IRS Tax-Exempt and Governmental Entities: A Summary of the Past Year | law of the free man
On January 6, 2022, the Tax-Exempt and Governmental Entities (TE/GE) released their 2021 fiscal year achievement letter. Here is a summary below:
TE/GE Fiscal Year 2021 Achievement Letter
- TE/GE’s hiring in 2021 increased its workforce to approximately 1,521, with approximately 111 positions to be filled in the first quarter of 2022. The majority of TE/GE’s employees (approximately 550) are designated for Exempt Organizations (EOs) and approximately 130 employees are in Compliance, Planning and Classifications. This illustrates TE/GE’s continued focus and investment in compliance-related initiatives in the tax-exempt and governmental sector.
- The Exempt Organizations (EO) Unit completed the review of 3,249 filings, including Form 990 series (990, 990-EZ, 990-PF, 990-N, 990-T) and statements of employment and associated excise tax. Revocations of exemptions have been proposed for 94 tax-exempt entities following reviews. The lion’s share of revocations (30% +/-) was due to non-compliance with organizational and operational tests.
- TE/GE compliance strategies emphasized “the potential” for private benefits and obligations. Private foundation loans to disqualified individuals were a key element in this area of compliance. Most of the issues encountered in this area related to excise taxes, unrelated business income, production requirements and operational requirements. This illustrates the continued importance of compliance in the areas of insider trading for private foundations, related party transactions, excess benefit transactions, and maintaining transactions that advance qualified objectives for which a tax exemption is granted.
- EO closed 94,466 requests for determination in fiscal year 2021, with 81,589 approvals, including 76,852 for 501(c)(3) status. Applications increased by approximately 15,000 from 2020. Applications through Form 1023-EZ more than doubled the number of applicants using Form 1023. Form 1023-EZ is available to applicants applying for the status of ‘public charity pursuant to Section 501(c)(3) of the Internal Revenue Code (other than, for example, organizations seeking exemption from church status) whose average annual income for the three first years should not exceed $50,000.
- This data provided by the IRS suggests that during the pandemic era of fiscal year 2021, many private sector actors have sought to advance the health of body, mind and community, as the percentage the highest number of tax exemption claimants were in areas of health services; Education; Arts, culture and human sciences; and recreation and sports.
- With respect to reviews of employee plans, 4,295 reviews were closed in fiscal year 2021, with proposed revocations or disqualifications for 16 plans for, among other things, failure to amend a plan document and failure to comply with the non-discrimination requirements of IRC Section 401(a)(4) .
- With respect to government entities, TE/GE passed 900 reviews in fiscal year 2021 and continues to focus on employment tax compliance in this sector.
- The tax-exempt bond unit closed nearly 300 reviews in fiscal year 2021, with a focus on overfunding and resulting adjudication, which may impact eligibility for fiscal advantages.
The TE/GE also released its brief programs and priorities for fiscal year 2022, which include a continued focus on strengthening compliance activities in the tax-exempt and governmental entity sectors.