As we are into the second half of the year, we would like to inform you of some key information relating to the Internal Revenue Service (IRS) and Exempt Organizations:
IRS TE/GE
The IRS TE/GE (Tax Exempt and Government Entities Division) has outlined the following priorities for its FYE 2023 (FY 2023 program letter ). A FY 2024 program letter will be issued in September 2023.
- Service: Enhance Taxpayer Service
- Enforcement: Strengthen Compliance Activities
- People: Workforce Development
- Transformation: Transform Operations
IRS Inflation Reduction Act Strategic Operating Plan
To address the use of its Inflation Reduction Act of approximately $80 billion in funding, the IRS has defined the following objectives for its IRS IRA Strategic Operating Plan issued in April 2023:
- Objective 1: Dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible.
- Objective 2: Quickly resolve taxpayer issues when they arise
- Objective 3: Focus expanded enforcement on taxpayers with complex tax filings and high-dollar non-compliance to address the tax gap.
- Objective 4: Deliver cutting-edge technology, data and analytics to operate more efficiently.
- Objective 5: Attract, retain, and empower a highly skilled, diverse workforce and develop a culture that is better equipped to deliver results for taxpayers.
IRS Inflation Reduction Act Renewable Energy Credits
With the introduction of renewable energy credits, tax exempt organizations and local governments are eligible for clean energy tax credits for “qualifying energy projects” and will have access to “elective pay” for tax credits (direct payments). Energy credits can be made for the first taxable year beginning after December 31, 2022. Elections must be made no later than the due date (including the extension of time) for the return of tax for the taxable year for which the election relates. Credits to be paid are similar to payments of IRS refunds, and organizations must file an IRS Form 990-T (even if otherwise the organization would not be required to file an IRS Form 990-T.) Tax credits are earned in the year in which the project is placed into service.
The types of renewable energy credits most likely applicable for non-health care and non-higher education non-profits would pertain to credits involving Section 179D: Energy Efficient Commercial Building Property and Alternative Vehicle Fuels. Examples of eligible projects under Section 179D include energy efficient commercial building properties such as energy efficient lighting and HVAC. Monetization of deduction occurs through the allocation of deductions to the project designer. This would generally be the architect, engineer or contractor. The property must be certified as part of a plan to reduce total annual energy and power costs by 25%+.
For Alternative Vehicle Fuels (EV), incentives are offered to offset the cost of installing EV refueling/charging stations and credits to subsidize the purchase of EVs.
There are helpful resources online, including an FAQ issued by the IRS for additional information on the IRA energy credits:
https://www.irs.gov/credits-deductions/elective-pay-and-transferability-frequently-asked-questions
https://www.irs.gov/credits-and-deductions-under-the-inflation-reduction-act-of-2022
https://public-inspection.federalregister.gov/2023-12798.pdf
Generic Legal Advice Memorandum on NIL Collectives
The IRS has issued a generic legal advice memorandum (GLAM 2023-004) that addresses whether developing paid name, image, and likeness (NIL) opportunities for collegiate student-athletes furthers an exempt purpose. Some NIL Collectives to compensate student-athletes for services rendered have been established as nonprofit entities or existing charities chose to develop NIL opportunities. NIL activities included paying students for social media posts promoting the charity; attending fundraisers or autographing memorabilia for fundraisers. The IRS has concluded that such activities are unlikely to qualify as charitable or tax-exempt activities.
State Regulatory News
Areas of Interest That State Regulators Look Into
As a reminder, transactions of interest for regulators are NOT measured on financial statement audit materiality. State regulators do look for consistency and some holistic story between the audited financial statements and the IRS Form 990. Also, do not assume no one reads the IRS Form 990. The IRS Form 990 is the first document reviewed by regulators.
Notable areas of interest for state regulators include:
- Review and approve sales of charitable assets
- Investigation into fraudulent solicitations
- Monitoring of related party transactions including compensation
- Modification or release of restriction petitions
- Review and monitoring of filings
PA BCO Update
PA BCO registrations continue to be processed online or by mail. In Pennsylvania, there continues to be no taxation of PA UBIT. However, this is not true of many states and state taxation of UBIT compliance is ramping up. PA BCO resources can be found online here and instructions for the completion of PA Form BCO-10 can be found here.
If you have any questions regarding these tax matters or other questions in general on non-profit tax compliance, please contact a member of your engagement team.