IRS Crippled by Tea Party Scandal

July 25, 2014 Posted by Jessica Shofler in IRS, News, Nonprofits

Tea PartyIn the wake of the tea party scandal, you might think that Congress would want to bolster up the IRS’s exempt organizations division to ensure proper staffing and oversight. But you would be wrong. The House recently cut the IRS tax enforcement division budget by $1.2 billion (a 25% cut). The cut is a reflection of GOP outrage over the scrutiny of tea party groups and the IRS’s failure to produce the emails of Lois Lerner, former head of the exempt organization division.

Rep. Bill Huizenga (R-MI) reasoned, “It is up to Congress to use the power of the purse to rein in the IRS and force them to conduct their analysis in an unbiased manner.”

The White House has promised to veto the House bill, but in the meantime, the exempt organizations division is still dealing with a decimated staff and limited resources. A six-month investigation by Center for Public Integrity (the “Center”), a nonpartisan, nonprofit investigative news organization, shows that the division has all but stopped regulating politically active nonprofits in any consistent way, fearing more scandal.

The investigation included review of thousands of pages of IRS documents and interviews with dozens of current and former IRS employees and administrators. The Center found that less than .25% of exemption applications by social welfare organizations are denied, compared to nearly 4% thirty years ago. And the exempt organizations division has lost 14% of its staff positions over the last twenty years while the number of groups it regulates has grown more than 40%.

The Center has offered three solutions from its interviews with former IRS employees and administrators on how to fix the exempt organizations division. Namely, (1) finding a better funding source for regulation of exempt organizations, such as using the existing tax on private foundations; (2) increasing regulatory limitations on the political activity exempt organizations may undertake; or (3) creating an exempt organization regulatory agency separate from the IRS, similar to the independent commissions in the UK and in Australia.

What do you think needs to be done to fix the exempt organization division?

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits,1812 W Burbank Blvd, #7445, Burbank, CA 91506

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