Recently, the IRS admitted that it employed inappropriate
criteria to select certain applications for recognition of
tax-exempt status for additional review. Just a few days after this
admission, on May 14, 2013, the Treasury Inspector General for Tax
Administration (TIGTA) issued a report (the "TIGTA Report"),
concluding that, due to ineffective management, the Service: (1)
developed inappropriate criteria to identify applications for
additional review, (2) substantially delayed processing certain
applications, and (3) issued unnecessary information requests as a
result of such criteria and delays. Further, the TIGTA Report noted
that the specialists charged with reviewing the selected
applications "lacked knowledge" about the permissible
activities of tax-exempt organizations described in Sections 501(c)(3) and (c)(4).
Predictably, in the aftermath of the TIGTA Report's
publication, Congress and many sectors of the media have continued
to rehash the particulars of this "scandal," looking to
assign blame and find deeper connections between the Service's
inappropriate criteria and other parts of the federal government,
including the White House.
The purpose of this article is not to add to the noise surrounding
the scandal. It will neither identify the parties at fault nor find
the link between President Obama and the IRS selection of Tea Party
organizations for additional scrutiny. It will not join the chorus
of voices on either side of the aisle nor will it analyze who bears
ultimate responsibility for the Service's internal structure
and process. Rather, recognizing that the Service's
inappropriate administration of tax-exemption qualification matters
is not limited to the 296 completed applications reviewed under
this program, and will not be entirely eliminated in the future,
this article will discuss how organizations subject to extended IRS
reviews can substantially mitigate the adverse effects of
inappropriate enforcement efforts by the Service. Insofar as
mismanagement, significant delays, and misinformed determinations
specialists are potential issues in any IRS enforcement effort,
practitioners must be equipped to combat the organizational
ineffectiveness and bureaucratic inefficiency that can otherwise
result in harm to clients applying for recognition of tax-exempt
status.
Using the TIGTA Report as a point of departure, the discussion
below identifies specific issues in the Service's review of
requests for recognition of tax-exempt status and lists many of the
common harms that can result from the Service's inappropriate
actions. In that context, it then discusses proactive
measures available to would-be tax-exempt organizations to help
them mitigate the harms caused by inappropriate IRS delays or
inquiries.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
