Increased focus on international activities of tax-exempt organizations.

• Author: Smith, Annette B.

Many tax-exempt entities participate in the global economy by engaging in charitable or other exempt activities overseas and making foreign financial investments. These activities have drawn attention from the IRS and other federal agencies as they examine the flow of tax-exempt funds around the world. IRS focus on the international activities of tax-exempt organizations includes increased reporting of foreign bank accounts, operations, and investments.

Foreign Bank Accounts

The first step tax-exempt organizations may take toward establishing an international presence is opening a bank account or other financial account overseas. This may trigger reporting to Treasury and the IRS, including reporting indirect ownership of a foreign bank account.

A U.S. person (which can include a tax-exempt organization) that has a financial interest in or signature authority over foreign financial accounts with an aggregate value that exceeds $10,000 at any time during the calendar year must file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), on or before June 30 of the following year. Tax-exempt organizations that file Form 990, Return of Organization Exempt From Income Tax, must report in Part V of that form whether they had an interest in or signature or other authority over a foreign financial account. The FY 2012 Work Plan for the IRS Exempt Organizations Division (E0) indicates that EO will be looking at organizations that report ownership of foreign bank accounts to determine whether the organization complies with exempt purpose, documentation, and filing requirements.

Foreign Operations

Tax-exempt organizations may engage in a variety of foreign activities, including grantmaking to foreign individuals, organizations, or governments; using agents in a foreign jurisdiction; sending employees abroad; establishing a foreign branch or a foreign controlled entity; and entering into an affiliation agreement with a foreign organization. EO has used a sequential approach in reviewing the foreign activities of taxexempt organizations: gathering additional information, increasing education and outreach, and using newly reported information in its compliance activities.

Beginning with the 2008 tax year, Form 990 requested new information about a tax-exempt organization's foreign activities on Schedule F, Statement of Activities Outside the United States. Schedule F enables the IRS to develop a more complete picture of a tax-exempt...