IRS Review of Charities At A Standstill Because of Politics

by Gary Snyder

The Internal Revenue Service is grappling with a decimated staff and limited resources, effectively lost whatever nerve it had left. It has come to a standstill. 

The IRS has all but quit regulating politically active nonprofits in any consistent, demonstrable way, a six-month Center for Public Integrity investigation reveals.

The investigation, which involved a review of thousands of pages of IRS documents and interviews with more than two dozen current and former IRS employees and administrators, finds the agency’s nonprofit regulation division has:

·    Bled 14 percent of its staff positions during the past two decades while the number of nonprofits it regulates has grown by more than 40 percent.

·    Scaled back inquiries, as the number of nonprofit group tax returns investigated recently fell by 10 percent, from 11,699 in 2011 to 10,575 last year. Applications for “social welfare” nonprofit status jumped 27 percent from 1,777 to 2,253 during the same time.

·    Reduced the number of denials for exempt status for social welfare nonprofits from nearly 4 percent during the early 1980s to less than a quarter-percent in 2013.

·    Softened, tabled or reversed course on at least a dozen proposed policy positions or enforcement plans after criticism from politicians and lobbyists.

To ensure 501(c) nonprofit organizations don't become more political than the law allows, it turned to the Federal Elections Commission. Such efforts failed when the commission's three Democratic appointees to rein in the nonprofits were stymied by the three Republicans on the commission, who were ideologically opposed to stifling what they consider the free expression of political views.

While IRS officials declined to say how many social welfare groups have been rejected for tax-exempt status on the grounds that they were too political, the Center for Public Integrity and other media organizations have identified 10 groups since the Citizens United decision.

Six were chapters of Emerge America, a group that trains Democratic women who want to run for office, and one engaged in politics abroad. Another — Arkansans for Common Sense — spent about $1 million during 2010 supporting the failed re-election bid of Democratic Sen. Blanche Lincoln. 

At least several other groups had their tax-exempt status denied for benefiting private groups such as political parties instead of the common good.

The nonprofit regulation division’s investigations of all nonprofits — politically active ones and otherwise — have fallen during recent decades and also the post-Citizens United years. For instance, the division audited fewer than seven tax returns per every 1,000 nonprofits last year.

Early in Ronald Reagan's presidency, the IRS audited such groups at nearly four times that rate.

In addition, last year and this year, the nonprofit regulation division temporarily shifted some employees from investigative work to help process the backlog of nonprofit applications. The backlog is a major concern of Republicans and conservatives upset with the IRS.

Interviews and IRS documents show the division has, of late, been hit particularly hard.

Since the Citizens United decision in 2010, the exempt organization division’s budget has shrunk 6 percent, from $101.2 million to $95.4 million during 2013.

Staffing in the division dropped more than 8 percent, from 900 in 2010 to 824 in 2013. Ninety-eight division employees left the IRS from Jan. 1, 2012 to May 17, 2014, according to a list of former employees obtained from the IRS through a FOIA request to the federal Office of Personnel Management.

The budget for training exempt organizations staffers was also slashed from 2009 to 2013 — from more than $7 million to less than $500,000 thanks to "budget cuts and sequestration," records show.

The IRS has also recently decided, in a bid to save time and money, that it will no longer screen most applications for 501(c)(3) charitable status. Some IRS watchdogs worry politically motivated organizations will attempt to exploit this decision.

Paul Streckfus, who worked in the division for six years and now runs a trade publication called EO Tax Journal (a fantastic resource), said previous IRS charity investigative leaders had reputations for being very cautious.

In addition to cutting the agency's budget, Congress continues to stifle the agency's work by forcing IRS officials to respond and appear before Congress.

Estimates suggest that it has so far cost the agency at least $16 million as it limps from U.S. House investigation to investigation. 

Without Congressional support and less intimidation, rules and regulations are harder apply and enforce. (source)

Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Charity Navigator, Vermont Public Radio, Miami Herald, National Public Radio (NPR), Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), “Betrayal”, (a movie), NBC (on Charity Fraud…TBD), FOX2, ABC Spotlight on the News, WWJ Radio, Marie Claire, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, Charity Navigator, The Chronicle of Philanthropy, St. Petersburg Times, Board Room Insider, USA Today Topics, Accountants News, Newsweek.com, Responsive Philanthropy Magazine, New York Times, Portfolio Magazine, The Virgin Islands Daily News, NANKAI (China) BUSINESS REVIEW, National Religious Broadcasters newsletter, The Charity Governance Blog, American Chronicle, Palm Beach Post, Detroit Free Press, Oakland Press, Nonprofit World, Socially Responsible Business Forum, PNNOnline, Ohio Nonprofit Resources, Nonprofit Good Practice Guide, Nonprofit Startup Guide, Nonprofit Blog, National Coalition of Homeless Newsletter, Finance and Administration Roundtable Newsletter, MichiganNonprofit.com, CORP! Magazine, Crain’s Michigan Nonprofit, ncrp.org, PhilanTopic, Nashville Free Press, Nonprofit Law Blog, Seniors World Chronicle, Carnegie Reporter, Assoc. of Certified Fraud Examiners Examiner, msnbc.com, Worchester (MA) Telegram and Gazette, Carnegie Corporation of America, EO Tax Journal, Wikipedia: Non-profit Organizations; Parent: Wise Austin, Accountants News, Veterans Today, Answers.com, Far-roundtable, #Nonprofit Report, nonprofithelpnews, nonprofit news; National Enquirer, Northwest Herald, The HelpWise Daily, The #Nonprofit Report, Wikipedia (Nonprofit Organization), Answers.com, Nonprofits: On the Brink (2006) Silence: The Impending Threat to the Charitable Sector (2011)