plans, cash balance plans, hybrid IRC §401(k) plans and leveraged/non-leveraged employee stock ownership plans.
• Traditional Casework – EP will continue to select profit sharing, money purchase, IRC §401(k) plans and defined benefit plans for review.
• Focused Supplemental Work – The Emerging Issues program, the Learn, Educate, Self-Correct, Enforce program (“LESE”), the Individual Retirement Arrangement program, and the Form 5500-EZ program will supplement additional project work.
• Compliance Checks – In FY 2017 compliance checks will focus on the following projects:
  • SIMPLE plans;
  • Merger/consolidations/transfers/spinoffs relating to Form 5310A filings;
  • Issues regarding terminated/partially terminated plans;
  • Inflated assets and/or unusual investments;
  • SEP plan issues including coverage of employees; and
  • IRC 403(b) plan document requirements.

Federal, State, and Local Governments

The Work Plan notes that, in order to best utilize audit efficiencies and limited resources, an emphasis will be placed on large entity examinations to address material and significant compliance issues. For FY 2017 the FSLG primary Work Plan focus areas include:

• Focus on data to identify best cases;
• Focus on large entity examinations;
• Increase use of limited scope examinations;
• Work with the Government Entities Compliance Services on projects that affect compliance of FSLG customers;
• Focus education and outreach on national web-based events; and
• Invest in the Employment Tax Knowledge Network (ET K-Net) to enhance technical knowledge.

In addition to the above, EO, for its examinations, will continue to use five gross wage categories based on Form 941, Employer’s Quarterly Federal Tax Return, filings by government entities. There will be an emphasis on entities with gross wages of $10 million or more; with this group comprising approximately 75% of examination closures. “The focus on these larger entities directly correlates with our need to address the tax gap and the greatest risks of noncompliance since these organizations represent a significant percentage of the gross wage base.”

Conclusion

TE/GE re-evaluates its goals on an annual basis to identify which strategies are making the greatest impact and which areas, both within the industry and internally within EO, need additional focus and improvement. As seen in the FY 2017 Work Plan, TE/GE is continuing its work on previous initiatives while simultaneously addressing new areas. EO utilizes data from multiple sources including return data, historical information, stakeholder input and public information, in order to gain perspective on areas of focus. Please note that the above highlights are not all inclusive of all the items outlined in the FY 2017 Work Plan. As a result, we recommend that all tax-exempt organizations review the FY 2017 Work Plan.

Ask Our Experts

The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.