The IRS announced that it plans to conduct 7,000 exempt organization examinations this coming year, up from 6,300 examinations in 2015. The Service also stated it will be using a new case selection model that has been under development for the past two years. The model uses various data points reported on the Form 990 core form and schedules to identify potential issues of noncompliance, selecting cases for examination. An IRS official reported that cases selected over the past two years on the basis of this model resulted in an overall change rate of 90 percent. The IRS intends to add similar models for Form 990-PF, the private foundation annual return, and Form 990-EZ, the short form annual return for smaller exempt organizations.
Under a special program, the IRS will be conducting reviews of nonprofit hospitals for compliance with the Internal Revenue Code section 501(r) exemption requirements, as mandated by the 2010 Affordable Care Act, and implementation of the 2015 and 2016 provisions of the legislation. These reviews will be conducted without notice to the hospital organization, unless the review identifies potential noncompliance or items requiring clarification, which could lead to an examination or a compliance check contact.
To further bolster EO’s compliance efforts, thirty employees, including tax specialists and their managers, have been reassigned from the determinations function to the examinations function. In addition, the IRS is modifying the EO information document request (IDR) process to more closely tailor the information requested to the particular organization under examination and to reduce unnecessary taxpayer burden in the audit process.
The IRS also announced it is no longer accepting incomplete Form 1023 applications. Effective March 7, 2016, the IRS will return an application package and user fee if the applicant does not use the current version of the Form 1023, dated December 2013. Further, if the organization submits a substantially incomplete determination letter request (Form 1023, Form 1024, Form 1028, Form 8940 or other letter request), the IRS will return the application package and user fee with a letter of explanation. Revenue Procedure 2016-5, Section 3 (updated annually), lists the requirements of a substantially complete application as:
• The current version of the application form
• The correct user fee
• A signature by an authorized individual
• An employer identification number
• A statement of receipts and expenses
• A copy of your organizing document that meets the requirements of a conformed copy
• A detailed narrative of your proposed activities
• A copy of your bylaws or similar governing rules, if adopted
Preparers of Form 1023 applications should carefully review the submission package to make sure it contains all of the required elements in order to avoid unnecessary delay and expense for the organization applying for exempt status.
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