December 17, 2007

IRS To Keep Eye On Exec Compensation

Executive compensation compliance will continue to be in the crosshairs in 2008 for the Internal Revenue Service's Exempt Organization Division (IRS-EO) after compliance checks this year turned up significant errors and omissions.

The IRS released its "FY 2008 Implementing Guidelines" Thursday, which detailed plans for next year while also reviewing accomplishments from the past year.

The EO Division will continue with phase III of the Executive Compensation Compliance Project, which involves 200 compliance checks and 50 single-issue examinations on organizations with loans to offices, directors and trustees. "Because a number of participants reported that they had made loans to officers, we initiated a third phase to focus on organizations making such loans," the guidelines stated. A March progress report on the project found significant reporting errors and omissions, resulting in $21 million in excise taxes assessed.

During the first phase of the project, 1,223 organizations were sent compliance letters while in the second phase EO followed up with examinations of 782 organizations.

The EO Division will have three new compliance tools to enforce tax laws: the National Research Program (NRP), the EO Research and Compliance Initiative for colleges and universities, and a voluntary compliance program (VCP) for delinquent filers.

NRP is "a comprehensive effort to measure compliance for different types of taxes and various sets of taxpayers," the guidelines stated. The group is developing a "reporting compliance study for employment taxes, which will involve all employment ax filers, including exempt organizations."

The research and compliance initiative will compile information from a sampling of colleges and universities about how they report income and expenses, calculate and report losses, determine executive compensation, and invest and use their endowments. Hospitals will face a similar survey.

The VCP will enable nonprofits that failed to file required returns or notices for straight three years to avoid automatic revocation by filing the missing returns and paying taxes and interest without penalty.

Instructions and glossary for the new Form 990 are expected to be available early in the new year, with the redesigned form set for release within the first quarter of 2008. Among the accomplishments cited for 2007 was the draft revision of the Form 990, the first substantial change made to the form in almost 30 years. Changes were based on review and analysis of more than 650 comments, totaling more than 3,000 pages, on the draft 990. The new 990 should be available for filing in 2009.

EO also began examining during 2007 organizations that may be promoting overvaluations of land conservation and façade easements, which the division will continue in 2008.

More information on the "FY 2008 EO Implementing Guidelines" can be found at www.irs.gov/charities

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This article is from NPT Weekly, a publication of The NonProfit Times.

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