United States: Calls For Increased IRS Oversight Of Exempt Organizations

Recently, the Government Accountability Office examined the IRS' ability to effectively oversee the operations of exempt organizations.  The examination revealed that IRS budget cuts are drastically affecting the IRS' ability to properly collect, analyze and share data regarding exempt organizations.

Currently, the IRS does not have the ability to effectively collect and analyze the data it collects on exempt organizations.  For example, the IRS lacks the ability to perform quantitative research and data analytics on compliance measures to determine the overall level of compliance across all exempt organizations and recognize noncompliance hot spots, such as excess benefit transactions or private inurement.

This issue is compounded by the fact that many exempt organizations are not required to e-file their annual tax returns.  When exempt organizations do not e-file their annual tax returns, the IRS must expend both time and money (neither of which it has) digitizing the information contained in such returns before the IRS can even attempt to analyze the data collected.  The process of digitizing the data also prohibits the timely disclosure of such data to state authorities that also oversee exempt organizations.  This lack of communication between state and federal authorities can inhibit the authorities' ability to discover and address noncompliance.

So what is the solution?  In light of the Government Accountability Office's examination, the IRS has agreed to improve the application process for seeking tax-exempt status, including reducing the current backlog of such applications.  The IRS has also agreed to improve its analytics regarding compliance measures and make data sharing with state authorities more efficient and effective.  But, given the IRS' recent budget cuts and the fact that it has shed almost 10,000 employees since 2010, it may be some time before we see any changes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.