Watchdog Cites Sloppy Procedures at IRS Over Who Gets Audited

A congressional watchdog has found lapses in Internal Revenue Service procedures for determining which taxpayers are subjected to audits. But the sampling of cases by the Government Accountability Office produced no evidence that political factors play a role.

The report, requested by congressional Republicans and the basis for a House Ways and Means Subcommittee hearing on Thursday, concluded that “the control deficiencies GAO found increase the risk that [the IRS Exempt Organizations unit] could select organizations for examination in an unfair manner—for example, based on an organization’s religious, educational, political, or other views.”

GAO’s eight focus groups with IRS employees and review of a sampling of the 8,000 organizations considered for audits in fiscal 2014 found that, despite the employees’ respect for procedure, some of the controls were “not well designed or implemented,” according to Jay McTigue, the GAO’s director for strategic issues.

Audits can be triggered by referrals from the agency, Congress or the general public based on suspicion that an organization has violated requirements for tax-exempt status in, say, accounting practices or political activity.

Some case files on referrals to the IRS’s committee that assigns audits, for example, were delivered without summaries, he said. Four out of five referrals that produced audits were missing a required description of the allegation, and some 22 percent of examination returns that were dismissed lacked the required management signature.

“Staff could deviate from procedures for some selection processes without executive management approval,” the report said, and Exempt Organizations management “does not consistently monitor selection decisions.” But under questioning, McTigue said GAO “did not observe any unfair selection” of organizations for auditing, though he cautioned that its review was only “a snapshot” of a broader problem of preventing wrongful audits in the future.

Rep. Peter Roskam, R-Ill., chairman of the Oversight Subcommittee, characterized the hearing as a follow-up to the two-year-old debate over the role of former IRS Exempt Organizations unit chief Lois Lerner in subjecting certain nonprofit applicants to extra scrutiny.

"It is disappointing that over two years later, it is still possible that the IRS can select groups for adverse treatment based on their personal political, religious, or educational beliefs,” said Roskam, who brought witnesses from groups who’d been subjected to expensive audits without explanation. “There isn’t proper documentation of allegations or decisions to audit; there are a handful of gatekeepers with sweeping authority and broad discretion; and there is a broken referral committee process.”

But Ranking Member Rep. John Lewis, D-Ga., countered that while Democrats agree that the IRS should be fair and not target certain types of groups, the percentage of groups audited amounted to less than 1 percent of the 1.1 million exempt nonprofits. “GAO found no evidence that IRS audited for political, educational or religious beliefs,” Lewis said, eliciting from the GAO witness an estimate that the 8,000 audits done in 2014 is down from the 2008 figure of about 11,500.

Internal Revenue Commissioner John Koskinen said he welcomed the GAO findings and said implementation of its 10 recommendations was underway. “Maintaining a fair and unbiased audit process is one of the fundamental principles upon which the IRS operates,” he said. “We choose returns for audit based on information that is or should be on the returns, and without regard for who is filing the return. It’s important for people to understand, for example, that which political party they belong to or how they voted in the last election has no bearing at all on our decision-making process.”

Koskinen added that the IRS in 2013 had its new chief risk officer review audit criteria agencywide in 350 IRS compliance programs and “found no evidence of bias in any of them.” He challenged Roskam’s assertion, based on internal emails suggesting that Lois Lerner had pushed for certain groups to be audited, that hypothetically a pro-life IRS employee could audit a pro-choice organization. “No single individual can open up an exam,” Koskinen said.

Roskam cited public outrage and loss of trust in the IRS and asked Koskinen to apologize for what he views as targeting with a clear partisan agenda. “The great thing about the American people is that they are ready to forgive, but you have to ask for it. So come clean and acknowledge that the targeting happened,” Roskam said. “This whole movie could end and we could all just turn the page.”

Koskinen replied that ascribing motives to Lerner is a job for the six congressional, Justice Department and inspector general investigations into the Exempt Organizations debacle. “It’s a situation that should never have happened, selecting groups just by the name of the organization is the wrong way to go,” he said. “The delays [in application processing] should not have happened, and the voluminous requests for information should not have happened, and will not happen again,” he said.

But IRS employees he speaks to “don’t think they were targeting anybody,” Koskinen added, and in speaking to 14,000 of them in town meetings, he has stressed the need for all employee to view themselves as “risk managers” who report on something that does not seem right.

The commissioner declined to give an opinion on whether the IRS would be auditing the Planned Parenthood Federation of America, which Rep. Mike Kelly, R-Pa., said was in effect referred for an audit by the general public because of a recent ethical controversy over its sale of fetal tissue to medical researchers. “What kind of referral does it take for the IRS to audit Planned Parenthood?” Kelly asked.

Rep. Lloyd Doggett, D-Texas, mocked the Republicans’ focus on the IRS’s detailed audit referral procedures as laid out in its Internal Revenue Manual. “We’ve come a long way from where we started, from a White House conspiracy to go after political opponents to need for updating the IRS Manual,” he said. “There’s no there there,” while the IRS, meanwhile, “isn’t doing its job on the dirty money in politics.”

(Image via Mark Van Scyoc/Shutterstock.com)