IRS Showing Improvement in Processing Political Groups’ Tax-Exempt Applicationsby
The IRS has received plenty of criticism for the Tea Party scandal, so it’s only fair to give the agency its due when improvements have been made.
A new report released publicly on April 30 by the Treasury Inspector General for Tax Administration (TIGTA) says the IRS is doing a better job processing tax-exempt applications of political groups.
The Tea Party scandal began brewing after a couple staffers in the IRS’s Exempt Organizations division singled out conservative-leaning political groups in 2012 for extra scrutiny on their applications for tax exemption. The controversy, which is still lingering, resulted in several top IRS officials resigning and a major black eye for the agency.
When TIGTA reviewed the situation in 2013, it issued a comprehensive report reprimanding the IRS and offering specific recommendations for cleaning up the mess. Notably, TIGTA said the IRS was derelict in three areas:
- Its use of inappropriate criteria to identify for review organizations applying for tax-exempt status based on names and policy positions instead of indications of political campaign intervention.
- Substantially delayed processing of certain applications.
- The issuance of unnecessary information requests.
According to TIGTA’s follow-up report, which was completed in March, the IRS has stepped up its game. Here are some of the key findings.
No more BOLO lists. The IRS has eliminated use of “be on the lookout” (BOLO) lists identifying applications that were being targeted based on political affiliation. Although the IRS is continuing to screen for information affecting the determination of applications for tax-exempt status, including activity tied to political campaign intervention, it is avoiding specific labels of any kind. Also, the IRS has created a committee to serve as the focal point for such applications.
Certain processes suspended. In 2014, the IRS issued interim guidance indefinitely suspending the process of screening applications for tax-exempt status and it no longer assigns applications with indications of significant political campaign intervention to a team of specialists. Instead, it has developed different processes for applications by 501(c)(3) organizations, the most prevalent type of charity, and 501(c)(4) applications of political groups. Revised IRS regulations for 501(c)(4) groups are forthcoming.
Backlog cleared. The IRS is moving ahead more expeditiously on tax-exempt applications. TIGTA reported that the Exempt Organizations division had completed processing for 149 of the 160 applications for tax-exempt status that had remained open at the end of 2012 for lengthy periods. Some of the wait times were as long as three years.
More employee training. TIGTA found that the IRS has developed and implemented extensive political campaign intervention training for relevant employees, including those directly responsible for determinations. However, TIGTA said – and the IRS agreed – that the timing and execution of the training can still be improved, especially in the follow-up needed to ensure that Exempt Organizations employees fully understand the rules.
Although things are looking up, the IRS still has a long way to go toward correcting the sins of the past in this area and improving its public image. But at least this is a step in the right direction.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...