Lois Lerner, Director of the IRS Exempt Organizations division recently presented the 2012 Annual Report and 2013 Work Plan (the Plan) to Congress. This lengthy and complex plan riddled with industry jargon and analysis is very difficult for many people to understand and read. Although lengthy, it did cover some important points that you and your organization may find helpful. This blog is a review of some of the most important areas of her presentation to Congress, including explanations and more details on what the IRS will be focusing on in the coming years.

Some of the key points in Director Lerner’s presentation include:

International activities

In 2013 the IRS will be focusing more of its attention on international activities. International activities, specifically making sure that the assets of U.S. charities that are not diverted to non-charitable purposes when those funds are sent abroad, are under close examination of the IRS. If your company is operating in this area, be sure all record keeping and documentation is adequate as there is a high probability it will be reviewed by the IRS. This includes compliance forms such 926, and possible international informational reporting forms such as 8865 and 5471. The IRS has also noticed that in general, many nonprofits with international operations have failed to file the required Foreign Bank and Financial Accounts Report (FBARs) and will be looking more closely at this area of operation. International charities should also make sure excise taxes on net investment income, taxes on unrelated business income and employment taxes are reported accurately and sufficiently as the IRS is focusing on these points as well. Payments to foreign vendors for services also falls under this category and you must ensure you have proper documentation to show backup withholding does not apply, if payment were made to foreign vendor who provided services outside of the U.S.

Group Exemptions

If your organization is operating under a group exemption, be aware that this is another area that the IRS will look into in 2013. The group exemption option requires a fair degree of control by the primary organization over the activities of the group members as well as specific requirements for reporting at the end of each year. If you are operating under a group ruling, be sure to review the requirements and your compliance in those areas.

Fraudulent Mortgage Foreclosure Companies

Another concern of the IRS is mortgage foreclosures. Foreclosures have risen over the past several years and there has been an increase in the number of organizations that claim to help individuals facing foreclosure. Many of such organizations have the same issues that the IRS exposed a few years ago when it examined the credit counseling industry and they are concerned about activities that are not charitable (i.e., commercial in nature or activities that provided financial benefits to related businesses at the expense of the homeowner).

Self Declarers

Organizations exempt under Sections 501(c)(4), (5) and (6) generally have not sought a determination letter from the IRS. They are known as “self declarers” and the IRS will be performing work in 2013 to learn more about whether such organizations have classified themselves correctly and are complying with applicable rules and regulations.

Form 990

As you know, the IRS introduced a new version of the Form 990 designed to promote transparency and improve compliance. The IRS is using these potential noncompliance indicators from the Form and testing them to determine if they are, in fact, good indicators of non compliance. I will touch upon this topic more next week in my blog about how the Form 990 is being used by the IRS.

If you have questions or would like more information about the 2013 Exempt Organization Work Plan any member of the NFP Services Team.

As one of the largest CPA firms in Boston, KLR is unique because they service over 220 not-for-profit organizations with compliance and consulting services. We have extensive experience helping Nonprofit organizations regarding boards, and board responsibilities, charitable contributions, taxes and 990 filing requirements. The KLR Nonprofit team is active in our local community and not-for-profit organizations, visit our Facebook page to see photos from our latest volunteer event.