Friday, May 14, 2021
In 2016, the rise of Donald J. Trump turned a spotlight on his purported charitable activities and made "self-dealing" and similar legal terms headline news. With his departure from office (and the dissolution of his family foundation in the face of a New York Attorney General lawsuit), it might be expected that such topics would once again return to news obscurity. But legal issues raised by the involvement of some of his supporters with nonprofits continue to garner new headlines.
Just in the past month, three prominent supporters have had that spotlight shine on them and their nonprofit-related activities. As reported by the Washington Post, federal authorities have indicated Brian Kolfage, who worked with Trump-advisor Stephen K. Bannon on the "We Build the Wall" crowdfunding campaign and then 501(c)(4) nonprofit, with filing a false tax return for allegedly failing to report hundreds of thousands of dollars he received from that effort and other sources. And as reported by the Associated Press, former Trump campaign lawyer Sidney Powell now faces accusations in the lawsuit brought against her by Dominion Voting Systems that she used Defending the Republic, which claims to be a 501(c)(4) nonprofit, to pay for her personal legal expenses, an accusation she denies. And the fallout for Jerry Falwell, Jr. continues as Liberty University has now sued him for breach of contract and breach of fiduciary duties based on his alleged cover up of a personal scandal that led to his resignation as president and chancellor of the university.
Finally, congressional democrats continue to push for more information about possible tax-exempt nonprofit organization involvement in the January 6th attack on the Capital. As reported by Tax Analysts (subscription required), at this past week's ABA Tax Section virtual meeting a senior advisor to the Senate Finance Committee noted that Chair Ron Wyden remains interested in ensuring the IRS looks into which tax-exempt organizations helped plan the riots and whether any of them incited violence, thereby undermining their tax-exempt status.
Thursday, May 13, 2021
Last month the IRS issued a press release announcing eight new compliance initiatives for the Tax Exempt and Government Entities Division, which are now reflected on its Compliance Program and Priorities webpage. Of particular interest to exempt organizations are the following three new initiatives:
- Form 990-N Filers/Gross Receipts Model: The purpose of this strategy is to determine if an exempt organization was eligible to file Form 990-N where related filings indicate the $50,000 gross receipts threshold was not met. The treatment stream for this strategy is examinations.
- Officers Treating EO as Schedule C Business: The purpose of this strategy is to determine if officers and insiders of exempt organizations are claiming expenses of exempt organizations as Schedule C business deductions. Issues of focus are potential private benefit and inurement related to the exempt organization and potential adjustments to Forms 1040. The treatment stream for this strategy is examinations.
- Small EOs that Sponsor Retirement Plans: The focus of this strategy is to review retirement plans of small exempt organizations to determine whether the plan investments are properly administered, whether there are any party-in-interest transactions in the plan trust and whether any participant loans violate Internal Revenue Code (IRC) Section 72(p). Improper transactions between the plan and its participants can result in prohibited transactions under IRC Section 4975, deeming distributions as taxable income, or result in IRC Section 72(t) early distribution penalties. The treatment stream for this strategy is examinations.
Hat tip: KPMG.
The Treasury Inspector General for Tax Administration published earlier this month Fiscal Year 2019 Statistical Trends Review of the Tax Exempt and Government Entities Division. The report confirms that the Division has experienced both budget and staff reductions in recent years, although that trend started to reverse in fiscal year 2019. Here is the summary:
What TIGTA Found
The TE/GE Division is comprised of seven distinct functions: Employee Plans; Shared Services; Compliance Planning and Classification; and Exempt Organizations/Government Entities, which is comprised of the Exempt Organizations, Indian Tribal Governments, Tax-Exempt Bonds, and Federal, State, and Local (Governments)/Employment Tax functions. According to the IRS, the entities that the TE/GE Division serves employ almost 25 percent of the American workforce.
In May 2017, the TE/GE Division realigned the issue identification, planning, classification, and case delivery processes that were previously embedded within five functions into the consolidated Compliance Planning and Classification function. The reorganization has affected these five functions’ examinations units’ staffing, budget, and processes. In addition, in October 2018, the TE/GE Division established five new compliance groups, referred to as the TE/GE Compliance Unit, which in FY 2019 completed 4,863 compliance checks for three of the functions resulting in a 72 percent change rate.
New legislation often affects IRS operations and may require significant operational changes to implement it. Two new laws significantly affected the TE/GE Division’s operations during the years 2015 to 2019: the Tax Cuts and Jobs Act of 2017, and the Taxpayer First Act of 2019. In addition to legislative changes, the Federal Government had a lapse in appropriations from December 22, 2018, to January 25, 2019, that shut down most IRS operations for 35 days. As a result, the TE/GE Division experienced inventory backlogs in processing applications for tax-exempt status and timely completing compliance cases. However, IRS management stated that mitigation actions taken, such as allowing temporary overtime and detailing examination agents from one unit to another, addressed the backlogs of applications.
Over the FYs 2015 to 2019, the TE/GE Division’s budget decreased by more than $22.5 million (9 percent), although the FY 2019 budget increased by approximately $7.7 million (4 percent) over FY 2018’s appropriations. Along with the decrease in the budget, the TE/GE Division’s staffing level also decreased by 12 percent from FY 2015 to FY 2019, although hiring efforts in FY 2019 have started improving staffing levels. At the end of FY 2019, the TE/GE Division had approximately 1,500 employees, which was 2 percent of the IRS’s total staffing level of just over 78,000 employees.
What TIGTA Recommended
TIGTA made no recommendations in this report. IRS officials were provided an opportunity to review the draft report and did not provide a formal response
Friday, April 2, 2021
A number of commentators have recently posted articles addressing conservation easement deductions. Several of these articles were originally published in 2020 in a Tax Notes publication, but for readers who may not have access to Tax Notes publications they are now available on SSRN and so I am including them in this list:
- Jessica Jay, Down the Rabbit Hole with the IRS' Challenge to Perpetual Conservation Easements, Part Two, in the Environmental Law Reporter.
- Nancy Ortmeyer Kuhn, The Eleventh Circuit Court of Appeals: The Current Focus for Conservation Easements, in Bloomberg Tax.
- Douglas L. Longhofer and Katherine Jordan, Eroding Conservation, Preserving Abuse — A Flawed IRS Strategy, originally published in Tax Notes Federal.
- Nancy A. McLaughlin, Amendment Clauses in Easements: Ensuring Protection in Perpetuity, originally published in Tax Notes.
- Nancy A. McLaughlin and Ann Taylor Schwing, Conservation Easements and Development Rights: Law and Policy, originally published in Tax Notes.
In addition, the only exempt organizations issue that appears to have been raised by the National Taxpayer Advocate in her latest report to Congress focused on conservation easements. The report identified syndicated conservation easements as being at the center of the "most significant cases" involving a charitable contribution deduction issue, which was in turn identified as the ninth most litigated issue. The report notes that perpetuity, as opposed to valuation, has become the focus of recent conservation easement cases. See pages 216-219 of the report for more details.
Finally, Tax Notes reports that the DOJ has reached a settlement with a consultant who was one of the targets of the DOJ's investigation of syndicated conservation easements. Without admitting any wrongdoing, the consultant agreed to be permanently enjoined from promoting or arranging a qualified conservation easement contribution in the future (and to pay an amount that was not specific in the court filing).
UPDATE: Tax Notes reports that taxpayers involved in syndicated conservation easement deals have now filed a class action lawsuit against promoters of those deals.
Solicitation Update: States & FTC Crack Down on Fraud; Crowdfunding Grows; Donors Test Their Influence
There has been a steady drumbeat of news stories reporting that state authorities and, on occasion, the FTC continue to scrutinize and prosecute individuals who allegedly engage in fraudulent charitable solicitation. Some of the cases involve tried-and-true techniques, such as purporting to raise funds to help veterans, while others reflect more recent events, such as attempting to capitalize on support for the Black Lives Matters movement. Here are recent examples from just last month:
- The FTC, 38 States, and the District of Columbia shut down a fraudulent charity telefunding operation that raised more than $110 million, almost all of which went to pay fundraising costs and very little of which went to actual charitable services.
- The Florida AG shut down a "sham" wounded veterans charity named Healing Heroes Network that used very little of the contributions it received to actually help veterans.
- The Minnesota AG is suing a company that allegedly posed as a charity for service members, using the name Contributing 2 Combatants and Coast 2 Coast Marketing, but instead allegedly used the donations to enrich the company's owner.
- In Ohio, the U.S. Attorney's Office reported an indictment against a man for allegedly using a fake nonprofit Facebook page with the Black Lives Matter name to rob donors of more than $450,000.
- In Oregon the Douglas County Sheriff's Office arrested a man accused of using fake nonprofits to obtain donations, including the Impossible Roads Foundation that purpotedly built tiny homes for disabled veterans.
- In Utah, the Davis County attorney general is investigating whether Operation Underground Railroad made misleading statements in its fundraising appeals, even as Vice reports broader concerns about the anti-child sex trafficking charity's operations.
It is not surprising that there is fraud in this area, as it has been increasingly easy to raise funds quickly for a variety of legitimate causes. Again just in the past month. Facebook and Instagram announced that users had donated more than $5 billion over five years to nonprofits through campaigns on those platform, and the AP reports that millions of dollars have poured in through crowdfunding campaigns to aid the families of the Atlanta shooting victims. Crowdfunding can also be used for more controversial causes, as illustrated by The Guardian's report that far-right extremists have raised millions of dollars via social media, among other channels.
Finally, some prominent donors are trying to use their influence to affect the charities they support. The Washington Post reports that James Huntsman has filed a federal lawsuit against the LDS Church, alleging it misused millions of dollars of his family's donations by using them for commercial purposes. And some wealthy supporters of the University of Texas have waded into the controversy over the school's fight song (Eyes of Texas), vowing to pull their donations unless the school retains it.
UPDATE: In another case of a disgruntled donor, a Sinclair anchor is demanding $20 million from the WE charity that has been at the center of a charity scandal in Canada. The amount is in addition to a demand for return of donations the anchor made, and is for "destruction of [the donor's] character and marketability as a journalist, public speaker, filmmaker, and author."
Friday, March 26, 2021
The American Rescue Plan Act of 2021 signed into law on March 11, 2021 provides an additional $7.25 billion in funds to the Paycheck Protection Program (PPP). The application period for PPP Round 2 loans will end on March 31, 2021, unless extended by Congress.
In general, charities are eligible for a first-draw PPP loan if they employ fewer than 500 employees (full-time and part-time, who live in the United States) per the nonprofit's physical location of your nonprofit. The Act expanded PPP eligibility to an “additional covered nonprofit entity,” defined as any nonprofit described in section 501(c) of the Internal Revenue Code (other than organizations described in 501(c)(3), (c)(4), (c)(6), or (c)(19)) and exempt from tax under section 501(a) of the Code, that employs 300 or fewer employees per physical location and does not derive more than 15% of receipts or devote more than 15% of activities to lobbying. The nonprofit must certify on the PPP application that “[c]urrent economic uncertainty makes th[e] loan request necessary to support ongoing operations.”
Additional resources for nonprofits with respect to the Act can be found here:
- The American Rescue Plan Act: Analysis of Key Provisions Affecting Nonprofits and the People They Serve (National Council of Nonprofits)
- Summary of the American Rescue Plan Act of 2021 (Independent Sector)
Nicholas Mirkay, Professor of Law, University of Hawaii
The Internal Revenue Service provided the following update on the mandatory electronic filing of Form 990-Ts:
The Taxpayer First Act requires certain exempt organizations to file information and tax returns electronically for tax years beginning after July 1, 2019. Pending conversion of Form 990-T, Exempt Organization Business Income Tax Return, to electronic format, the IRS has continued to accept the 2019 tax-year versions of this return on paper.
The 2020 Form 990-T and its instructions have been updated for e-filing of returns with due dates on or after April 15, 2021. As of the beginning of March 2021, several providers have made software available to file Form 990-T electronically. Information about software providers supporting electronic filing of Form 990-T can be found on the Exempt Organizations Modernized e-File (MeF) Providers page.
Any 2020 Form 990-T with a due date on or after April 15, 2021, must be filed electronically and not on paper. A limited exception applies for 2020 Form 990-T returns submitted on paper that bear a postmark date on or before March 15, 2021.
Nicholas Mirkay, Professor of Law, University of Hawaii
As reported in The Chronicle of Philanthropy, the Lilly Family School of Philanthropy recent report predicts a period of “broad philanthropic growth” is forthcoming the next two years as the economy and nonprofits recover from the Covid pandemic. The Chronicle article provided additional detail:
The [Lilly] report forecasts a 4.1 percent increase in total giving in 2021 and a 5.7 percent increase in 2022. For individual and household giving, the report forecasts a year-over-year rise of 6 percent in 2021 and 3.9 percent in 2022. Meanwhile, giving by all types of foundations is predicted to dip by 1 percent in 2021 but then jump by 8.8 percent in 2022. The report also projects giving from estates will grow 1.1 percent in 2021 and 12 percent in 2022, while giving by corporations is predicted to rise 4.3 percent in 2021 and 6.4 percent in 2022.
Citing the Fundraising Effectiveness Project, The Chronicle article also reported that individual giving increased in 2020 over the prior year, with the greatest increase in the form of gifts under $250. Changes to the rules for charitable deductions (as described in this prior blog post), passed as temporary measures in the CARES Act, allowing more taxpayers to deduct charitable contributions. The Project also reported that the number of donors also grew by about 7% from 2019 to 2020.
Nicholas Mirkay, Professor of Law University of Hawaii
Thursday, March 25, 2021
A Tax Policy Center study released on March 17, 2021 calls for a more universal charitable deduction that would incentivize incentive a much larger share of the population. Due to the effects of the Tax Cuts and Jobs Act of 2017 (TCJA) a huge drop in households that claim an itemized deduction for charitable contributions--from 26% to 9%--occurred in 2019. As a consequence, "the TCJA reduced the estimated average federal income tax subsidy for all dollars of giving by 30 percent, from about 20 cents a dollar to 14 cents a dollar. Put another way, the government took away about 6cents of subsidy on average across all charitable contributions." Although Congress devoted about $1.5 billion in the CARES Act to institute a one-year charitable deduction of $300, thus targeting the 90%v of taxpayers who claim the standard deduction, most donors already contribute more than that amount, according to the study, thus no extra incentive is given to make additional gifts beyond that amount.
The study makes a number of relevant points:
- [The] debate often is stated in terms of government costs and taxpayer benefits. However, there is third party to these transactions: charitable recipients. When a tax reform increases charitable contributions by the same amount as the government revenue loss, charitable beneficiaries are the net winners.
- A more universal charitable deduction can be designed that limits gains for higher-income taxpayers while still encouraging giving at other income levels. . . . [U]niversal deductions without floors provide substantial benefits to the highest-income taxpayers who already itemize, even when they give no more (and sometimes even when they give less) in response.
- We estimate that a universal deduction with a floor of 1.9 percent of AGI would be approximately revenue neutral relative to 2019 law and would raise charitable giving by about $2.5 billion a year. If revenue neutrality had been sought under the pre-TCJA law, a revenue-neutral floor would have been a smaller percentage of AGI than it would be today.
The study also proposes additional options in creating a universal deduction:
- [T]axpayers could be given the option of making charitable contributions up to the date of filing their income tax returns, or April 15, whichever comes first. Congress has offered this option to those making deposits to individual retirement accounts, and the House of Representatives passed this type of provision in the America Gives More Act of 2014. This timing option makes almost no difference in terms of incentive, but there is strong evidence that the provision would prove an effective marketing tool.
- Second, to avoid the threat of widespread tax cheating, Congress should consider adopting a provision for electronic reporting of charitable contributions to the IRS. Tax gap studies through the years have consistently demonstrated that third-party reporting significantly raises voluntary compliance. For instance, a significant increase in compliance for
interest and dividends occurred once they became subject to an information reporting system.
Ultimately, the study illustrates how money spent on a universal charitable deduction can significantly increase the goods and services provided to charitable beneficiaries in relation to forgone revenue if proper attention is focused on the efficiency and fairness of each dollar of subsidy.
Nicholas Mirkay, Professor of Law, University of Hawaii
Thursday, March 4, 2021
The IRS has publicly released a March 1st Memorandum to Exempt Organizations Examinations Employees on "Interim Guidance on Verifying Forms 8976 Were Filed and Applicable Penalties". Section 501(c)(4) organizations that either came into existence after July 8, 2016 or while coming into existence earlier had not submitted either a Form 1024 or Form 990 series return (990, 990-EZ, or 990-N) on or before that date are required to file Form 8976 with the IRS to notify it of their existence. The requirement is codified in IRC section 506 and described in both Rev. Proc. 2016-41 and Treas. Reg. § 1.506-1.
The memo instructs those employees to do the following:
- Examiners must perform a filing check for Form 8976 during all examinations of IRC
Section 501(c)(4) organizations.
- If you determine that the organization failed to timely file a completed Form 8976,
consider the IRC Section 6652(c)(4) penalties.
Hat Tip: EO Tax Journal
Wednesday, March 3, 2021
The IRS's Statistics of Income office has released the 2018 noncash charitable contributions reported by individuals on Form 8283 data, now available on its Individual Noncash Charitable Contributions webpage. The table from the Excel spreadsheet is shown below.
With the new year came final regulations under section 4960, interpreting the excise tax on excess remuneration paid by tax-exempt organizations to covered employees. They are effective for tax years beginning after December 31, 2021; before then, exempt organizations may rely either on Notice 2019-09 or the proposed regulations instead, but only if they do so in their entirety. Numerous commentators have now created helpful summaries of the final rules, including:
- Law Firms
- Accounting Firms
- Media Outlets
The IRS Tax-Exempt and Government Entities Division recently released its list of Fiscal Year 2020 Accomplishments. The list included the following items for Exempt Organizations:
- Examining 3,240 returns, including but not limited to the Form 990 series. But as previously reported by TIGTA using FY2019 data, this represents an audit rate of less than 0.2 percent. The examinations had a change rate of 88 percent, but only led to 36 proposed revocations.
- Compliance initiatives included hospital unrelated business income, 501(c)(7) social clubs, 4947(a)(1) non-exempt charitable trusts, 501(c)(3) charitable nonprofits that previously operated as for-profit entities, and organizations with private benefit or private inurement indicators.
- Closed 95,864 applications for recognition of exemption, including 85,509 approvals (of which 79,730 were under 501(c)(3)). More than 60,000 of the slightly over 100,000 applications received in FY2020 were Form 1023-EZs, continuing the increasing importance of that streamlined application form.
- Transition to mandatory electronic filing for both Form 1023 and Form 990.
It should be acknowledged that much of this work was done even as IRS employees had to pivot to remote work because of the pandemic.
Thursday, February 25, 2021
Last week, the Treasury Inspector General issued a report, Obstacles Exist in Detecting Noncompliance of Tax-Exempt Organizations. From the summary:
Information reported on tax-exempt organizations’ returns does not always indicate noncompliance; therefore, the IRS relies heavily on referrals to identify abusive schemes. However, TIGTA found that although referrals may help detect tax schemes, they do not always lead to productive cases. In addition, the chances of examination for tax-exempt organizations is lower when compared to examination rates of businesses and individuals. For Fiscal Year (FY) 2019, the chance of examination for exempt organizations was one in 742, compared to one in 156 for businesses and one in 226 for individual taxpayers. Further, churches and certain other religious organizations are not required to file annual information returns making it difficult to track the activities of these organizations to identify noncompliance. For FY 2019, the chance of examination for churches was about one in 5,000.
Tuesday, February 2, 2021
The Office of the Chief Counsel of the IRS recently issued a memorandum describing when nonprofits seeking charitable tax exempt status under section 501(c)(3) might receive relief from failing to file their application in a timely manner. For counsel meeting this problem, this memo is likely a very useful tool for considering options.
It's a long memo, but the basics are:
1. Under what circumstances, if any, should Exempt Organizations, Determinations (EOD) provide Treas. Reg. § 301.9100-3 relief to IRC section 501(c)(3) applicants?
2. What is the proper process for denying relief requests under § 301.9100-3? (i.e., does taxpayer have section 7428 Declaratory judgment rights?)
- Section 501(c)(3) organizations who are eligible to self-declare, like non-(c)(3) self-declarers, are not eligible for § 301.9100-3 relief because they did not fail to make a required regulatory election. Further, organizations that fail to file the necessary information returns holding themselves out as exempt organizations are not eligible for § 301.9100-3 relief because they would not otherwise be exempt for the period for which they are requesting relief. In addition, the Internal Revenue Service (“Service”) is justified under the applicable standard of review to deny such relief on the grounds that the organizations did not act in reasonable good faith. Finally, organizations that have filed the necessary information returns are not eligible for relief beyond the date of which the statute of limitations on assessment of tax has expired, which is typically three years after the due date of the return.
- Denial of § 301.9100-3 relief by EOD does not separately provide a right to petition the Tax Court under section 7428 because § 301.9100-3 relief is purely a function of administrative grace, is not a justiciable controversy described in section 7428, and is reviewed under a completely separate standard than the de novo standard used in section 7428 actions. However, section 7428 jurisdiction over the denial of exempt status for periods prior to the postmark date of the
application appears to be a matter of first impression."
Saturday, January 9, 2021
And the Atlanta Journal-Constitution reports the latest major development relating to conservation easement deductions. Two accountants have plead guilty to conspiracy to defraud the United States through promoting syndicated land conservation easements. The scheme they promoted allegedly resulted in more than $1.2 billion in fraudulent charitable deductions. It will be interesting to see whether in exchange for sentencing leniency (the charge carries a sentence of up to 5 years in prison) the accountants provide important evidence relating to their clients and other promoters.
Even as the Trump Administration comes to an end, news continues to come out about alleged scandals involving those associated with him and nonprofits they control or have controlled in the past. This may not be surprising given the well known problems with the President's own foundation, but these scandals highlight continuing concerns not only about the ethics of those in his circle but also about oversight of nonprofits more generally.
For example, this week the District Columbia Attorney General filed suit against Public Media Lab (PML) and Manifold Productions, Inc., alleging that PML CEO and Manifold founder Michael Pack used the nonprofit PML to funnel millions of dollars to for-profit Manifold. Park is currently the presidentially appointed head of the U.S. Agency for Global Media, and concerns about how he operated PML arose during Senate consideration of his nomination. And the DC Attorney General continues to investigate the activities of the Trump Inaugural Committee, with the deposition of Ivanka Trump last month. These examples are on top of reports from last fall and summer relating to federal charges against former Trump senior advisor Steve Bannon and others arising out of their control of the 501(c)(4) We Build the Wall, Inc. and a related nonprofit, and a ProPublica report that 501(c)(3) nonprofit Turning Point USA, run by Trump supporter Charlie Kirk, may have engaged in questionable financial arrangements with insiders.
Finally, buried among the President's many recent pardons was the commutation of the sentence for former Texas congressman Steve Stockman. Stockman had been serving since 2018 a 10-year sentence for nearly two-dozen felonies arising out of misuse of charitable contributions from political donors. Some of his former congressional colleagues had called for his release, particularly given his age and health conditions that placed him at heightened risk from the pandemic.
Wednesday, January 6, 2021
The Treasury Inspector General for Tax Administration (TIGTA) has released a report entitled Consolidation of Examination Case Selection and Assignment in the Tax Exempt and Government Entities Division Created Benefits, but Additional Improvements Are Needed (Report Number 2021-10-005). Here are the highlights:
What TIGTA Found
The creation of the CP&C [Compliance Planning and Classification] function centralized how noncompliance issues are identified, developed, approved, classified, and monitored for all five TE/GE [Tax Exempt and Government Entities] Division functions. This reorganization changed how the TE/GE Division identifies examination projects, processes referrals, and tracks examinations results. However, because management did not develop performance metrics to measure progress towards achieving reorganization goals, TE/GE Division leadership cannot determine if the CP&C function improved the effectiveness and efficiency of identifying, planning, classifying, and monitoring examination workload.
Further, TE/GE Division management did not establish reorganization goals and outcomes, have a dedicated implementation team in place for the duration of the reorganization, involve all key stakeholders, effectively communicate with affected employees, or provide adequate project management oversight to ensure timely implementation of all necessary actions. This resulted in employee confusion and compromised the initial success of the reorganization. Finally, TIGTA’s analysis showed that the CP&C function has had mixed results reducing the number of unnecessary contacts with compliant taxpayers and identifying more productive examinations. Specifically, between Fiscal Years 2016 and 2019, the number of examinations closed without any changes favorably decreased for two of the five TE/GE functions, but increased by 36, 40, and 31 percent for the other three functions. Further, the overall number of cases closed without full examination (surveyed) favorably decreased by 5 percent, but increased by 468 percent for the Indian Tribal Government function.
The reorganization helped create additional benefits, such as reducing the potential for bias in case selection. In addition, the CP&C function implemented processing changes that decreased processing time for Exempt Organization function referrals by 37 percent, and began implementing a tracking system for all assigned inventory in September 2020.
What TIGTA Recommended
TIGTA made six recommendations, including the Director, CP&C, should develop performance metrics and explore process improvements for validating identified cases to ensure that they include the identified issues prior to assignment. In addition, the Commissioner, TE/GE Division, should determine the feasibility of reassigning resources from compliance functions to improve the efficiency of identifying, classifying, and monitoring productive examination workloads. Management agreed or partially agreed with five of the recommendations, but disagreed to explore process improvements to ensure that selected cases include identified issues prior to issuance. TIGTA believes this action could help reduce the number of assigned cases that employees close without examination.
IRS Moves Forward With Required Electronic Filing: Form 1024-A Now Set, Forms 990-EZ, 4720, and 990-T Pending
The IRS continues to move forward with requiring electronic filing of tax-exempt organization forms. The latest addition is Form 1024-A (Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code). As detailed in Revenue Procedure 2021-08, electronic filing is now required for this form, subject to a 90-day transition relief period from the effective date of January 5, 2021 during which the IRS will still accept paper copies.
Form 1024-A joins annual information returns Form 990 and Form 990-PF, as well as Form 1023 (Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code). for which electronic filing is already generally required. (And Form 990-N and Form 1023-EZ, which have always had to be filed electronically.) It will also soon be joined by Form 990-EZ, which is currently subject to transition relief for tax years beginning before July 2, 2020, Form 4720 (Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code), for which the IRS announced in Notice 2021-01 that mandatory electronic filing would be delayed until the electronic version of the form is available (expected in early 2021), and Form 990-T (Exempt Organization Business Income Tax Return), for which the IRS has said an electronic version is also expected in 2021.
Thursday, November 26, 2020
As previously blogged, the National Rifle Association and its executives continue to be under fire for excess personal benefit. The Washington Post reported yesterday: "After years of denying allegations of lax financial oversight, the National Rifle Association has made a stunning declaration in a new tax filing: Current and former executives used the nonprofit group’s money for personal benefit and enrichment." In its 2019 Form 990 (not yet publicly available), the NRA confirmed its ongoing internal review of alleged "excess benefits" being paid to its chief executive Wayne LaPierre and five other former executives. According to the Post article, the NRA disclosed in the tax filing that it “became aware during 2019 of a significant diversion of its assets.” In its Form 990, the NRA estimates it paid nearly $300,000 in travel expenses on behalf of LaPierre between 2015 and 2019 and treats the payments as automatic excess benefits under Treasury Regulations section 53.4959-4(C). In addition, the NRA states that LaPierre has repaid this excess benefit plus interest to the organization, concluding that the excess benefit has been corrected.
This new revelation comes four months after the attorney general of New York state filed a lawsuit accusing LaPierre and other NRA executives of misappropriating organization funds for decades, resulting in them receiving inflated salaries and large expense accounts.