Overall, the agency’s TE/GE Division intends to continue initiatives begun during the past two years. Those include increased use of data analytics in deciding on case selection; the use of filters and models that aid in the selection of returns; the unification of exempt organizations, employee plans, and government entities into one entity for closing cases; and the monitoring of the new interactive Form 8038-CP for tax-exempt bonds.
Here’s a closer look at what’s ahead:
Improvements are expected for forms 990, 990-EZ, and 990-PF case selection models.
New models for forms 227 and 990-T will be put in place.
A model for case referrals will be developed.
Reviews of tax-exempt hospital compliance under Code Section 501(r) will continue.
Data analytics will be used to identify 400 returns of organizations at risk for inurement and private benefit issues, and to identify 100 returns of private foundations that contain anomalies.
A statistical sampling method will be put in place that will assess compliance.
A plan will be developed for an ongoing rolling statistical sample of 501(c)(3) and 501(c) organizations for compliance assessment and to address concerns in the US Government Accountability Office’s 2014 audit, Tax Exempt Organizations: Better Compliance Indicators and Data, and More Collaboration with State Regulators Would Strengthen Oversight of Charitable Organizations.
Retirement plan noncompliance will be the target of various enforcement strategies to be developed.
Enhance voluntary compliance.
Eliminate fraud and abusive schemes that undermine the retirement system.
Casework will include focus on specialty programs, including team audits, multiemployer plans, Section 403(b)/457(b) plans, cash balance plans, hybrid 401(k) plans (such as those with age-weighted new comparability features), and employee stock ownership plans.
Noncompliance issues to be examined include distributions, service crediting, universal availability (403(b)/457 plans), allocation and contribution limits, participation/discrimination, and stock valuation.
Traditional casework will continue to select plan types based on risk targets and pursue taxpayer and interagency referrals, 401(k) plans, funding deficiencies, and nonbank trustee investigations.
Data analytics and other programs will be used to better identify abusive behavior and noncompliance.
Federal, State, and Local Governments
Increase audit efficiency.
Focus on large entity examinations.
Focus on data to identify best cases.
Increase limited-scope exams.
Work on compliance issues, such as refund claims, compliance check projects, and small exam projects.
Enhance technical knowledge.
Exams will focus on five gross wage categories based on Form 941 filings: $0 to $2.5 million, $2.5 million to $10 million, $10 million to $40 million, $40 million to $100 million, and more than $100 million. Emphasis will be placed on governments with gross wages of $10 million or more, as about 75 percent of exam closures are in this group. This focus targets the tax gap and greatest risk of noncompliance.
Several projects will determine high risks for noncompliance and test for patterns that will lead to improved case selection.
Priority will be given to claims and returns identified because of noncompliance, such as whistleblower referrals, and those with past issues.
Exam projects, such as returns for prison financings and small-issue bonds to occur during 2017, will continue from FY 2016.
Data analytics will identify new areas of noncompliance.
Methods to identify returns with multiple or significant indications of noncompliance are being developed. Classified returns for assignment are expected to be produced during the second half of FY 2017, with exams continuing into 2018.
While voluntary compliance agreement cases will be given priority, those are expected to require fewer resources. In FY 2017, TE/GE expects a streamlined program for certain arbitrage violations.
Government Entities Compliance Services
This group will take on correspondence, single-issue exams, compliance checks, and soft contacts from federal, state, and local governments and tax-exempt bonds.
Focus will be on refund claims and increased reliance on data analytics.
Case selection will be based on high risk or noncompliance with a specific issue, a test of noncompliance patterns or theories that will improve case selection, or a test to improve understanding of government entity compliance.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.