The IRS has issued a number of recent announcements about its activities. Here are the important items you need to know:
Form 1024-A. The IRS has announced that form 1024-A, application for section 501(c)(4) tax exempt status can now be filed online only.
Form 4720. The IRS is working on a Form 4720 for Private Foundations that must be e-filed. You can file the form on paper until it announces the e-filed form is ready.
Summary of IRS priorities for fiscal year 2021. The IRS has announced its fiscal year priorities for the tax exempt and governmental entities division. Here is a summary of what you need to know.
The IRS will continue focus on syndicated conservation easements, which it considers to be abusive. It will also continue to focus on charitable remainder annuity trusts that it believes are abusive.
It will support other IRS divisions in tax compliance in the global high wealth area including private foundations and retirement plans of closely held businesses.
It also intends to expand e-filing of forms 990 series, 8038-CP and 5500-EZ, as well as work towards electronic determination letter applications. It is working to develop additional online tools and resources such as online interactive tax assistance tools to help taxpayers avoid making excess contributions to 401(k) plans.
Compliance programs and priorities: The IRS has announced its compliance programs and priorities for fiscal year 2021. Some of these are ongoing and some of them are new.
Worker classification. The IRS is continuing to examine work of classification at various organizations. It has been our experience that organizations too often try to classify somebody as an independent contractor in order to save on various withholding taxes and fringe benefits. Too often they also wind up on the wrong side of the issue. If you have concerns about how workers should be classified the IRS has a corrections program, we also have experience advising on the issue.
Excise tax on excess compensation. The IRS is also examining the impact of code section 4960, which is the excise tax on excess compensation. Code section 4960 imposes a 21% excise tax on tax exempt organizations that pay over $1 million in compensation to “covered employee”. The IRS is finding that many organizations continue to pay over $1 million in compensation but are not reporting the excise tax. You would report the excise tax on form 4720.
Issuing W-2 and form 1099-MISC (now form 1099-NEC). The IRS is also examining payers that may have issued both a form W-2 and a form 1099 miscellaneous to the same page in the same calendar year. This suggests that the person who received it may have been misclassified. The IRS will continue examinations of such organizations.
Supporting organizations and form 990-N. Finally, the IRS is examining supporting organizations under section 509(a)(3) who may be filing form 990-N in error. Supporting organizations are required to file either form 990-EZ or the full form 990. The IRS will be sending informational letters to organizations who may have misfiled and will undoubtedly ask them to correct their filings.