CPA Practice Advisor reports that the AICPA has requested that the IRS and the Treasury Department ease foreign filing requirements for tax-exempt organizations (EOs), highlighting the undue administrative burden placed on these entities.

Daniel Hauffe, senior manager of AICPA tax policy and advocacy, underscored that these filings provide little benefit to the IRS while diverting critical resources away from mission-driven programs. 

In a letter submitted on Jan. 27, the AICPA called for exemptions or streamlined reporting for three key forms: 

• Form 926: Return by a U.S. Transferor of Property to a Foreign Corporation 

• Form 8865: Return of U.S. Persons With Respect to Certain Foreign Partnerships 

• Form 5471: Information Return of U.S. Persons With Respect to Certain Foreign Corporations 

"The administrative and compliance burden—both in terms of time spent and costs incurred—placed upon EOs related to gathering the relevant information, determining whether a filing is required, and then preparing and filing the forms, arguably outweighs any informational or tax dollar benefit the IRS and Treasury likely receive," the letter said.

In many instances, the letter stated that an EO does not get unrelated business taxable income from these investments. Thus, such investments do not have an income tax impact. However, the EO is still required to comply with informational reporting requirements for these investments, and many of the international tax forms are highly technical.

The AICPA emphasized that many tax-exempt organizations have minor, indirect stakes in foreign partnerships and corporations as part of diversified investment strategies. Despite the lack of unrelated business taxable income generated from these holdings, these organizations are required to comply with complex reporting requirements that are typically aimed at preventing tax avoidance among for-profit entities. 

"Clear guidance and limited exceptions for EOs would be extremely beneficial to these organizations and their tax practitioners, thus freeing up valuable time and resources to be redirected toward mission-related activities and programs," the letter stated.

It noted that determining whether a filing is necessary, gathering the required data and completing the forms impose significant time and financial costs on EOs, often requiring the expertise of both exempt organization tax specialists and international tax advisors. Many practitioners advise EOs to file conservatively due to ambiguous regulations and the risk of steep penalties for noncompliance. 

The AICPA’s recommendations aim to simplify compliance, eliminate redundant reporting and reduce the burden on tax-exempt organizations and the IRS. It also suggested that the IRS consolidate foreign reporting requirements within Form 990, which tax-exempt organizations already file annually.