Practitioners should expect tax-exempt processing slowdown.

• Author: Tysiac, Ken

CPAs need to be prepared for a slowdown in certain work handled by the IRS Exempt Organizations Division in the wake of the recent controversy involving the processing of certain applications for tax exemption under Sec. 501(c)(4), the division's former head said June 20. "Probably the whole system is frozen in time right now, like it was a mastodon stuck in a glacier," said Marcus Owens, a member in the law firm Caplin & Drysdale's Washington office and the former director of the IRS Exempt Organizations Division. "There are, I'm certain, distractions and delays."

Owens was a late replacement as a speaker at the AICPA Not-for-Profit Industry Conference in Washington. He spoke in place of Lois Lerner, the head of the IRS Exempt Organizations Division, who has been placed on administrative leave by the agency as a result of the controversy.

From 1990 to 2000, Owens held Lerner's job. At the conference, he discussed the fallout from the scandal that began with a May 14 report by the U.S. Treasury Inspector General for Tax Administration (TIGTA) that inappropriate criteria were used to identify tax-exempt applications for review.

The report found that the IRS used inappropriate criteria that identified for review "tea party" and other organizations applying for tax-exempt status as social welfare benefit organizations based on their names or policy positions instead of indications of potential political campaign intervention.

Owens said the IRS is equipped to handle congressional demands for records and employee interviews. But he said the criminal investigation launched by the Department of Justice will significantly slow the IRS's processing of certain form applications.

"Everything shuts down, because there are allegations that your 501(c)(4) processing has been corrupt," Owens said. "So what do you do? If you're the manager, you don't do it anymore. Period. Stop. Full stop. And maybe you go broader than that, because the 501(c)(3)s were playing in this field, too."

After his presentation, Owens said he thinks applications still will get processed at the division's regional office...