IRS Releases 2011 Annual Report and 2012 Work Plan for Exempt Organizations

February 17, 2012

On Feb. 8, 2012, the IRS Director of Exempt Organizations released the IRS’s 2011 Annual Report and 2012 Work Plan for Exempt Organizations. The annual report and work plan are available for download at the IRS website. The work plan sets forth the IRS focus areas for 2012. Under the work plan, the IRS plans to continue to process applications for reinstatement of exemption from organizations whose exemptions were revoked under the provisions of the Pension Protection Act of 2006 for failure to file an annual return for three consecutive years. The IRS will also continue to work on guidance for hospitals under Section 501(r), qualified nonprofit health insurance issuers (known as Section 501(c)(29) organizations), and accountable care organizations.

The IRS also intends to focus on Section 501(c)(4) social welfare organizations, Section 501(c)(5) labor, agricultural and horticultural organizations, and Section 501(c)(6) business leagues and trade associations. In particular, the IRS will send questionnaires to a cross-section of these organizations to assess compliance issues, including whether these organizations have classified themselves correctly in light of the rule that these types of organizations are permitted to self-classify rather than file an application for recognition of exemption with the IRS.

The IRS also will focus its examination resources on the controversial area of political campaign activity. The IRS will use information from the revised Forms 990 submitted in recent years to investigate allegations of impermissible political intervention and compliance with political campaign expenditure rules.

Another priority for the IRS will be to look at organizations that report significant gross receipts from unrelated business activities but report that no tax is due and therefore do not file a Form 990-T. The IRS will also use information from the revised Forms 990 to examine connections between governance practices and tax compliance.

In the international area, the Exempt Organizations Division collaborates with other units in the IRS, and the EO Division intends to build on these projects to ensure that charitable organizations that report ownership of a foreign bank account do not divert funds from their charitable purposes. The IRS plans to release two new publications to assist both foreign and domestic charities that have international activities.

The EO Division plans to complete its part of the third and final year of an agency-wide project looking at employment tax matters, as well as its analysis of the colleges and universities compliance questionnaire results (for which an interim report was released in 2010) (See IRS Releases Interim Report on College and University Questionnaire). The IRS plans to improve its website as a resource for exempt organizations.

The IRS will continue to analyze the issue of group exemptions by developing a questionnaire to be sent to organizations with a group exemption. Other issues on which the IRS will focus include foreclosure assistance organizations, state-sponsored workers’ compensation organizations, and the rules regarding disaster relief efforts.

Tax-exempt organizations should be aware of the areas of focus in the 2012 Work Plan because it not only provides an update on the EO Division’s current activities, but also offers a glimpse of future initiatives that the IRS plans to undertake.

McGuireWoods LLP Nonprofit and Tax-Exempt Organizations Group

The lawyers in our nonprofit and tax-exempt organizations group provide advice and guidance on a variety of legal issues to enable charities and other nonprofits to operate more efficiently and effectively in the increasingly complicated, regulated, and competitive environment.

McGuireWoods LLP 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 LLP Healthcare Group

McGuireWoods offers a knowledgeable team of more than 50 lawyers experienced in serving the needs of the healthcare, pharmaceutical, life sciences and medical device sectors. We understand the daunting array of legal and business issues our clients face, and we work to find effective solutions to their daily challenges.