IRS Study on Exempt Organizations

  1. IRS Study on Exempt Organizations

    IRS Study on Exempt Organizations: The Exempt Organizations unit of the IRS released the findings of its study on exempt organization governance, and found that Form 990s that were reviewed by the entire board of directors were more likely to be tax compliant. The study also found that organizations that use comparability data when making compensation decisions are more likely to be tax compliant, but organizations where control is concentrated in one individual or a small group were likely to be less compliant. The director of the IRS’s exempt organization unit also announced a new audit program for the examination of significant diversions of assets.

  2. Equestrian Expenses Not Deductible by Attorney

    Equestrian Expenses Not Deductible by Attorney: The taxpayer concentrated his legal practice on equine industry law, which accounted for most of the fees he earned. Potential clients would approach him while he was attending his son’s equestrian shows with questions on horse sales and leases and to draft contracts. The taxpayer paid and claimed horse-related business expenses to people who allowed his son to ride their horses at shows. The Tax Court denied the deductions, finding that under Reg. 1.183-2(b) , the equestrian activities and legal practice were not a single activity. In addition, the court held that the activities were not engaged in for profit. Robin Trupp , TC Memo2012-108 (Tax Ct.).

  3. Some tax-exempt organizations are receiving erroneous penatly notices; relief available:

    Practitioners are reporting that some tax-exempt organizations have received penalty notices from the IRS for late filing of Forms 990, 990-EZ, 990-PF and 1120-POL, even though they received an automatic extension and filed during March, as instructed by the IRS.

    The IRS’s e-filing computer system was not available for filing Forms 990, 990-EZ, 990-PF and 1120-POL from Jan. 1, 2012, through Feb. 29, 2012, so that the IRS could “facilitate systems and programming changes.” Because the system was being taken down, the IRS extended the filing deadline for Form 990 until March 30, 2012, for many tax-exempt organizations with a filing due date during the first two months of 2012 (Notice 2012-4). Organizations affected by the extension normally would have had a filing deadline of Jan. 17 or Feb. 15, 2012. The extension applied to these forms whether or not the organizations are required to file electronically.

    Affected organizations could file electronically between March 1 and March 30, 2012; however, some that did file during March have received penalty notices (Notice CP 141L) is sent to taxpayers “who, according to [IRS] records, filed a complete return late” (Internal Revenue Manual (21.3.8.10.2.4).

    The IRS has advised practitioners in an email that, if an organization had a due date of Jan. 17 or Feb. 15, 2012, and filed a Form 990, 990-EZ, 990-PF, or 1120-POL in March and received Notice CP 141L in error, they should take the following steps to request penalty abatement:

    1. Call the number listed at the top of the notice: 1-800-829-5500

    2. Request the IRS abate the penalty in accordance with Notice 2012-4.

    -Alistair M. Nevius (JofA’s editor-in-chief, tax)