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IRS TE/GE division’s FY 2019 program letter

IRS TE/GE division’s FY 2019 program letter

The IRS Tax Exempt and Government Entities (TE/GE) division on October 3, 2018, released a program letter—referred to as a work plan or priority letter, in prior fiscal years—for fiscal year (FY) 2019 on October 3, 2018.

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The program letter briefly describes FY 2018 activities and outlines projects and priorities for FY 2019 regarding exempt organizations, employee plans, Indian tribal governments, and tax-exempt bonds. The program letter also indicates that TE/GE will provide a full review of FY 2018 accomplishments during the first quarter of FY 2019, as it did last year. 

Read the FY 2019 TE/GE program letter [PDF 172 MB].

FY 2019 program letter

Highlights of the program letter include:

Compliance strategies: Exempt Organizations (EO) will prioritize examinations of the following:

  • Section 501(c)(7) social clubs – focus on investment income, non-member income, and Form 990-T noncompliance
  • Section 4947(a)(1) non-exempt charitable trusts – focus on organizations that under-report income or over-report charitable contributions
  • For-profit conversions to section 501(c)(3) – focus on organizations formerly operated as for-profit entities prior to their conversion to section 501(c)(3) organizations
  • Self-dealing by private foundations – focus on organizations with loans to disqualified persons
  • Early retirement incentive plans – determine whether federal, state, or local governmental entities that provide cash (and other) options to employees as an incentive for early retirement have applied proper tax treatment to these benefits
  • Forms W-2/1099 matches – compare payments reported on Form 1099-MISC with wages reported on Form W-2 (subject to FICA tax and income tax withholding)
  • Notice CP 2100 (backup withholding) – determine whether mismatched and/or missing taxpayer identification numbers on Forms 1099 indicate failure to comply with backup withholding requirements

Data-driven approaches: EO will continue to improve compliance models for Form 990, Form 990-EZ, Form 990-PF, and Form 5227. In addition, EO will use data-driven selection models to identify returns filed by exempt organizations and government entities with the highest risk of employment tax non-compliance (e.g., substantial credit balances with no returns or zero to minimal Medicare and/or Social Security wages paid compared to Form 1099 distributions). EO will also continue to collaborate with the Research, Applied Analytics, and Statistics division to review various items and activities, including private benefit, inurement, officer business partnerships, underreported credit card income, and related employees and for-profit partnerships.

Referrals, claims, and other casework: EO will continue to: (1) pursue referrals received from internal and external sources that allege noncompliance by exempt organizations and government entities; (2) address requests for refunds or credits of overpayments of amounts already assessed and paid; and (3) examine entities that filed and received exemption using Form 1023-EZ. The scope of these exams will include: (1) applicants who are ineligible to file Form 1023-EZ; (2) applicants who donate to (or pay expenses for) individuals; and (3) applicants operating bingo or other gaming activities. 

Compliance contacts: EO will continue to use compliance checks and “soft letters” to determine whether an entity is adhering to recordkeeping and information reporting requirements—e.g., tax-exempt employers with discrepancies between Form W-2 and Forms 941/944, failure to file Form 940, failure to file Form 990-T, tax-exempt hospital organizations that did not comply with section 501(r)’s financial assistance policy requirement, supporting organizations that filed Form 990-N.

Determinations: EO expects a continued increase in determination applications and will concentrate on identifying new strategies for reducing filing burden and case processing time. EO will also hire approximately 40 new revenue agents to process determination applications to help offset application increases and workforce attrition.

Other TE/GE groups

The FY 2019 program letter also includes objectives for other TE/GE groups, including employee plans and Indian tribal governments / tax-exempt bonds. 

 

For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Preston Quesenberry | +1 202 533 3985 | pquesenberry@kpmg.com

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