This has been quite a year for the tiny corner of the IRS tasked with overseeing tax exempt organizations. The criticism of the handling of tax-exemption applications for political groups brought more attention to the Exempt Organization (EO) division than the nonprofit sector ever thought possible – and brought down not only the top staff in charge of the division, but also the acting director of the IRS. With the recent publication of the IRS 2013–2014 Priority Guidance Plan, it appears that the efforts to reform the application process for tax exempt organizations are still the highest priority for the EO. 

Overall, the IRS lists 324 projects throughout the entire organization that are priorities for the year (July 2013 to June 2014). These activities will be worked on actively during the year, but with no deadline. The IRS states that important issues include guidance on international taxation and health care, and the implementation of legislative changes, but for the EO division, the list focuses on clarifying the regulations governing 501(c)(4) social welfare organizations and filing requirements for all exempt organizations.For example, this would include guidance on measuring a 501(c)(4) organization’s primary activity and whether it is operated primarily for the promotion of social welfare and/or political campaigns. 

Although compensation reporting was not specifically mentioned in the Plan, the EO sent a strong message in an April report about focusing its compliance efforts on the following issues:

  • Reporting unrelated business income.  If there are multiple years of losses, there may be questions about the activities’ relationship to the organization’s purpose and the allocation of expenses to these activities.
  • Documenting executive compensation decisions.  Appropriate comparability data must be used to set compensation. ERI’s Nonprofit Comparables Assessor gives access to the Forms 990 of similar organizations.  Check out the free demo version.
  • Coordinating reporting on employment tax returns. The IRS runs a check of what’s reported for compensation on Form 990 and employment tax returns, so make sure reporting is consistent.