Nonprofit Accounting Basics

IRS 2013 Exempt Organization Workplan—A Guide to IRS Hot Issues and Initiatives

On January 25th, the IRS Exempt Organizations Group (EO) released its FY 2012 Annual Report and FY 2013 Workplan. The annual report is a look back at EO accomplishments, results of some prior-year initiatives, and developments within the group. The workplan contains descriptions of on-going and new projects EO will be concentrating upon in the current year.

Significant highlights of the 2013 workplan include:

  • Continuation of compliance checks on organizations who did not file Form 990 or 990-EZ. Under relatively new rules, organizations that do not file a 990 series return for three years will automatically lose exempt status.
  • As part of a three-year national project affecting all types of entities, EO will be completing 2,500 employment tax examinations in the final year of the initiative.
  • International activities will continue to be the subject of projects at EO, with the focus shifting from FBAR reporting to examinations of organizations with high amounts of foreign grant expenditures. An examination project started last year of large private foundations with international activities, and organizations with significant gift-in-kind programs will be completed this year.
  • In 2012, the IRS developed a questionnaire for central organizations with group rulings. In late 2012, these questionnaires were sent to some 2,000 organizations. The data from these will be analyzed for the purposes of learning about the relationship between central and subordinate organizations and ways that filing requirements can be satisfied. The group exemption has increasingly been a concern with the IRS, so the results of this project may impact future rules for subordinate group filings and other compliance.
  • Many non-charitable organizations can operate as tax exempt without filing an exemption application (Form 1024). In 2012, the IRS developed a questionnaire for such “self declarers” identified as 501(c)(4),(5), and (6) organizations to determine if they have properly classified themselves and are complying with the applicable rules. In 2013, EO will send out questionnaires to organizations that “self-declared” on Form 990 for the 2010 or 2011 tax years.
  • A number of projects have been generated from a long-term study which focuses on data gleaned from the Form 990:
    • A charitable spending initiative examining small organizations will be changing focus to examination of medium and large organizations with large fundraising amounts in comparison to charitable program expenditures, and also to organizations with significant fundraising income but little or no fundraising expense being reported.
    • 200 examinations in the area of executive compensation will begin in 2013 based on information gathered in 2012.
    • From Form 990 data, some 300 organizations were identified as having indicators of possible non-compliance in the area of political activity. This information is being sent to a committee of career civil servants for determination if examinations are warranted. The same committee also will evaluate referrals for outside sources alleging political campaign intervention in the recent election year.
  • EO is developing an interactive version of the Form 1023 exemption application for charitable organizations which will feature pop-up explanations for various lines on this form. This product should be available in 2013.

Last and certainly not least: Perhaps of greatest importance to a large number of organizations, EO will continue on its Unrelated Business Income (UBI) project. In 2013, focus will shift from organizations with UBI that did not file Form 990-T to organizations that have reported “substantial” gross UBI for three consecutive years but have reported no income tax due. A “statistically valid” sample of such organization will be examined. We see many organizations in this situation. Many have valid and defendable reasons for the losses, while others may find an expensive surprise if selected for this examination project.

We urge organizations and their advisors to review the entire annual report and workplan for additional information that may be applicable to their organizations. It is easily digestible and written in plain English.