By: R. Michael Sorrells, CPA

In most years the Internal Revenue Service releases its work plan for Exempt Organizations, Government Entities and Employer Plans. This document summarizes its major activities and accomplishments in the sector for the prior year and discusses plans for the upcoming year, including information about its audit focus, determination and ruling processes, and outreach programs.  The latest work plan was released on September 28, 2016 and is available here.

Mike Sorrells

It is a must-read for organizations who want to know what the IRS may be

looking at in the current year. The work plan is not to be confused with the annual IRS Priority Guidance Plan, a document which lists various regulations, rulings, and other guidance which the IRS hopes to get to during the year.  We commented on the exempt organization guidance portion of this plan in a recent in a recent Tate & Tryon tax newsletter.

The following is a summary of significant items related to Exempt Organizations (EO):

Exempt Organizations accomplishments in the prior fiscal year:

    • The pre-determination review of the Form 1023-EZ streamlined exemption application (for small charities) and post-determination correspondence audits have been both efficient and effective with results available to the public.
    • Three case-closing functions (EO, Employee Plans, and Government Entities) were combined into a single entity with IRS staff ready to be cross-trained.
    • In the fiscal year ended June 30, 2016 EO Examinations completed 4,984 examinations (audits). These were based upon five strategic issue areas: exemption, protection of assets (self-dealing, excess benefit transactions and loans to disqualified persons), tax gap (employment tax and unrelated business income), international, and emerging issues. 2,109 of the audits were categorized in a Filing, Operational and Organizational category which included primarily verification of the exempt activities of organizations and securing of delinquent returns. The next highest category, Employment Tax Issues, had 1,323 examinations, while Unrelated Business Income had 611 audits in 2016. These top three areas accounted for more than 80% of the audits reported.
    • Case selection for audits was implemented using the case selection modeling technique, which utilizes “filters” previously tested. 62 cases were closed that used this technique with an examination change rate of 90%, which the IRS feels is a good development. This compares to an overall change rate for all examinations of 82%.
    • As required by the ACA, 692 reviews of hospitals had been completed and 166 hospitals have been referred for field examination.
    • Procedures were formalized to identify and prevent erroneous automatic revocation before organizations are notified. 13,933 potential auto-revocations were reviewed and 3,202 erroneous revocations were prevented.
    • As a result of the PATH act signed in 2015, certain social welfare organizations are required to submit a notice of intent to operate as a 501(c)(4) organization. The IRS notification platform was made operational in July 2016 and over 400 notifications have been processed.
    • IRS processing of exemption applications continued to improve with the average age of case inventory decreasing to 73 days. 93.6% of closed cases were approved.

IRS Plans for 2017:

    • Utilization of data driven decisions for examination selection (data mining of Form 990 information) will continue and should be improved with feedback from field employees.
    • Focus of examinations will continue to be on the five strategic areas mentioned above.
    • IRS EO is continuing to work with TE/GE Research and the Research, Applied Analytics and Statistics (RAAS) office to identify organizations at risk for inurement and private benefit and to identify “anomalies” on private foundation returns. Some 400 returns identified as being at risk for inurement and private benefit and 100 private foundations identified as having anomalies will be included in the work plan.
    • A statistical sampling methodology will be implemented to assess compliance in the EO population. A plan will be developed for an ongoing statistical sample of 501(c)(3) and other 501(c) organizations to assist in an assessment of overall compliance levels in the EO community. This will address GAO recommendations made in its FY 2015 audit, Tax Exempt Organizations – Better Compliance Indicators and Data, and More Collaboration with State Regulators Would Strengthen Oversight of Charitable Organizations.
    • EO Determinations will continue to improve processing of exemption applications and the new Form 8976, Notice of Intent of Operate Under 501(c)(4). Form 8976 is a new “workstream” and some 2,500 such notifications are expected during the year. Limited resources will impact the processing of determinations. To mitigate this, the IRS is committed to a strategy of streamlining the process and repositioning staff resources to meet the demand.
    • To increase the technical knowledge of EO employees, the IRS EO Knowledge Management program has several initiatives planned for FY 2017. It will continue presenting approximately three to four live technical events or CPE sessions per quarter. Technical “Issue Snapshots” will continue to be prepared and posted for EO employees and the general public.
    • For a more in-depth view of the EO provisions of the Work Plan as well as the sizable sections devoted to Employee Plans and Governmental Entities, we urge you to read the original 24-page document. Of course, with the new administration plans to make sweeping changes at the IRS, we have to take all of this with a large degree of “wait and see.”

Michael Sorrells is a principal in Tate & Tryon’s Exempt Organization Tax services department and can be reached at


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