IRS TEGE Sets 2016 Priorities

The IRS Tax Exempt & Government Entities Office has issued its priorities for fiscal year 2016. Among these priorities are plans that concern TEGE’s work with employee plans and with government entities and shared services.

Employee Plans Office

For FY 2016, TEGE’s Employee Plans (EP) office will allocate examination resources among the following casework categories:

• Specialty Programs: EP will focus resources into specialty program casework, focusing on EP Team Audit (EPTA)/Large Case, multiemployer plans, and Internal Revenue Code Section 403(b)/457(b) plans. These areas have been selected for increased attention because they have a historical pattern of non-compliance and also allow for greater coverage of the retirement plan participant universe. Specialized training needs will be identified and implemented as needed (just-in-time training) throughout FY 2016. The remaining resources will be applied towards cash balance plans, 401(k) plans, and employee stock ownership plans.

• Traditional Casework: EP will continue to select various plan types (profit sharing, money purchase, 401(k), defined benefit) from within our risk assessment program, while continuing to pursue taxpayer and interagency referrals, reported funding deficiencies, and non-bank trustee investigations.

• Supplemental Work: Additional project work will be supplemented by the Learn, Educate, Self-correct, Enforce (LESE) program, the Individual Retirement Arrangement (SEPs, SARSEPs, SIMPLEs) program, and the Form 5500-EZ (one participant plan) program.

EP also will use the Employee Plans Compliance Unit (EPCU) to identify areas with the greatest potential for non-compliance in plan operation and form. It expects to start several new compliance check projects in FY 2016, based on analytical reviews of current data, past projects, law changes, and recently released guidance.

In FY 2016, EP’s Determinations unit will continue to work individually designed and pre-approved plans. It expects more than 24,000 individually designed plan case receipts and more than 1,500 defined benefit pre-approved plans. This is in addition to the 403(b) pre-approved plan submissions that were received in mid-FY 2015.

TEGE will continue to process voluntary compliance-related cases, including voluntary requests for closing agreements. It also will consider options to improve case processing efficiencies, including developing a designated team for processing and screening submissions. TEGE also expects to devote resources to support the development of the EP Knowledge Networks.

Government Entities and Shared Services

TEGE’s priorities for its Federal, State and Local Governments (FSLG) office in FY 2016 include:

• greater reliance on data-driven project cases;

• continued shift and focus on Large Entity Examinations;

• shifting compliance checks to Government Entities Compliance Services;

• focused examinations of refund claims;

• limited scope examinations;

• focusing outreach and education on national web-based events and web tools; and

• launching the Employment Tax Knowledge Network (K-Net).

FSLG will continue to utilize an examination work plan consisting of five distinct gross wage categories based off of Form 941 filings by government entities:

• $0 – $2.5 million;

• $2.5 – $10 million;

• $10 – $40 million;

• $40 – $100 million; and

• greater than $100 million.

FSLG examinations will cover all gross wage categories but with an emphasis on entities with gross wages of $10 million or more; approximately 75% of examination closures will be of these returns. The focus on these larger entities directly correlates with our need to address the tax gap and the greatest risk of non-compliance since these organizations represent a significant percentage of the gross wage base. In addition, FSLG will increase the number of examinations on entities with $100 million or more in gross wages by shifting compliance checks of the small taxpayer sector to the Government Entities Compliance Services (GECS) program. In addition, FSLG will limit the number of claim examinations that are assigned to the field through improved pre-examination screening and by transferring some of these cases to the GECS.

FSLG will also conduct specific compliance initiative projects to determine high risks of non-compliance with a specific issue, test a hypothesis about a possible non-compliance pattern or theory of non-compliance that will lead to a better case selection method.

FSLG will conduct the following compliance projects to address the issues identified through data analytics:

• Early Retirement Incentive Plans (high risk non-compliance issue): Addresses entities that provide cash (and other) options to their employees as an incentive to encourage them to voluntarily retire early. This often results in employment tax issues that were not handled correctly by taxing the benefits under constructive receipt rules.

• Rapid Growth Governments: A research project to test the hypothesis that rapidly growing entities have a high risk for employment tax non-compliance due to rapid hiring; new, more complex benefit structure; and lack of experienced personnel. Expected non-compliance issues include worker classification, failure to classify compensation as wages, incorrect tax treatment of fringe benefits, and failure to file or inaccurate information returns.

• Reduction of Payroll and Increase in filed Forms 1099-Miscellaneous: A research project to test if worker misclassification can be identified based upon analysis of payroll and information return data. This project is expected to identify worker classification non-compliance.

FSLG will continue to invest time and resources into customer education and outreach levels similar to prior years. It will limit the number of face-to-face outreach events and will work with TE/GE Communications & Liaison (C&L) to develop and deliver a series of national web-based events including supporting the development and delivery of ACA outreach events. A primary focus for FY 2016 will be to work with C&L to develop on-line tools to help FSLG customers understand and comply with their tax responsibilities including tools focused on the small entity community.