This year’s report of the Exempt Organizations (EO) Subcommittee of the IRS Advisory Committee on Tax Exempt and Government Entities (ACT) focused on planning for the future, which it predicted will not be positive unless its recommended changes are implemented. The full report also included the results of the sector-wide survey of Form 990 data users and filers.
Some critical factors were highlighted by IRS stakeholders — dwindling resources, declining budgets, loss of historic knowledge and personnel, and antiquated technological platforms. For example, the EO has experienced flat or declining budgets over the last three years and the loss of 100 employees. With fewer staff, the percentage of exempt organization returns subject to audit is now about 0.4 percent. And of course, fewer staff also means that there is less expertise available to address questions and issues related to EO tax administration. This situation certainly contributes to the widely held view that the IRS is not able to regulate the tax-exempt community consistently and effectively.
Some of the ACT recommendations are obvious (better training for EO staff; leadership and guidance on major issues impacting the sector; improved communication between EO and nonprofits) and don’t require any reaction, but there are two that merit more discussion:
Release of Information on Compliance Audits
The ACT recommended that the EO release more information about compliance problems raised in audits — non-identifiable audit information, not return information specific to tax payers. This would include:
- the number and type of organizations reviewed (but not the specific identities of audited institutions), not just the aggregate number of returns;
- the most frequently occurring issues that result in tax assessment and penalties; and
- the outcomes (Did the audit result in a modification of exempt status? Was tax-exempt status revoked? What is the average tax assessment per return examined and per organization examined?)
These data on the type and frequency of specific areas of noncompliance and the impact of the investigations on the organizations could actually help improve compliance and work to create a more self-sufficient sector. This is in addition to the obvious deterrent effect. Publicity is always an effective compliance tool. It also can reassure those who donate money to charities that there really is some ongoing and effective oversight of the sector by the EO.
Release of Form 990 Data in a Usable Format
The ACT recommended that:
“The IRS Exempt Organizations Division should encourage and support a Congressional mandate to require electronic filing of the Form 990 series and should also take interim steps to encourage and provide incentives for voluntary e-filing of the Form 990 series for exempt organizations that are not subject to the mandatory e-filing requirements. The IRS should recommend to the Department of Treasury the elimination of the $10 million asset threshold for electronic filing of the Form 990 found in the Internal Revenue Code Section 6011 regulations.“
In June 2016, the IRS began posting e-filed Forms 990 in the public domain in digitized format. Users of these data, including ERI, are in the process of analyzing how best to access and incorporate this newly available information. At the moment, this piecemeal approach to the data provision makes using Form 990 data a challenge. Mandatory e-filing would greatly improve the data availability for the sector, if all the e-filed data are then available in a usable format.
The ACT Committee reports each year and makes recommendations, and this year’s report contains few surprises. With trust in the agencies responsible for compliance with the charitable rules and regulations at an all-time low, hopefully more attention will be paid. When budgets are cut and resources are scarce, making more data available at least aids in the efforts of the EO and IRS to remain credible overseers of the nonprofit sector.