Watchdog: Issues with IRS processing of improper political activity complaints

Watchdog: Issues with IRS processing of improper political activity complaints
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A Treasury Department watchdog in a new report said that it found some issues with the IRS's processing of complaints alleging that tax-exempt groups engaged in impermissible political activity.

The Treasury Inspector General for Tax Administration (TIGTA) conducted a review of the IRS's handling of the complaints in response to the Senate Finance Committee's 2015 bipartisan recommendation in the wake of revelations that the IRS had subjected conservative groups' applications for tax-exempt status to extra scrutiny.

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Lawmakers, IRS employees and citizens can send the IRS referrals recommending that the IRS examine alleged misconduct by tax-exempt groups.

Under federal tax law, charities cannot endorse or oppose political candidates but other types of tax-exempt groups, such as social-welfare organizations, labor unions, and business leagues can intervene in political campaigns in limited ways.

In July 2015, the IRS created a committee tasked with reviewing referrals that contain allegations of impermissible political activity by tax-exempt groups and determining if the agency should audit the groups named in the referrals.

TIGTA found that between July 2015 and August 2016, the committee was sent and reviewed 19 "high-profile" referrals and recommended audits in 10 cases, more than half of which involved social-welfare organizations. As of January 2018, the IRS hasn't issued any negative findings due to the audits.

But the watchdog said that the IRS was not sending most of the allegations of impermissible political activity or lobbying to the committee.

TIGTA looked at a sample of 95 referrals sent to the IRS' exempt organizations division and found that 11 of them contained allegations of impermissible political activity but were not forwarded to the committee. Based on the results of its sample, TIGTA estimates that more than 1,000 referrals were not sent to the committee, even though they met the IRS's internal criteria for review by the panel.

"Not following [internal] guidelines circumvents an important process that exists to reduce the risk of bias and ensure that cases are properly considered for referral to the Examinations program," TIGTA wrote in the report.

TIGTA also said that the IRS didn't provide enough documentation about the reviews it conducted.

"This documentation is vital because the referrals are high profile, involve extremely sensitive allegations of impermissible political activity, and require a subjective analysis of often unique facts and circumstances of unverified information from the allegations," the report said.

TIGTA recommended that the IRS provide more guidance and training on documentation requirements and the criteria about when referrals should be forwarded to the review committee.

The IRS agreed with the recommendations, but the agency said that it was correct not to transfer the 11 referrals TIGTA flagged to the review committee, saying that the allegations in those cases were "incomplete or inapplicable." The IRS also disputed the estimate that it had improperly failed to send more than 1,000 referrals to the committee, arguing that the estimate was not "statistically sound."

TIGTA responded in its report by saying that the IRS's comments were "not accurate."

The government watchdog group Public Citizen said that the TIGTA report demonstrates that the IRS needs objective standards to evaluate what constitutes political activity.

"Without objective standards, nonprofits willing to flout the rules will get a free pass, while the vast majority of nonprofits that want to follow the law will be left in the dark as to what is and isn’t permissible," said Emily Peterson-Cassin, coordinator of Public Citizen's Bright Lines Project. "We have needed better, clearer rules in this space for decades. Today’s report confirms that the time to act is now."