The general counsel will want to brief the Audit Committee on several new developments that elevate organizational focus on exempt organization tax issues.
For example, on October 12, the Internal Revenue Service (IRS) provided links to 30 technique guides used by IRS exempt organization examiners—including those applicable to public charities, such as nonprofit hospitals and health systems. These “Audit Technique Guides” are intended to provide guidance for IRS employees, and have historically been located only in the Internal Revenue Manual. In this more accessable form, they can be particularly helpful to the nonprofit health system general counsel in educating the board’s Audit & Compliance Committee on specific examination techniques, and on tax issues common to certain types of exempt organizations that qualify for nonprivate foundation status as public charities.
In addition, in an October 13 speech, the IRS Exempt Organizations Director confirmed the five core strategic areas of IRS focus on potential exempt organization noncompliance: (i) engaging in private inurement or conducting nonexempt activities; (ii) self-dealing; (iii) excess benefit transactions; (iv) unrelated business income; and (v) employment taxes. In a separate presentation, a senior IRS Tax Exempt official confirmed that the IRS is now conducting more in-depth analyses of compliance with the financial assistance requirements of IRC 501(r)(4).
While these actions may not reflect more aggressive IRS focus on tax exempt organizations, they certainly reflect an increased willingness of IRS officials to discuss these issues in a public forum. For that reason alone, it is worth a briefing to the Audit & Compliance Committee. Exempt organization tax compliance has, for perhaps too long, been relegated to the bottom of the committee agenda and organizational risk evaluation process.