IRS Advisory Committee recommends enhanced Form 990-EZ filing requirements 

September 17:  The IRS Advisory Committee on Tax Exempt and Government Entities (ACT) has released its annual “report of recommendations.”

The ACT 12th annual report [PDF 6.76 MB] contains six recommendations* from ACT subcommittees, including one addressing exempt organizations and recommending the leverage of limited IRS resources in the tax administration of small tax-exempt organizations.

Tax administration of smaller tax-exempt organizations

The ACT subcommittee on exempt organizations report recommends ways that the IRS may leverage its resources in regulating exempt organizations, in particular the very small (i.e., annual gross receipts of less than $50,000) and smaller (i.e., annual gross receipts of less than $200,000 and total assets of less than $500,000) exempt organizations. The subcommittee addressed three areas for IRS action in its report:

  • Require more information from Form 990-EZ filers without changing the filing thresholds
  • Enhance IRS customer education and outreach
  • Enhance IRS information sharing with state charity regulators

Enhanced Form 990-EZ reporting

In reviewing Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, the ACT concluded that the current version of Form 990-EZ does not provide the same degree of transparency as does Form 990, Return of Organization Exempt from Income Tax.

As a result, limited information about Form 990-EZ filers is available to the IRS, state charity regulators, donors, media, and the public about smaller organizations. The ACT recommended that:

  • The IRS retain the existing filing threshold for the Form 990-EZ
  • The IRS consider the possibility of requiring Form 990-EZ filers to file, if applicable, Schedule F, Statement of Activities Outside the United States; Schedule I, Grants; Schedule J, Compensation; Schedule L, Transactions with Interested Persons (all parts); Schedule M, Noncash Contributions; and Schedule R, Related Organizations
  • The IRS consider the possibility of adding governance questions to the Form 990-EZ after it has an opportunity to consider the findings of the governance study, in order to evaluate whether particular governance practices may be useful indicators of tax compliance.

KPMG observation

ACT recommendations are not binding on the IRS. However, the IRS generally takes the ACT recommendations into account in setting policies.

For more information, contact:

Rick Speizman, Partner-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group

+1 (202) 533-3084

*The full list of the six ACT report recommendations:

  • Employee Plans: Analysis and Recommendations Regarding the Employee Plans Compliance Resolution System
  • Exempt Organizations: Leveraging Limited IRS Resources in the Tax Administration of Small Tax-Exempt Organizations
  • Federal, State, and Local Governments: Leveraging Internal Controls of State and Local Governments to Improve Tax Compliance
  • Federal, State, and Local Governments: Government Levy Processing Improvements
  • Indian Tribal Governments: Supplemental Report on General Welfare Doctrine as applied to Indian Tribal Governments and Their Members
  • Tax-Exempt Bonds: A Roadmap to Arbitrage Requirements for Tax-Exempt Governmental Bonds and Qualified Section 501(c)(3) Bonds of Smaller Issuers and Conduit Borrowers

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