Friday, May 10, 2019

Ways And Means Committee Member Calls on IRS to Investigate National Rifle Association's Exempt Status, grills Treasury IG on Lack of IRS Enforcement at Hearing Yesterday

We have previously reported on how advocates on both the right and the left have sought to enlist the IRS in cultural wars against exempt organizations considered to be enemies, respectively, of those on the left or the right.  We reported on efforts to have the Service revoke the exempt status of the Southern Poverty Law Center's exempt status here.  And on another group's effort to have the Service revoke the exempt status of the National Rifle Association here.  In the latest salvo, House Ways and Means Committee Member Bradley Schneider (Democrat, Illinois) sent a letter to the Service yesterday "strongly encouraging" the Service to investigate wrongdoing by the NRA.  Here is an excerpt from the letter:   

 

As a Member of the Ways and Means Committee, I take very seriously my role and responsibility in conducting oversight of our nation's federal tax laws and ensuring the federal tax code is working as intended.  It is with this duty in mind that I am writing to strong encourage you to investigate recent reports of possible wrongdoing by the National Rifle Association (NRA), which enjoys status as a tax-exempt organization under 501(c)(4) of the Internal Revenue Code (IRC).  The allegations against the NRA reported in The New Yorker on April 17, 2019, including instances of egregious self-dealing, deceptive billing practices, and preferences in contracting are most troubling.

. . . 

As you well know, Section 501 of the IRC lays out the types of organizations that qualify for tax-exempt status, as well the rules and regulations such organizations must follow.  It is a basic assumption that active oversight and enforcement will improve compliance.  However, in 2018, the Treasury Inspector General for Tax Administration issued a report that found the further processing of multiple legitimate referrals alleging improper political activity by tax-exempt organizations were not pursued.  This report finding raises questions about the IRS's enforcement of our federal tax laws. 

I am concerned about the potential long-term harm that diminished enforcement will have on the many nonprofit organization that do follow the rules and take their charitable and social welfare purpose seriously.  The alleged NRA operating practices also raise the question of whether current rules and procedures are adequate to guard against abuse.  

For a video of Rep. Schneider questioning the IG on the lack of IRS enforcement of tax laws regulating exempt organizations, with specific references to alleged abuses by the NRA see this:  

You can also read a partial transcript of Rep. Schneider's question and answer session yesterday with the Inspector General below the fold.

 

Darryll K. Jones

PARTIAL TRANSCRIPT:

 

Schneider:
One area of concern for me is the cost to the American taxpayers from supposed charitable and social welfare organizations that get special tax preferences and then abuse those preferences for personal gain, or self-dealing. I am also concerned that that such egregious behaviors are not being adequately pursued by the IRS. Inspector General George, I’d like to raise a few scenarios that could represent improper behavior by a tax-exempt organization and get a yes or no answer if you think this activity is troublesome or would warrant further investigation.  First, let’s suppose a Board Member of a non-profit organization owns a company that sells millions of dollars in products or services back to that same non-profit organization, and at inflated prices? Do you find this troubling? Please answer yes or no.

George:
It’s concerning.

Schneider:

Suppose a senior executive and top fundraiser for a non-profit organization has a stake in a media company that the non-profit directs millions of dollars in business to. Should this activity raise any flags?

George:
It would raise questions.

Schneider:

What if the newly selected president of the Board of Directors of a non-profit organization subsequently received a contract worth more than $1 million from the non-profit’s largest vendor within days of assuming his position. Would this create a likely conflict of interest?

George:

It would depend on the circumstances, but the potentiality exists.

Schneider:

Something you would look at?

George:

Yes

Schneider:

Last scenario: let’s say the CEO of a non-profit charged hundreds of thousands of dollars of lavish travel expenses to the non-profit’s largest vendor without adequate documentation? Would that be something that the IRS should look into?  Thank you Inspector General. I’ll ask it again, we have laid out four scenarios if they were actual cases would they warrant further investigation for possible abuse of the non-profit’s tax-exempt status?

George:

Yes

Schneider:

Thank you, I agree. But as you might have surmised, these scenarios aren’t hypothetical. They are allegations of self-dealing within the NRA, a 501(c)(4) organization with 5 million members. It’s incredibly disturbing to see these allegations and to think that NRA executives are possibly misappropriating their donors’ contributions and abusing their non-profit status for personal gain—and the American taxpayer is subsidizing the bill.  This morning, I sent a letter to the IRS Commissioner, and copied you, requesting an investigation into these allegations and whether they warrant reconsideration of the NRA’s tax-exempt status. I appreciate your attention to this matter.  More broadly, in 2018, your office published a report on the process for investigating referrals of impermissible activity by tax exempt organizations.  Given the follow up since your report and your interactions with IRS Management, do you believe there are adequate policies and procedures currently in place to enable the IRS to examine improper conduct by tax-exempt organizations and whether the IRS has sufficient information and resources to uncover abuse?

George:

They instituted extensive revisions to their existing policy, and our most recent review of it show that they are following those new policies, and eventually we will follow up again to make sure mistakes aren’t being made. But as of now, they are taking the steps that they committed to us to take.

Schneider:

But one of the concerns in the report was that referrals of potential abuse by non-profit organizations has not been followed up on, have those been subsequently followed up on?

George:

Most of them I believe have been provided, there were some that weren’t, but a lot were.

https://lawprofessors.typepad.com/nonprofit/2019/05/ways-and-means-committee-member-calls-on-irs-to-investigate-national-rifle-associations-exempt-statu.html

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