IRS Scrutiny and Form 990 Updates Await Nonprofits in 2013
The recently released IRS Exempt Organizations FY 2012 Annual Report and FY 2013 Workplan provides insight into IRS plans for 2013. In it, the agency continues to stress the importance of transparency and accountability to the public as an obligation of tax exempt organizations.
Research results — The IRS has released the long-awaited preliminary results of its governance study, including an analysis of input from 1,300 charitable organizations. Although the scope of the project is very limited as compared to the nonprofit sector as a whole, the findings appear to indicate that the following factors are associated with compliance:
- A written mission statement
- Use of comparability data when establishing compensation
- Controls to ensure exempt purpose assets are used for their intended purposes
- Providing Form 990 to the board of directors prior to filing
The IRS says it will do further work in this area by examining a statistical sample of 501(c)(3) and (c)(4) organizations.
Health care reform — The IRS is continuing to work closely with the tax exempt sector as the provisions of the Affordable Care Act of 2010 (ACA) are fully implemented. The agency will be researching and modeling risk to improve transparency and compliance with health reform laws.
Employment tax compliance — During FY 2013, the IRS will continue to accumulate data on a national research program on employment tax compliance, an examination of the international activities of U.S. charities, and a college and university study.
Group exemptions — The IRS is gathering data from central organizations that operate with subordinates and will use this information to learn more about the relationship between those organizations under a group exemption, and how each party satisfies its filing obligations.
Unrelated business income (UBI) — In 2012, the IRS completed its compliance check on organizations reporting taxable unrelated business income (UBI) that failed to file a Form 990-T. This initiative resulted in securing numerous delinquent returns and tax payments. During FY 2013, the IRS will continue to examine a sample of organizations reporting substantial gross UBI, but reporting no income tax due.
Changes to Form 990 — Minor changes to Form 990, its instructions, and schedules are intended to enhance the transparency of the information contained in the filing.
- The 2012 Form 990 filing now requires organizations to provide the average hours per week devoted to related organizations in Part VII of the filing rather than in Schedule O.
- Organizations are now required to indicate whether their compiled or reviewed financial statements were issued on a separate, consolidated, or both consolidated and separate basis.
- Schedule K (tax-exempt bond reporting) now requires even greater detail to ensure bond compliance.
- Schedule H has been modified to provide more information on hospitals.
Once instructions are available, organizations should carefully review them and consult their tax advisor to make sure they are prepared for any changes. Through all of this scrutiny, it is important to remember that tax exempt status is a privilege, and all organizations must continue to work to ensure this privilege is available in the future.