In a recent call with practitioners, Tammy Ripperda (Director, Exempt Organizations, IRS) provided an overview of IRS Fiscal Year 2014 and a preview of what is to come for exempt organizations in IRS Fiscal Year 2015.
Exemption Application Backlog. As many exempt organization (“EO”) practitioners are aware, the IRS has continued to reduce the backlog of pending exemption applications. Last December, the average age of pending applications (at that time, approximately 70,000) was more than one year. As of November 2014, the average age of pending applications was 150 days.
Form 1023-EZ. Although the overall reception of Form 1023-EZ by the EO community has been mixed, the IRS has seen tangible results since its adoption. Since July 1, 2014, of the more than 18,000 applications received, approximately 55-56% were submitted on Form 1023-EZ. Organizations submitting the Form 1023-EZ have generally received determination letters within 60 days of submission.
Beginning in October, the IRS began a post-determination compliance program to review a sample of organizations approved as exempt. To date, these samples have been pulled from the Form 1023 applicants. Beginning in IRS Fiscal Year 2015, the IRS will also pull samples from 1023-EZ applicants, with a focus on an organization’s eligibility to file Form 1023-EZ, compliance, and eligibility under Section 501(c)(3).
EO Exams. EO Exams will be shifting to a risk-based analysis procedure, which Ms. Ripperda labeled as having a sharper focus on identifying “the next best case to work.” The goal is to leverage resources while focusing on the relevant issues and considering the potential damage to the EO community and the potential for deterrence. Ms. Ripperda noted that recent IRS compliance studies tended to misalign IRS priorities based on aging information.
Going forward, EO Exams will focus on five key areas: (1) exemption issues (i.e., activities audits, post-determinations compliance); (2) protection of charitable assets (i.e., excess benefits transactions and other diversions); (3) tax gap issues (i.e., unrelated business income tax or “UBTI” and employment tax compliance); (4) international issues (i.e., anti-terroristic financing and Report of Foreign Bank and Financial Accounts or “FBAR” compliance); and (5) emerging issues (including the proactive identification of issues and educational outreach).
Realignment. As part of the much-discussed realignment of EO (effective mid-January), sixteen employees will migrate to the IRS Office of Chief Counsel. The divisions formerly known as EO Technical and EO Guidance will no longer exist, and EO Determinations will collaborate with Chief Counsel as needed on determinations matters. Additionally, it is expected that EO tax law specialists will be encouraged to regularly refer legal issues and questions to Chief Counsel.
As part of this process, EO is creating a knowledge management system to provide technical resources, education, and training for all tax law specialists and agents across the IRS Tax Exempt & Government Entities (“TE/GE”) Division; some resources may resemble the former IRS CPE texts, which provided guidance both within the IRS and to the practitioner community. It is anticipated that the IRS Subject Matter Directory will continue to be published, but will be reformatted in light of the realignment.
EO Leadership Changes. Ms. Ripperda also highlighted several EO leadership changes. Matt Weir (formerly, Director of Rulings & Agreements, IRS) has left for Treasury, and John Liddell will hold the position of Acting Director of Rulings & Agreements. Margaret von Lienen recently assumed the role of Director of EO Exams and will be relocating to Dallas, Texas.