Thursday, April 30, 2009

New IRS Workplan Offers Clues About Priorities for Exempt Orgs

The IRS's strategic plan for 2009-2013 offers some clues about where the agency is headed with regard to oversight of tax-exempt organizations (it's a very spiffy publication, by the way).  Here is the text of the IRS's "Objective 5: Continue focused oversight of tax-exempt sector":

More than $15 trillion in assets are currently controlled by tax-exempt organizations or held in tax-exempt retirement programs and financial instruments. The massive size of this sector requires us to provide more careful oversight and advisory support than ever before.

Tax-exempt and government entities often find it difficult to navigate the complicated, specialized and changing tax rules that apply to them. The IRS will provide guidance and information to help tax-exempt and government entities understand their responsibilities and comply with the law. We will also discourage those who abuse tax-exempt status by actively seeking them out and addressing wrongdoing, making it clear that violations carry a high risk of meaningful punishment.

Certain segments of the tax-exempt sector, such as hospitals and universities, are especially large, complex and growing. For example, university endowments grew by 17 percent to $411 billion in 2007, with the largest nearing $35 billion. Due to their size and complexity, and consequent risk to the tax base, the IRS will continue to monitor compliance and enforce the rules applicable to universities, hospitals and other major segments of the tax-exempt community.

Translated, the IRS seems to be warning tax-exempts that the agency will be paying ever closer attention to this sector, particularly the "heavyweights": hospitals and universities.  But that ever closer attention should also include more IRS published guidance, workshops and seminars.  Noticeably absent from the workplan is any suggestion that the IRS might reconsider the substantive basis for exempting nonprofit hospitals, something that Steve Miller, former commissioner of TE/GE, has intimated is long overdue, but perhaps not something the IRS should undertake without Congressional intervention.  And I suppose there is some sense in the notion that any attempt to revisit substantive exemption standards for hospitals should await health care reform, which everyone thinks really, truly will happen this time around.  


Meanwhile, I'm beginning to wonder whether big universities ought to be exempt, as well.  While perhaps not as ruthlessly bottom-line oriented as modern nonprofit hospitals, universities increasingly are beginning to look like business conglomerates, with an abundance of joint ventures with for-profit companies in areas of research and development, large real estate holdings for research parks and other for-profit ventures, and ever-increasing tuition as their largest source of revenue (and don't get me started on Division I athletics . . .).  Just as nonprofit hospitals today bear no resemblance to the institutions we routinely exempted in the early 1900's, universities today bear little resemblance to the ivy towers of an earlier age.  These institutions (hospitals and universities) are dynamic, changing enterprises.  Is it too much to ask that the law of tax-exemption try to keep up with the changes??

JDC

http://lawprofessors.typepad.com/nonprofit/2009/04/new-irs-workplan-offers-clues-about-priorities-for-exempt-orgs.html

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