Hunton Law

Legal Counsel for Nonprofit & Tax-Exempt Organizations

Legal Counsel for Nonprofits, Foundations & Social Enterprises

IRS Will Be Focusing on These Exempt Organization Issues

In early October the IRS released its Fiscal Year 2019 Program Letter explaining which areas of tax-exempt organization compliance it will be focusing on in the coming year.   

The following bulleted list is copied directly from the Program Letter and represents areas of concern to the IRS.  Accordingly, the IRS will be devoting more resources to detecting noncompliance in the following areas:

  • Internal Revenue Code (IRC) Section 501(c)(7) entities: focus on investment income, non-member income and non-filers of Form 990-T, Exempt Organization Business Tax Return, by tax-exempt social clubs.

  • IRC Section 4947(a)(1) Non-Exempt Charitable Trusts (NECTs): focus on organizations that under-report income or over-report charitable contributions.

  • Previous for-profit: focus on organizations formerly operated as for-profit entities prior to their conversion to IRC Section 501(c)(3) organizations.

  • Self-dealing by private foundations: focus on organizations with loans to disqualified persons.

  • Early retirement incentive plans: determine whether federal, state or local governmental entities that provide cash (and other) options to employees as an incentive for early retirement have applied proper tax treatment to these benefits.

  • Forms W-2/1099 matches: compare payments reported on Form 1099-Misc., Miscellaneous Income, with wages reported on Form W-2, Wage and Tax Statement, and subject to Federal Insurance Contribution Act (FICA) tax and income tax withholding.

  • Notice CP 2100 (backup withholding): determine whether mismatched and/or missing taxpayer identification numbers on Form 1099 indicate failure to comply withbackup withholding requirements.

  • Worker classification (misclassified workers): determine whether misclassified workers result in incorrectly treating employees as independent contractors.

The entire Program Letter is available at this link: https://www.irs.gov/pub/irs-tege/fy2019_program_letter_final.pdf.