Watchdog Says IRS Has Improved Handling of Tax-Exempt Status Requests

Nearly two years after the Treasury Inspector General for Tax Administration found the Internal Revenue Service inappropriately targeted Tea Party and other organizations for scrutiny, the IG on Thursday released a report citing the tax agency’s progress in reducing roadblocks for such organizations seeking tax-exempt status.

The new report is a follow-up to a May 2013 TIGTA report, which found IRS managers had used inappropriate criteria (such as names and policy positions instead of actual political activity) to trigger reviews of organizations applying for tax-exempt status, creating burdensome information requests and long delays for some applicants.

While responding to multiple congressional hearings and investigations, the IRS implemented TIGTA’s recommendations and "has eliminated the selection of potential political cases based on names and policy positions, expedited the processing of Internal Revenue Code Section 501(c)(4) social welfare organization applications, and eliminated unnecessary information requests," said IG J. Russell George in a statement.

The IRS also eliminated use of Be On the Look Out listings, which TIGTA determined had contained inappropriate criteria regarding political advocacy cases.

The IG determined that the Exempt Organizations division had completed 149 of the 160 applications for tax-exempt status that, as of December 2012, had been open for “lengthy periods.” The agency developed an “optional expedited self-certification process” that is not available to other organizations, such as labor groups or business organizations that give to political campaigns, the audit notes.

Of the 149 applications for exempt status, 107 were approved and seven were disapproved, the remainder having been either withdrawn or eliminated because the applicant failed to answer follow-up questions.

“The IRS has developed preapproved questions and has instituted a quality review process to provide better assurance that unnecessary information requests are not sent to applicants,” TIGTA said.

TIGTA noted that the IRS Exempt Organizations unit still lacks clear guidance as to how to evaluate the political activity of groups claiming to be social welfare organizations. The Treasury Department is revising a previously released proposed rule, which drew strong opposition from both conservative and liberal circles.

The new audit recommends that IRS improve staff training for handling the applications, and that it consider expanding the expedited applications process to more organizations. IRS agreed with both.

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