Former Head of the IRS Tax Exempt Division Weighs in on the Future
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The TE division has essentially abandoned the front end policing of tax-exempt organizations with an application and approval process that can be completed with little or no documentation of tax exempt purposes. Last year the IRS reported the establishment of 118,000 of tax-exempt organizations, of which Mr. Owens believes the vast majority are charities. This is a huge increase over previous years. He described a scenario where individuals could set up a bank account for an organization, with funds from crowdsourcing or other revenue sources, establish the organization as tax-exempt with IRS and never have to report to IRS as long as organization revenues remain under $50,000. And, there is nothing to stop an individual from establishing multiple tax-exempt organizations under the $50,000 threshold. He also noted that back end enforcement in the form of audits of tax exempts has also markedly declined.
He believes this large increase in new tax exempt organizations will eventually get the attention of Congress and a likely solution will be the requirement for financial institutions to report to IRS on the status of accounts held for tax-exempts, similar to 1099’s now reported for individuals and W-2 that employers report to IRS for their employees.
Among the questions asked of Mr. Owens, will the Congress or IRS attempt to define "political activity" relative to tax exempt status? This is largely a question related to the flap over the allegations that the current Administration used the IRS to silence conservative political groups. In view of the Constitution’s first amendment this would likely be a Herculean task. However, depending on the role of tax-exempts in the next Presidential election, some members of Congress might try to address this after the election. Last year among the potential tax code revisions, Congressman Camp (R-MI) raised the possibilities of taxing non-profits on their royalties and sponsorships. When asked if this is likely to be resurrected as tax code revision is discussed on Capitol Hill, Mr. Owens expressed doubt about this or any expansion of the definition of Unrelated Business Income Tax for non-profits. He said this would not be a significant source of new revenue in the larger discussion of funding the government, and it is too easy for organizations to manipulate income and expenses to get around the declaration of such income. He suggested that UBI is just not worth fooling with.
ASAE has made continuing dialogue with IRS a priority, generally educating agency officials, as well as the Congress, on the role of associations and their contributions to society. ASAE is also addressing concerns about the tarring of all associations with the penalty brush for regulating tax exempts whose sole function is electioneering. Additionally ASAE is focused on preventing restrictions on government employee attendance at association meetings. While ASAE has historically raised a flag within the AMC community when IRS has shown interest in requiring AMC employee compensation to be reported on client 990 tax returns, this is not their highest priority. Although there is no indication that IRS or the Congress is currently thinking about this, it falls to AMCI to continue to be vigilant to protect the interests of the AMC community. So we continue to monitor and encourage you to report to AMCI headquarters should you hear anything about compensation disclosure.
He believes this large increase in new tax exempt organizations will eventually get the attention of Congress and a likely solution will be the requirement for financial institutions to report to IRS on the status of accounts held for tax-exempts, similar to 1099’s now reported for individuals and W-2 that employers report to IRS for their employees.
Among the questions asked of Mr. Owens, will the Congress or IRS attempt to define "political activity" relative to tax exempt status? This is largely a question related to the flap over the allegations that the current Administration used the IRS to silence conservative political groups. In view of the Constitution’s first amendment this would likely be a Herculean task. However, depending on the role of tax-exempts in the next Presidential election, some members of Congress might try to address this after the election. Last year among the potential tax code revisions, Congressman Camp (R-MI) raised the possibilities of taxing non-profits on their royalties and sponsorships. When asked if this is likely to be resurrected as tax code revision is discussed on Capitol Hill, Mr. Owens expressed doubt about this or any expansion of the definition of Unrelated Business Income Tax for non-profits. He said this would not be a significant source of new revenue in the larger discussion of funding the government, and it is too easy for organizations to manipulate income and expenses to get around the declaration of such income. He suggested that UBI is just not worth fooling with.
ASAE has made continuing dialogue with IRS a priority, generally educating agency officials, as well as the Congress, on the role of associations and their contributions to society. ASAE is also addressing concerns about the tarring of all associations with the penalty brush for regulating tax exempts whose sole function is electioneering. Additionally ASAE is focused on preventing restrictions on government employee attendance at association meetings. While ASAE has historically raised a flag within the AMC community when IRS has shown interest in requiring AMC employee compensation to be reported on client 990 tax returns, this is not their highest priority. Although there is no indication that IRS or the Congress is currently thinking about this, it falls to AMCI to continue to be vigilant to protect the interests of the AMC community. So we continue to monitor and encourage you to report to AMCI headquarters should you hear anything about compensation disclosure.
