A closer look at the IRS's targeting of Tea Party and other groups for review.

• Author: Beavers, James A.

In a report issued on May 14, the Treasury Inspector General for Tax Administration (TIGTA) found that the IRS used inappropriate criteria that identified for review applications for tax-exempt status from tea party and other organizations based upon their names or policy positions instead of focusing on the activities of the organizations and whether they met the requirements under the law for tax-exempt status.

Background

Organizations that the IRS grants tax-exempt status are subject to strict rules regarding political activities. Sec. 501(c)(3) charitable organizations are prohibited from directly or indirectly participating in or intervening in any political campaign on behalf of or in opposition to any candidate for public office (political campaign intervention). However, Sec. 501(c)(4) social welfare organizations, Sec. 501(c)(5) agricultural and labor organizations, and Sec. 501(c)(6) business leagues may engage in limited political campaign intervention. In recent years, a great deal of controversy has surrounded Sec. 501(c)(4) organizations, due to their use by groups of all political persuasions to engage in political activity that many think is inappropriate for tax-exempt organizations.

Application for Tax-Exempt Status

Organizations seeking federal tax exemption are required to file an application with the IRS. The IRS's Exempt Organizations (EO) function, Rulings and Agreements office, which is based in Washington, D.C., is responsible for processing applications for tax exemption. Within the Rulings and Agreements office, the Determinations Unit in Cincinnati is responsible for reviewing applications as the IRS receives them to determine whether an organization qualifies for tax-exempt status.

Organizations requesting tax-exempt status generally must submit either a Form 1023, Application for Recognition of Exemption Under Section 501 (c)(3) of the Internal Revenue Code, or Form 1024, Application for Recognition of Exemption Under Section 501(a), depending on the type of tax-exempt organization it desires to be. Most (in 2012, 70%) of the applications are approved without an initial review and with little or no additional information other than that asked for in the appropriate application.

If substantial additional information is needed, the application is referred to a specialist in the Determinations Unit. After a specialist in the unit collects the additional information, the application is approved or denied, and a final determination letter is sent to the organization. If the specialist needs technical assistance in processing an application, he or she requests assistance from the Technical Unit in the Rulings and Agreements office.

The IRS's goal for processing all types of applications for tax-exempt

status was 121 days in fiscal year 2012; however, some cases take substantially longer. For example, the EO function...