IRS Report on Tax-Exempt Charitable Financings Compliance Project

The Internal Revenue Service released on September 11, 2008 its report presenting the analysis and preliminary conclusions on the data collected during the Tax-Exempt Charitable Financings Compliance Check Questionnaire project. The project sought to identify and measure the overall knowledge of exempt organizations described under section 501(c)(3) of the Internal Revenue Code of the post-issuance compliance and record retention requirements generally applicable to qualified 501(c)(3) bond issues for which they are a beneficiary. “I am pleased with the positive response we have received on this project, both in the high percentage of completed questionnaires and the interest of industry associations in the responses,” said Steven T. Miller, Commissioner, Tax Exempt and Government Entities.

This project was the first major step in the Service’s use of the soft-contact approach using informal, non-audit contacts to measure and promote tax compliance within the tax-exempt bond market.  “We are encouraged by the success of this soft-contact compliance project and appreciate the recommendations of the Advisory Committee on Tax Exempt and Government Entities in encouraging greater use of this approach for tax-exempt bonds,” said Clifford J. Gannett, Director, Tax Exempt Bonds.  Previously, the Service had limited this approach to late filed returns relating to the issuance of tax-exempt bonds.

While the report identifies a high level of recognition by exempt organizations of the importance of post-issuance compliance and record retention procedures, it determines that there appear to be significant gaps in the effective implementation of such procedures.  Specifically, less than 50% of all responding organizations were able to describe in detail their procedures when asked to do so in the questionnaire.  Ineffective post-issuance compliance and record retention programs may result in qualified 501(c)(3) bonds forfeiting their tax-exempt status.  “It is critical to the Service’s taxpayer education commitment that we help governmental issuers and borrowers of tax-exempt bonds to understand their federal tax responsibilities, including those that apply well after the bonds have been issued,” said Steven A. Chamberlin, Manager, Tax Exempt Bonds Compliance and Program Management.

The project was a joint effort by the Tax Exempt Bonds (TEB) function and Exempt Organizations Compliance Area (EOCA), both programs within the Tax Exempt and Government Entities Division of the Internal Revenue Service.  TEB developed the project, analyzed the data, and compiled this report.  EOCA contacted the 207 exempt organizations selected for the project and collected the data.

Following the success of this project, the Internal Revenue Service is working toward the release of a similar soft-contact questionnaire project focusing on the post-issuance compliance and record retention processes of governmental issuers of tax-exempt bonds.  This second project is expected to begin before the end of calendar year 2008.

The report is available in PDF format at the link below:

Interim Report on Charitable Financings: A Summary of Reported Data & Analysis