Friday, May 24, 2024

IRS EO Statistics & Compliance Priorities Update

Download (24)Recent months have seen the usual steady flow of IRS data releases and compliance updates that reflect both the continuation of past trends (e.g., very limited enforcement, continued growth of giving to DAFs) and new developments (e.g., scrutiny of tax-exempt NIL collectives). Here are some highlights:

  • The 2023 IRS Data Book (for the fiscal year ended 9/30/23) reports:
    • Of 109,482 applications for tax-exempt status under section 501 closed, the IRS approved 103,069 (86.3%), disapproved 88 (0.07%), and otherwise disposed of 16,325 (13.7%). As usual, the bulk of these applications were under section 501(c)(3) (114,073 closed, 98,417 approved, 62 disapproved, 15,594 otherwise disposed), with only 501(c)(4), (c)(6), and (c)(7) have more than 1,000 applications each (and less than 2,000 each). (Table 12)
    • There were 3,025 notices of intent to operate under section 501(c)(4) received and 587 rejected. The Data Book notes "[e]xamples of notices that would be rejected include notices from organizations not required to file Form 8976 (e.g., organizations that filed [a Form 990 series return] or Form 1024 on or before July 8, 2016, or organizations already exempt under other Internal Revenue Code subsections) or where the IRS cannot confirm an organization’s Employer Identification Number." (Table 13)
    • There were 1,999,457 tax-exempt organizations, nonexempt charitable trusts, and split-interest trusts, of which 1,847,501 were tax-exempt under section 501(c) and 1,514,558 under section 501(c)(3). (Table 14)
    • The IRS examined 1,029 Forms 990, 990-EZ, and 990-N (Table 21). Since these are past year returns there is not a directly comparable number of such forms filed provided in the Data Book, but it likely fair to say this figure reflects a continuing examination rate of less than 0.2% and probably closer to 0.1%.
    • Chief Counsel reported receiving 1,000 new tax law enforcement and litigation cases in TEGE Division Counsel, as well as closing 1,128 cases and having 845 cases pending as of 9/30/23. (Table 30)
  • The EO Tax Journal reported (subscription required) that as 1/26/24 the average processing time for closed Form 1023s was 105 days, for closed Form 1023-EZs 22 days, and for closed Form 1024s 178 days. For Fiscal Year 2024 as of the same date, the 637 closed exams had a 74.4% change rate.
  • The current TEGE Compliance Strategies now include tax-exempt NIL collectives with this explanation: "The focus of this strategy is to ensure that exempt organizations identified as supporting athletes through the use of their name, image, or likeness, for compensation, disclosed their activities in their application for exempt status and that those activities are in full compliance with the existing legal requirements under Internal Revenue Code Section 501(a). The treatment stream for this strategy is examinations."
  • Last but not least, the current IRS Dirty Dozen list now includes art donation deductions, CRATs, and fake charities.

Lloyd Mayer

https://lawprofessors.typepad.com/nonprofit/2024/05/irs-eo-statistics-compliance-priorities-update.html

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