Sunita Lough, IRS Commissioner of the Tax-Exempt and Governmental Entities Division (TE/GE), recently released the TE/GE Priority Letter for FY 2016.
Rather than focusing on specific tax issues, the letter states that TE/GE will focus on the same five priorities as last year: continuous improvement,
knowledge management, risk management, data-driven decision-making, and employee engagement.
In the area of continuous improvement, TE/GE plans to add several long-term projects including the following:
- Evaluating the Form 1023-EZ process for potential improvements
- Delivering new outreach products, especially for taxpayers affected by the Affordable Care Act
- Developing a Form 990 in an e-file format, including automatic redaction tools
- Improving efficiency in closing unit processes and workload processes
- Simplifying tax forms and enhancing digital functionality
- Refining information document requests to reduce the length of exams
In the area of knowledge management, TE/GE previously had introduced the concept of Knowledge Networks (K-Nets) to provide technical resources to its
employees on significant issues. TE/GE intends to further develop and expand these K-Nets by continuing to build collections of knowledge and existing
guidance that are searchable by key issues and resource types.
As well as listing several accomplishments in the area of risk management, the TE/GE letter states that TE/GE will expand the use of a tool to document
risk-based business decisions. TE/GE also intends to implement mitigation strategies to lessen the likelihood or impact of risks.
As part of its commitment to integrating data-driven decision-making, TE/GE focused its exams on areas or issues where it believes there may be greater
risk of noncompliance. TE/GE developed a pilot process to analyze Form 1023-EZ applications for trends and patterns and will continue to test its
methodologies and refine its strategies, using data to guide decision-making.
In the area of employee engagement, TE/GE launched several initiatives to request and respond to employee feedback and questions. In the coming year, TE/GE
views employee engagement as a continuing top priority and intends to incorporate feedback from the previous year, as well as request additional feedback,
to provide employees with the tools they need.
Ms. Lough’s letter also attaches an Exempt Organization (EO) Workplan Briefing that provides more specific plans. In the area of examinations, EO intends
to identify and focus on existing and emerging high-risk areas of noncompliance through the use of historical information, stakeholder input, reliable
outside data, and public information, and will allocate resources among all major subsections and size classes of organizations. EO will focus on the
following five concerns:
- Exemption issues, including non-exempt purpose activities and private inurement
- Protection-of-assets issues, including self-dealing, excess benefit transactions, and loans to disqualified persons
- Tax-gap issues, including employment tax and unrelated business taxable income
- International issues, including oversight of funds spent outside the U.S., funds spent on potential terrorist activities, foreign conduits, and FBAR
- Emerging issues, including non-exempt charitable trusts and section 501(r) issues
In addition, EO intends to review tax-exempt hospitals with compliance issues related to the Patient Protection and Affordable Care Act and begin
compliance enforcement for organizations determined to be exempt through the Form 1023-EZ process.
In the determinations area, EO projects that it will have an increased inventory of applications for exemption by the end of 2016. EO will realign 30
specialists from determinations to examinations in 2016 but expects that efficiencies gained from using the Lean Six Sigma approach will offset the loss of
these employees and ensure timely processing of applications. EO will also review data from Forms 1023-EZ that were selected for pre-determination review
and consider adjusting the percentage of such forms selected for review in the future.
EO seeks a continued reduction of its correspondence inventory and will refine its process to prevent erroneous revocations. As discussed in the TE/GE
letter, EO will also continue to build out its K-Nets program and add to those issues established in 2015.
Exempt organizations and their advisors should pay attention to those exempt organization issues likely to receive the most IRS attention in the coming
year. For a copy of the entire TE/GE Priorities for FY 2016 letter and Workplan Briefings, as available on the IRS website, click
McGuireWoods Nonprofit and Tax-Exempt Organizations Group
Our nonprofit and tax-exempt organizations group
provides advice and guidance that enable charities and other nonprofits to operate more efficiently and effectively in today’s increasingly complicated,
regulated, and competitive environment.
McGuireWoods Education Practice
Our education attorneys represent public and private colleges and
universities. This representation includes statutory and regulatory compliance and investigation work relating to the Higher Education Act of 1965 and
federal student aid programs. It also includes issues relating to NCAA investigations, faculty tenure, financing expansion, low-income housing, 501(c)(3)
and other tax issues, student lending compliance and investigations, intellectual property, students and academics, housing, governance, endowment
management, and construction.
McGuireWoods Private Wealth Services
Our private wealth services team stands ready to help clients and
their advisors obtain estate planning results that benefit themselves and their families from tax and non-tax perspectives. The team has been ranked by Chambers, the international rating service for attorneys, as one of the top wealth management legal practices in the country for several years.
Our professionals throughout the United States and in London are dedicated to estate planning and the analysis of related tax and fiduciary issues. Click here for a full list of team lawyers and their