Tuesday, May 19, 2009

TIGTA Issues Audit Report on 2004 Political Activities Compliance Initiative

The Treasury Inspector General for Tax Administration has issued an audit reporton the IRS' Political Activities Compliance Initiative for the 2004 election season at the request of the Senate Finance Committee.  The Initiative involved examinations of section 501(c)(3) organizations for possible violation of the political campaign intervention prohibition - i.e., for supporting or opposing candidates for elected public office.  Several interesting points from this report:

*  Most But Not All Exams Closed:  Four and a-half years after the election, the IRS has managed to close 107 of the 110 examinations that were part of the Initiative.  The report does not indicate why three examinations remain open, or how quickly the IRS ended the closed cases.  An earlier TIGTA report criticized the IRS for not meeting its own timeliness standards for processing alleged political activity referrals, although that report focused on the time between receipt of a referral and notification of the organization involved rather than on the entire time period before closure of an examination.

Few Penalties Imposed:  Consistent with previous reportsby the IRS, the IRS resolved the vast majority of cases where the IRS determined political campaign intervention had occurred by issuing a written advisory with a warning and no penalty (48 of 54 cases, based on the 99 cases TIGTA could review and after correcting for miscoded cases (see below)).  In only six cases did the IRS revoke the organization's tax-exempt status, and in no case did the IRS impose the excise tax available under Internal Revenue Code section 4955.

Most Referrals from External Sources:  TIGTA found that individuals from outside the IRS provided the highest number of referrals (approximately half) and with watchdog organization referrals, accounted for 74 of the 110 examinations.  IRS employees were the sole source of a referral in only 17 of the cases.  The remaining cases involved both IRS and outside source referrals.  A previous TIGTA report found that the IRS processing of such referrals was not inappropriate in any way, such as being subject to political influence.

Miscoding, Missing Records, and Missing Determinations:  Perhaps most troubling is the fact that TIGTA discovered a number of recordkeeping and communication problems.  These problems included 14 cases that were improperly coded as involving prohibited political campaign intervention, when the actual finding was of no such intervention, the inability of the IRS to locate 19 of the closed examination files (although it found some information for 11 of those cases), and the failure by the IRS to state whether prohibited political activity had occurred in 15 of the closing letters sent (out of the 99 cases TIGTA had sufficient information to review).

While TIGTA did not evaluate the conclusions of the IRS examiners, it did note that most (75%) of the examinations involved only a single possible infraction, most (70%) of the examinations involved local as opposed to national or international organizations, and approximately half (47%) involved churches with the rest focusing on other types of charities. 



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