As we near the end of 2015, there are numerous IRS-related issues of interest to the nonprofit and tax-exempt community. Below is a quick summary of the ones that have caught my interest recently:
- Just this week, IRS Commissioner John Koskinen testified before the Senate Finance Committee in response to the Committee’s report about the processing of applications for tax exempt status. His testimony can be found here. The items I found of most interest were: 1) the average number of days that it takes to process an exemption application are down to 107 for 1023s, and 112 for 1024s; and 2) a summary of some of the public comments previously received on the proposed regulations regarding political campaign intervention by 501(c)(4)s was provided with the written testimony above (starting at page 11), and from the testimony itself it sounds like we should have another set of proposed regulations regarding political campaign activity coming next year (“early next year”).
- Audits are the name of the game at the IRS these days. Changes in the 1023/1024 review process have led to the IRS shifting resources over to the audit side. Both the 1023 and 1023-EZ have “post-determination compliance” programs that are targeting organizations that have newly received tax exempt status. In addition, the IRS has said that audits are going to be more data driven (all the more reason to have a complete and accurate Form 990), and current issues of interest are: 1) issues affecting exemption, like non-exempt purpose activities and private inurement; 2) protecting assets, focusing on disqualified person issues, excess benefit transactions, and self-dealing issues; 3) tax gap issues, specifically with regard to employment taxes and the unrelated business income tax; 4) international activities, including oversight on funds spent outside the US, foreign conduits, FBAR requirements and FACTA; and 5) emerging issues like 501(r) regarding tax exempt hospitals, and non-exempt charitable trusts.
- The automatic 3 month extension for the Form 990 will soon be an automatic 6 month extension – look for changes affecting 2016 returns
- Final Regulations were issued regarding private foundations and the reliance standards for making a good faith determination that a foreign organization is the functional equivalent to a US 501(c)(3). Previously, private foundations could base a good faith determination solely on an affidavit from a foreign grantee that it qualifies as a charity under US tax laws. The new Regulations allow that to remain part of the process, but it cannot be the only thing a good faith determination is based upon. The Regulations also expand the class of people that a private foundation can get advice from to all “qualified tax practitioners.”
- In early 2016, it is expected that the IRS will start making 990s available in a modernized e-file format that will make them more searchable (think watchdogs, media). Yet another reason to have an accurate and complete return.
***Note, on 11/3 this post was updated to remove an update regarding the 1023-EZ.