IRS Releases 2006 Implementing Guidelines for Exempt Organizations

The Tax Exempt and Government Entities Division of the Internal Revenue Service recently released its "Fiscal Year 2006 Exempt Organizations Implementing Guidelines." The guidelines, which are updated annually, serve as a "work plan" for the IRS by outlining the Division's projected priorities, strategies and compliance initiatives for the upcoming year. Go here for a link to the full text of the 2006 Guidelines.

The 2006 Guidelines provide that the Division will continue the enforcement initiatives it began in 2005 in the following areas: (1) potentially abusive tax avoidance transactions identified by the IRS (e.g., donor-advised funds, IRC Section 509(a)(3) supporting organizations, and HUD housing programs); (2) anti-terrorism; (3) credit counseling; and (4) excessive compensation. Regarding excessive compensation, the IRS Exempt Organizations Compliance Unit ("EOCU") mailed thousands of compliance check letters to exempt organizations last year to find out how such organizations determine their compensation levels. The 2006 Guidelines state that this examination process will be completed in 2006 and that findings will be issued. Based on such findings, additional examinations may be undertaken by the IRS.

The 2006 Guidelines also identify new enforcement initiatives in the following areas: (1) conservation easements; (2) charitable trusts; (3) charities as accommodation parties; and (4) executive compensation paid by hospitals. With respect to hospitals, the 2006 Guidelines provide that the EOCU may undertake a compliance initiative that will solicit information from a significant number of hospitals regarding how they determine and pay compensation according to community benefit standards.

In addition to the foregoing, the 2006 Guidelines provide that guidance may be issued on topics such as donee reporting for vehicle donations and down-payment assistance organizations and that the Division will continue to revise Form 990.

For additional information on the 2006 Guidelines and their potential impact to your organization, please contact Marilee J. Springer.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.