November 1, 2014
$875 Million owed by Tax-Exempt Organizations for Delinquent Payroll Taxes
A recent report released by the Treasury Inspector General for Tax Administration (TIGTA) determined that greater than 64,200 tax-exempt organizations had accumulated approximately $875 million in federal tax debt. Of the 64,200 tax-exempt organizations, over 1,200 owed a total of approximately $656 million, approximately 7,000 owed from $10,000 to $100,000, and approximately 56,000 owed under $10,000.
TIGTA reviewed a judgmental sample of twenty-five tax-exempt organizations that were engaged in possibly criminal or abusive activity (or both). These twenty-five organizations had greater than $25 million in federal tax debt. Examination of fifty-two salaries of top officials for these twenty-five organizations found abusive activity such as officers not filing 1040 personal tax returns and underreporting wages creating millions of dollars in lost revenue.
Although tax-exempt organizations are generally not required to pay income taxes, they are required to pay employee payroll taxes (such as Social Security, Medicare and Federal income tax). The federal tax debt spans several years back and consists of payroll taxes as well as penalties and interest. The dollar amount is an estimate since it doesn't include those tax-exempt organizations that don't file payroll tax returns and perhaps should. Federal liens and levies were filed against the twenty-five tax-exempt organizations and the fifty-two officers, however tax-exempt status of the organizations was not revoked for failure to pay the taxes.
The key significant recommendations by TIGTA for the IRS Director of Exempt Organizations are as follows:
- Coordinate with the IRS's Small Business/Self-Employed Division management to receive collection information;
- Regularly perform analyses to find tax-exempt organizations with unpaid payroll and other federal taxes and consider for examinations; and
- Work with the Department of the Treasury to evaluate noncompliance by tax exempt organizations.
IRS management disagreed with the first two recommendations, however agreed to notify the Treasury regarding the third recommendation.
In summary, tax-exempt organizations are required to adhere to certain tax requirements and should ensure they have policies and procedures in place with proper oversight to ensure they are not delinquent in paying the required taxes. For further details see: http://www.treasury.gov/tigta/auditreports/2014reports/201410012fr.html