TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

TAX CUTS AND JOBS ACT:  ASSESSMENT OF IMPLEMENTATION PLANNING EFFORTS FOR
THE EXCISE TAX ON EXCESS COMPENSATION PAID BY TAX-EXEMPT ORGANIZATIONS

Final Report issued on June 5, 2019

Highlights of Reference Number:  2019-14-032 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act of 2017, which imposes a new 21 percent excise tax on applicable tax-exempt organizations that pay more than $1 million in remuneration to any covered employee for any taxable years beginning after December 31, 2017.  Implementation of the new excise tax provision requires changes to tax forms, instructions, and information technology systems as well as additional guidance to assist taxpayers to accurately report the excise tax.

WHY TIGTA DID THE AUDIT

This audit was initiated to provide a status of the IRS’s progress in implementing tax law changes required by the Tax Cuts and Jobs Act.  This audit assessed the actions taken by the IRS Tax Exempt and Government Entities (TE/GE) Division and the Office of Chief Counsel to effectively implement the excise tax provision.

WHAT TIGTA FOUND

The TE/GE Division coordinated with other IRS offices and developed an action plan that identified the steps needed for the implementation of the excise tax provision.  The TE/GE Division also identified the affected tax forms, instructions, and information technology systems and made accurate, complete, and timely requests for revisions.  The revised tax forms were available to affected taxpayers by the end of Calendar Year 2018.

In addition, the TE/GE Division coordinated with the Office of Chief Counsel to identify formal guidance needed for the excise tax provision.  Although there were delays, the Office of Chief Counsel released formal guidance to the public on December 31, 2018.

Exempt Organizations employees received training on the new excise tax, and IRS officials participated in various public speaking events that included presentations about the excise tax.

However, TE/GE Division management has not completed a strategy to address noncompliance with the new tax.  Although TE/GE Division management acknowledged the need for a compliance strategy and took preliminary steps in that process, as of December 31, 2018, they had not established a timeline for further development and implementation of compliance activities.  Affected organizations will begin reporting the excise tax on returns filed as early as May 2019.  A fully developed compliance strategy is needed to monitor and track potential noncompliance with the new excise tax.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Commissioner, TE/GE Division, complete a compliance strategy to identify and bring into compliance organizations that fail to pay the excise tax.

In their response, IRS management agreed with our recommendation.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

https://www.treasury.gov/tigta/auditreports/2019reports/201914032fr.pdf.

 

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