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

Date01 August 2019
Published date01 August 2019
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
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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Analysis of current developments in tax
and related law for nonprofit organiza-
tions and their professional advisors.
Volume 36 Number 8
August 2019
Also in This issue...
Appellate Court Upholds Denial
of $33 Million Charitable
Deduction for Lack of Property
Basis Disclosure 2
Court Decrees Payment
of Legal Fees in Application
Discrimination Case 3
Case Study on How Not to
Apply for Exemption Recognition 3
Other Recent IRS Private Letter
Rulings 4
Evangelism, Personal Expenses,
and Charitable Contribution
Deductions 4
Challenge to Listed Transaction
Notice Held Barred by
Anti-Injunction Act 5
College Admissions Fairness Act
Introduced 6
Report Issued on Proposals
to Increase Charitable Giving 7
Other Developments 8

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