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Business and Policy Areas
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IRS to Focus on Private Benefit and Inurement, Payroll Tax, and Other Compliance Issues

October 13, 2017

The Internal Revenue Service’s Tax Exempt and Government Entities (TE/GE) Division released its work plan for FY18 on September 28. The IRS plan summarizes the division’s accomplishments in FY17 and outlines the following areas of focus in FY18—several of which could impact colleges and universities.

1. Compliance strategies will focus on supporting organizations, previous for-profit entities, and private benefit and inurement.

  • Supporting organizations: The IRS will focus on examining supporting organizations that file Form 990-N.
  • Previous for-profit entities: The IRS will focus on examining organizations that operated as for-profit entities prior to their conversion to section 501(c)(3) status.
  • Private benefit and inurement: The IRS will focus on examining organizations with indicators of potential private benefit or inurement to individuals or private entities.

2. Compliance strategies will also focus on complex worker classification and complex fringe benefit issues.

  • Early retirement incentive plans: The IRS will focus on examining entities that provide cash and other options to employees as an incentive for early retirement.
  • Form W-2/1099 matches: The IRS will focus on examining entities that should have reported Form 1099 payments as wages subject to FICA tax and income tax withholding.
  • FUTA tax: The IRS will focus on examining section 501(c)(3) organizations that handle payroll for a section 501(c)(4) organization without paying the FUTA tax on the section 501(c)(4) organization’s employees.
  • Notice CP 2100 – backup withholding: The IRS will focus on examining entities that failed to comply with backup withholding requirements due to mismatched and/or missing Taxpayer Identification Numbers on Form 1099. 

3. Compliance checks will focus on wage, UBIT, and financial assistance policies.

The IRS will continue to conduct compliance checks, which is a tool to help educate exempt organizations about their recordkeeping requirements and encourage voluntary compliance with the tax laws, with a focus on the following:

  • Tax-exempt employers with discrepancies between the Form W-2 and Form 941/944.
  • Tax-exempt organizations that fail to file the required Form 940.
  • Section 501(c)(7) organizations that reported investment income on Form 990/990-EZ but didn’t file Form 990-T.
  • Tax-exempt hospitals that did not comply with the financial assistance policy requirement under IRC §501(r)(4).

4. Continued focus on a data-driven approach to examinations alongside referrals, claims, and other casework.

  • The IRS will continue to improve the Form 990, 990-EZ, and 990-PF compliance models and test the new model for Form 5227, Split Interest Trust Information Return.
  • The IRS will continue to identify returns with the highest risk of employment tax noncompliance (e.g., zero to minimal Medicare and/or Social Security wages paid compared to Form 1099 distributions).
  • The IRS will continue to pursue referrals alleging noncompliance; address requests for refunds, credits, and adjustments; conduct post-determination compliance of entities that filed the Form 1023-EZ or received a streamlined review of the Form 1023; and examine a statistical sample of returns to ensure comprehensive compliance. 

Helpful Tools

During the past year, TE/GE continued publishing “issue snapshots” and “issue podcasts” as additional resources. Snapshots focus on a specific technical tax topic (e.g., exclusive provider arrangements with qualified sponsorship agreements) and include a summary of key case law, rulings and other authorities, analysis, and issue spotting and audit tips. Podcasts summarize certain areas of practice and are accompanied by written reference materials. Snapshots and podcasts are available online.

Contact

Mary Bachinger
Director, Tax Policy
202.861.2581
E-mail