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Posted by Charlie Ciccone on Tue, Feb 23, 2016 @ 01:00 PM


Regulatory changes and areas of focus can be hard to predict, but the IRS and the Department of Treasury’s plans for the 2016 fiscal year provide a good indication for what may be coming down the line for not-for-profit organizations.

The IRS’s Tax-Exempt/Government Entities Priorities (TE/GE) for Fiscal Year 2016 and the Department of the Treasury’s 2015-2016 Priority Guidance Plan indicate a number of reporting areas that the regulatory agencies want to improve in the coming year. Not-for-profit organizations should keep a close eye on these focus areas to be prepared for the potential impact these changes could have on their operations.

Compliance Focus Areas

To make sure that resources are being used appropriately, the IRS is using data-driven decision making to inform how it will use its compliance resources in 2016. Examination plans will focus on strategic areas or issues where there may be a greater risk of noncompliance. Some of the areas being targeted include employee benefit plans, tax exempt bond compliance and organizations who received their exempt status from the on-line Form 1023-EZ.

Employee Benefit Plan Reporting- IRS monitoring of employee benefit plans will have three target areas: Specialty programs which include multiemployer plans and 403(b) and 457(b) plans; traditional casework that focuses on profit sharing, money purchase, 401(k) and defined benefit plans; and supplemental work which includes Individual Retirement Arrangements and Form 5500-EZ. Various plan types will be sampled using the IRS’s risk assessment programs. The Employee Plans Compliance Unit (EPCU) will continue to use compliance checks to help educate plan owners and encourage self-correction through the Employee Plans Compliance Resolution System (EPCRS).

Tax-Exempt Bonds- In 2015, the IRS used change rate data and statistical sampling to identify the tax-exempt bond market segments with the highest risk of noncompliance. The 2016 priority agenda indicates that this area of scrutiny will continue; half of the IRS’s Tax-Exempt Bond Office’s budget for 2016 will be devoted to compliance-related examinations. Eighty percent of the budget allocated for compliance purposes will be targeted at market segment programs and 20 percent will address whistleblower referrals.

Form 1023-EZ- Data collection was used to analyze trends and patterns in Form 1023-EZ filings in 2015 and the process will be a compliance focal point in 2016. The priority plan indicates that the IRS will begin post-determination compliance enforcement for those entities that received tax exempt status using the streamlined determination process with Form 1023 EZ.

Other compliance resources will mainly be divided among these five regulatory areas of reporting:

  • Exemption issues, which evaluates non-exempt purpose activity and private inurement;
  • Protection of assets, which looks at self-dealing, excess benefit transactions and loans to disqualified persons;
  • Tax gap, which examines an organization’s employment tax and unrelated business income tax liabilities;
  • International dealings, which includes oversight on funds spent outside the United States and Report of Foreign Bank and Financial Accounts (FBAR) filing requirements;
  • Emerging issues, such as hospitals’ compliance with IRC section 501(r) put in place by the Patient Protection and Affordable Care Act of 2010 (ACA).

The IRS plans to shift 30 employees from exempt organization determinations to EO examinations to assist with compliance monitoring.

Areas Marked for Improvement

General improvements are also on the agenda for the IRS in 2016.The Service is looking into ways to provide better service and ease the compliance burden for its customers. It is delivering new outreach products that will allow customers to self-train in areas of higher complexity and regulation. The Service will be re-examining the Form 1023-EZ for potential improvements to the application and review process.

The IRS will be collecting and reviewing data to determine if an adjustment needs to be made in the number of Form 1023-EZs that it selects for a pre-determination review. Adjustments will also be made in correspondence processing to reduce erroneous exemption revocations.

Finalized Regulations Expected

The Department of Treasury's 2015-2016 guidance plan contains 277 key areas which the department has prioritized and allocated additional resources. There are no deadlines for project completion, but the plan is a useful tool to surmise the intentions of the Internal Revenue Service. Listed below are a few of the projects that are part of the Exempt Organization section of the priority guidance plan:

509(a)(3) Supporting Organizations- Issue final regulations and additional guidance on Section 509(a)(3) supporting organizations.

Dual Use Facilities - Additional guidance on the methods to allocated expenses on dual use facilities.

Political campaign intervention - Additional regulations for organizations exempt under §501(c).

Tax-Exempt Bonds - Final regulations related to public approval requirements for private activity bonds subject to Section 147(f) are expected. So, too, are final regulations related to arbitrage investment restrictions under Section 148.

Changes Coming for Private Foundations

When private foundations are considering grants to foreign charitable organizations, they must make a good faith determination that they are making a qualifying distribution. Foreign organizations must qualify as a public charity or private operating foundation in order for the distribution to be considered qualified. If the foreign entity did not qualify, the grant would be a taxable expenditure. Proposed regulations for the reliance standards provide additional guidance for Sections 4942 and 4945 of the Code, and the Department of the Treasury would like to finalize those proposed changes.

The Department of Treasury is looking at finalized guidance for private foundations making program-related investments. The proposed guidance provides examples of investments that qualify as program-related. Feedback from the proposed guidance raised additional examples, which the Department of Treasury would look to incorporate into the regulations outlined in Section 4944 of the code.

In its budget proposal, the IRS Exempt Organization division asked that the private foundation excise tax be moved from a two-tier system to a flat rate for ease of calculation. The President’s Fiscal Year 2016 budget also contained a provision to replace the two tax rates with a single rate of 1.35% on a private foundation’s net investment income.

Prepare Early

We will continue to keep you up-to-date as changes and proposed changes are released. For specific comments, questions or concerns about how these areas will affect your organization, please contact your CBIZ Tofias tax advisor, please contact us here


Ciccone_-_Web_ColorCharles Ciccone is a senior tax associate at CBIZ Tofias. He can be reached at or 617.761.0613.






Tags: tax changes, not-for-profit, Not-for-Profits, NFP

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