ISSUE

Each year, the IRS Tax Exempt & Governmental Entities (which includes Exempt Organizations) issues its Fiscal Year Tax Exempt & Government Entities Program Letter.  This year’s letter is very positive, but heavy on compliance goals.

 

SITUATION

Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

TBC’s Controller calls to ask about what is going on the with IRS and exempt organization audits.

We tell him that his question is timely because the IRS just released their annual “TE/GE Program Letter” for fiscal year 2020.  In that letter, the priorities for the “Fiscal Year 2020 Compliance Program” are listed as Compliance Strategies; Data-Driven Approaches; Referrals, Claims and Other Casework; Compliance Contacts; Determinations; Voluntary Compliance and Other Technical Programs.  Further, to quote the letter, “Data is used to identify and address existing and emerging high-risk areas of noncompliance and steer the decisions on how best to apply optimal resources.”

Exempt Organizations projects include focusing especially upon:

  • Hospital organizations with unrelated business income (UBI): focus on unrelated business taxable income (UBTI) reported on Form 990-T, Exempt Organization Business Income Tax Return, where expenses materially exceed gross income.
  • IRC 501(c)(7) entities: focus on investment and nonmember income by tax-exempt pleasure, social and recreation clubs.
  • IRC Section 4947(a)(1) Non-Exempt Charitable Trusts (NECTs): organizations that under-report income or over-report charitable contributions.
  • Previous for-profit: organizations formerly operated as for-profit entities prior to their conversion to IRC Section 501(c)(3) organizations.
  • Private benefit and inurement: organizations show indicators of potential private benefit or inurement to individuals or private entities by way of private foundation loans to disqualified persons.

For colleges, seminaries, and universities, we should pay close attention to 1) the hospital UBIT focus, 2) private benefit and inurement, and 3) ensuring that our Form 990’s are complete and accurate.

The TE/GE Fiscal Year 2020 Program Letter can be found at:

https://www.irs.gov/pub/irs-tege/tege-fy2020-program-letter.pdf

Hope that helps!

 

RULES

From IRS TE/GE Fiscal Year 2020 Program Letter (released 10/16/19):

Data-Driven Approaches

Data-Driven Approaches use data and queries to select work based on quantitative criteria, which allows TE/GE to allocate resources that focus on issues that have the greatest impact. TE/GE is committed to integrating data into its processes and procedures and will use return data and historical information to identify the highest risk areas of noncompliance.

Exempt Organizations

Query sets (previously referred to as models): continue to improve compliance query sets based on information reported on Form 990, Return of Organization Exempt From Income Tax; Form 990-EZ, Short Form Return of Organization Exempt From Income Tax; Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation; and Form 5227, Split Interest Trust Information Return.

RAAS collaboration: continue to review various items and activities, including private benefit/inurement.

 

BOTTOM LINE

  • There is a lot to be gleaned from the TE/GE Fiscal Year 2020 Program Letter that was released last week.
  • When the IRS is looking at hospitals from a certain “perspective” (see UBIT in list above), higher education could very likely be next.
  • Make sure that your institution has policies and procedures in place (and follows them) with regard to safeguarding against “private benefits” (i.e. Accountable Reimbursement Plan, following Treasury Regulation 53.4958-6 with regard to setting executive compensation, etc.)
  • Closely review your Form 990 and diligently follow the instructions with an eye on what the IRS is checking with their “data-driven approach.”

 

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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