The IRS’ Exempt Organization Business Master File (EO BMF) suffers from a multitude of errors with long turnaround times to correct, which stem from old systems and insufficient oversight, according to submitted comments from the TEGE Exempt Organizations Council.
The Council’s March 29 comments were in response to the IRS’ September request for input on how to improve and expand tax certainty and issue resolution for businesses, either by tweaking existing programs and tools or “developing new ones” (IR 2023-171).
“We will improve and expand tax certainty programs so that other segments of taxpayers can determine their tax obligations more quickly and with finality,” the IRS stated in its Strategic Operating Plan for spending funding provided in the Inflation Reduction Act (PL 117-169), initially $80 billion through 2031 but now under $60 billion as of the recently passed fiscal 2024 appropriations package.
As noted in the Council’s comments, the IRS used to have a separate database for exempt organizations that was merged with the main Business Master File in 1981. The programming language used for tracking reporting data, COBOL, was already two decades old at that point, prompting the IRS to program bridges between legacy and new systems to accommodate exempt organization data.
“The more moving parts in a system, the more likely that something breaks,” the Council wrote. “And it certainly has broken, especially with additional new systems such as completing and e-filing exemption applications through pay.gov, the Electronic Federal Tax Payment System, the systems handling routine Section 527 organization filings, and whichever systems are responsible for handling Form 8822-B’s ‘responsible party’ and taxpayer address updates.”
In general, the EO BMF’s errors range from inaccurate or missing fields, including basic information like taxpayer names, addresses, and charity classification, according to the Council. Organizations are often unaware of this until an e-filed form is rejected due to mismatched information or the IRS imposes a penalty. Correcting these errors can take over six months “through the combined efforts” of multiple parties, as one Council member experienced.
“It all adds up to a very human cost,” the Council commented. “From the public’s perspective, a lack of accurate data erodes trust in the system. Additionally, the public cannot always confirm that a stated charity is in fact qualified to receive donations.” For the organizations, this can spell “potential doom,” the comments continued.
Among its list of recommendations, the Council suggests the IRS designate an “EO Czar” who would take the lead on remedying these issues. Specifically, this role would be responsible for tackling immediate issues with IT operations to simplify how exempt organizations interface with IRS databases. Further, the Council would see more staff proficient with COBOL programming for exempt organizations’ needs on top of a specialized practitioner helpline.
“It is not in the IRS’s long term interest to neglect the nonprofit sector and the EO/BMF. The less reliable the data in the EO/BMF, the less the public will look to the IRS to administer the tax law, and the more opportunists will seek to take advantage.”
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