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Audit: IRS needs to better manage complaints about tax-exempt groups

Tax-exempt organizations such as 501(c)4 groups are playing a growing role in political campaigns, and lawmakers on both sides of the aisle have expressed concern over how the IRS is overseeing them.

The inspector general randomly selected a list of referrals about tax-exempt groups, and found that the IRS had difficulty tracking down about a quarter of them. The audit attributed some of the problems to the agency’s heavy reliance on paper filings, which are often lost or misfiled.  

The audit also found the IRS was not tracking all referrals once they were received while relying on a database rife with inaccuracies and omissions.

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The IRS said it agreed with the inspector general’s recommendations, which included examining whether the exempt organization referral process should receive more funding. The agency had requested the audit.

“Your report acknowledges the progress we have made in improving the referral process, and notes a number of areas in which we should make additional improvements,” Joseph Grant, acting commissioner for tax exempt and government entities, wrote in the IRS response. 

As of now, 501(c)(4) groups are meant to be primarily working on social welfare issues — which, according to some legal analysts, means ensuring that less than half their work is political. 

Crossroads GPS, a conservative group linked to Karl Rove, and Priorities USA, where staffers include former aides to President Obama, are among the 501(c)(4) organizations active in the 2012 campaign. 

But some Democrats on Capitol Hill have said that the IRS should step up its oversight of those groups, arguing that 501(c)(4) organizations should only be working on social welfare issues.

On the other side of the aisle, some Republicans have suggested that the IRS could be singling out Tea Party groups that are seeking to become tax-exempt.