Friday, May 17, 2013

The 501(c)(4) TIGTA Report: My Random Thoughts

I have now had the opportunity to go through the TIGTA report as well as listen to this morning’s Ways & Means hearing. Here are some random thoughts and questions on the matter:

1. The report refers to a “BOLO” list (“be on the look out”) of terms that would trigger an additional look. I note this from the report: “[b]ased on our review of other BOLO listing criteria, the use of organization names on the BOLO listing is not unique to potential political cases.” (TIGTA Report, page 6 (my references refer to the .pdf version on the website)). When I read that, the first thing that came to my mind was credit counseling organizations – and in fact, Steve Miller mentioned credit counseling organizations in this respect today. From what I can tell, I think we know that these were not the only terms on the BOLO list, but I don’t think we know what else is on there. Footnote 16 specifically states, “[w]e did not review the use of other named organizations on the BOLO listing to determine if their use was appropriate.”

2. The report’s primary problem with the use of these terms was that “the criteria [in the BOLO listing] focused narrowly on the names and policy positions of organizations instead of tax-exempt laws and Treasury Regulations. Criteria for selecting applications for the team of specialists should focus on the activities of the organizations and whether they fulfill the requirements of law. Using the names or policy positions of organizations is not an appropriate basis for identifying applications for review by the team of specialists.” (TIGTA Report, p. 7). The TIGTA report does NOT appear to say that the actual scrutiny given was inappropriate – in fact, if the same organizations had been selected for scrutiny using different criteria, that appears to have been appropriate in most cases. Of the 298 applications that were selected for special scrutiny, the Inspector General thought that there were no indicia of additional political activity for 91 (or 31%) of the cases (note that the IRS disagreed with this finding, by the way.) As far as I can tell, we don’t know how many of these 91 cases were “Tea Party”, “912,” or “Patriot” organizations.

3. I am amused and dismayed that suddenly people are worried about Form 1023/1024 processing delays at the IRS. Where have they been? This is new and unique to advocacy 501(c)(4)s, right? Of course it’s not – all of this who work in the nonprofit sector (including the IRS) have complained about Form 1023/1024 processing times for years. Steve Miller was pretty clear today – they simply don’t have the people. Not that I think the IRS hasn’t been entirely clear about this point that in the past. That being said, the TIGTA report does make the point that the cases selected for special scrutiny sat for significantly longer than average for “regular” cases, at least in part due to the fact that it took the Determinations Unit “more than 20 months (February, 2010 to November, 2011) to receive draft written guidance from the Technical Unit for processing potential political cases.” (TIGTA Report, p. 12). To me, this is one of the most troubling aspects of this issue - I am truly concerned about why it took so long to provide that type of guidance. (Side note: the IRS letter indicating that it would cease using resources to look at gift tax return issues with regard to contributions to Section 501(c)(4) organizations was issued on July 7, 2011).

4. The TIGTA report also is concerned that IRS agents have asked for inappropriate information, such as donor lists. I agree – this was probably not appropriate to request donor lists. But, again, this isn’t a new issue. One need only revisit the nonprofit sector’s concerns regarding the governance questions on the redesigned Form 990 to see that we’ve struggled with this problem for some time. In my view, it is yet another side effect of the long standing personnel and budget issues at the IRS. Along these lines, another disturbing (but unfortunately, not surprising) part of the report for me is the finding that the Determinations Unit was sufficiently confused about what constituted appropriate Section 501(c)(4) activity that the IRS had to provide employees with a two-day workshop on the topic – in May, 2012. (TIGTA, p. 14).

5. As I indicated below as I watched the hearings, I am troubled by the notion that follow up questions from the IRS are now burdensome and inappropriate. The organization is asking to be exempt from federal taxation – presumably, we want that status to go only to those organizations that are so qualified. Unnecessary does not equal burdensome. When necessary, a tax-exempt organization should have to shoulder some burden for the privilege of not paying taxes.

From the tenor of today’s hearing, I’m sure there will be more to follow on this issue. EWW

http://lawprofessors.typepad.com/nonprofit/2013/05/the-501c4-tigta-report-my-random-thoughts.html

Current Affairs, Federal – Executive, In the News | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef01901c48b386970b

Listed below are links to weblogs that reference The 501(c)(4) TIGTA Report: My Random Thoughts:

Comments

I agree that some of the questions that were asked were inappropriate (or at least stupid). A good example is: "What books do your members read?" I am not convinced that asking for donor lists is inappropriate--disclosing them is. Here is why: Suppose one or two people are funding cookie cutter organizations that are being set up around the country by county. Once you are aware of this, screening applications based on these names strikes me as both logical and appropriate. I should say, I come at this as someone who believes the IRS line--the reviewers were not acting out of partisan motivations. The problem here is that the partisans in Congress and the talking class simply cannot believe that anyone can operate on a non-partisan basis. My view is that the IRS employees were no different than auto mechanics, doctors, or teachers. Just doing their jobs efficiently. If they were acting out bias, they would have done a better job of hiding it.

As for the supposed bias, someone should undertake a study of all the applications submitted during the period in question--recognizing that some information will be redacted. The study should go much farther than the TIGTA. It should grade the applications on quality, completeness, whether an experienced EO professional was involved in the preparation of the application, the projected revenue, and the apparent political persuasion. My working hypothesis is that the Tea Party was singled out because many of the applications were self-prepared by people with little EO experience and that the bulk of these came from those with a conservative bent, but this is just a hypothesis.

I stand corrected if there is a specific statutory provision prohibiting the inquiry about donors during the application process.

And no, I have not tasted the TE/GE Kool-Aid, although the doughnuts are pretty good.

Posted by: Jack Siegel | May 20, 2013 7:49:34 AM

Post a comment