TIGTA: IRS Needs to Complete Compliance Strategy for Excess Compensation Tax

• Date: 01 August 2019
• Published date: 01 August 2019
• DOI: http://doi.org/10.1002/npc.30621

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

TIGTA: IRS NEEDS

TO COMPLETE

COMPLIANCE

STRATEGY

FOR EXCESS

COMPENSATION TAX

The Treasury Inspector General for Tax Administration examined the

IRS’s Tax Exempt and Government Entities Division to determine if the agency

is effectively implementing planning efforts in connection with the excise tax

on tax-exempt organizations that are paying excess compensation to certain

employees (IRC § 4960). In a report dated June 5, TIGTA concluded that Division

management “has not completed a compliance strategy to identify and address

noncompliance with the excise tax after the organizations file their returns”

(Report No. 2019-14-032).

The report noted that, during FY 2017, the IRS examined approximately 3,000

annual information returns filed by applicable tax-exempt organizations (0.2 per-

cent of total returns). “Because so few applicable tax-exempt organization returns

are examined,” TIGTA stated, “it is important that the IRS effectively identifies

potential noncompliance.”

IRS data for 2012 identified about 2,400 employees of tax-exempt organiza-

tions who received wages greater than $1 million. Total wages paid to these

individuals, about one-half of whom were employees of health care and social

service organizations, approximated $4 billion. This excise tax is expected to apply

with respect to about 2,700 exempt organizations in 2018. The Joint Commit-

tee on Taxation estimates that the tax will generate $1.8 billion in tax revenue in

2018–2027.

Division management initially wanted to wait on development of this strategy,

reasoning that returns for most applicable tax-exempt organizations will be filed

in November. But TIGTA wants the process to begin immediately. Management

agreed with TIGTA’s recommendation, however, and will begin reviewing other © 2019 Wiley Periodicals, Inc.

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DOI:10.1002/npc

Analysis of current developments in tax

and related law for nonprofit organiza-

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Volume 36 Number 8

August 2019

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Basis Disclosure 2

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Discrimination Case 3

Case Study on How Not to

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Other Recent IRS Private Letter

Rulings 4

Evangelism, Personal Expenses,

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Challenge to Listed Transaction

Notice Held Barred by

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College Admissions Fairness Act

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Report Issued on Proposals

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Other Developments 8