Not-for-Profit Notebook

Practical insight and analysis on the accounting, audit and tax issues impacting not-for-profit organizations.

IRS Releases 2016 Work Plan for Tax Exempt and Governmental Entities Division

The Tax Exempt and Governmental Entities (TE/GE) division of the IRS consists of three subdivisions, as follows:

  1. Exempt Organizations subdivision (EO)
  2. Employee Plans subdivision (EP)
  3. Federal State and Local Governments subdivision (FSLG)

The 2016 tax year brings specific compliance issues into focus for each of these three subdivisions.


The EO Subdivision 

The EO subdivision will have the most significant impact on not-for-profit organizations. Below are three facets of the EO subdivision’s 2016 work plan to keep in mind for your organization.

  1. The EO subdivision focuses on the following significant compliance issues
  • Self-dealing, excess benefit transactions and loans to insiders
  • Employment taxes
  • Unrelated business income tax (UBIT)
  • Foreign banking and financial accounts (FBAR) requirements

The EO subdivision plans to employ educational programming, compliance reviews and checks, correspondence reviews, and field examinations to encourage implementation of these compliance requirements.  Organizations will be chosen for review using a variety of sampling techniques.  These techniques include, among others, stratification by size and identification by compliance areas with the highest risk. 

  1. The EO subdivision plans to allocate at least 125 specialists to review Form 1023-EZ, Form 1023 and Form 1024 applications for tax-exempt status for organizations granted the tax-exempt status either this year or in previous years. If your organization falls into this category, expect post-determination review and compliance enforcement.
  1. The EO subdivision plans to educate current staff through a Knowledge Management (KM) program. This KM program will establish knowledge networks for private foundations, and hospitals and other healthcare providers as well as section 501(c)(3) issues, other 501(c) issues, and unrelated business tax resources. The EO expects that employee knowledge will improve as a result of this initiative.

The EP Subdivision 

The EP subdivision is going to continue and intensify its efforts to address retirement plan non-compliance, enhance voluntary compliance, and eliminate fraudulent, abusive schemes that damage the retirement system. Specifically, the EP subdivision will utilize much of its examination resources to investigate specialty programs that focus on large multiemployer plans because these programs have a historical pattern of non-compliance.

The EP subdivision also will continue its traditional casework, concentrating on various other plan types. The Employee Plans Compliance Unit (EPCU) will continue to identify areas with the greatest potential for non-compliance. This subdivision is anticipating a significant number of plan submissions and expects that managing this inventory will be challenging. Consequently, it will utilize the support of the entire TE/GE division. If your organization has a specialty program similar to the one described here, be on the lookout for this subdivision’s review.

The FSLG Subdivision 

The FSLG subdivision intends to focus on areas with the greatest impact, which will allow this subdivision to maximize wage-based coverage while also addressing potential compliance issues. The examination work plan consists of five distinct gross wage categories based on Form 941 filings by government entities.  Although the examinations will cover all categories, the emphasis (75 percent of examinations) will be on government entities with wages above $10 million.

Specific compliance initiative projects will also be conducted to determine high risk areas of non-compliance with a specific issue and will be used to determine a possible non-compliance pattern or theory of non-compliance that will lead to a better case selection method for the future.  These projects will focus on high risk areas such as rapid growth governments, governments who provide early retirement incentive plans, and governments who experience a reduction in payroll and an increase in 1099 misc. filings.

If you need assistance understanding the TE/GE division, or if you believe your organization needs compliance guidance based on the 2016 work plan, please reach out to us.