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Member of Congress Asks IRS for Information About Its Approval of Fake Charities

Ruth Singleton
Published Date:
Jul 25, 2022


A member of Congress is seeking answers about why the IRS approved multiple fake charities that sought tax-exempt status, Accounting Today reported. House Ways and Means Oversight Subcommittee chairman Bill Pascrell (D-N.J.) sent a letter to IRS Commissioner Chuck Rettig last week, requesting answers to three questions about the controversy. 

The New York Times reported about the fake charities in early July. The article focused on one particular scammer, Ian Hosang, who used the same address in Staten Island, New York, to apply for tax-exempt status for 76 fake charities using the names of seemingly legitimate-sounding nonprofits like the American Cancer Society of Michigan and the United Way of Ohio. In most cases, the scammer used the streamlined Form 1023-EZ. This form was introduced in 2014  in response to budget cuts, as well as a controversy in which the agency was accused of targeting conservative groups for undue scrutiny. Accounting Today reported that this so-called “Tea Party targeting scandal” led to the departures of a number of high-ranking IRS officials, including Lois Lerner, director of exempt organizations at the agency.  

The new Form 1023-EZ application was reduced to three pages, down from 11, and it included nine boxes to check and a small blank for groups to describe their mission.   

In his letter, Pascrell said, “I write today with urgency regarding a recent article in the New York Times about the haphazard approval process for tax-exempt organizations described in Section 501(c)(3) of the Internal Revenue Code. The article states that a ‘convicted stock market fraudster’ successfully applied for tax exemptions for 76 phony nonprofit charities, many of which used names almost indistinguishable from well-known nonprofits. Fifty-six of the approved fraudulent organizations applied using Internal Revenue Service (IRS) Form 1023-EZ, which requires minimal information from applicants. This should never have happened.” 

Pascrell noted that although Form 1023-EZ was developed “to curtail an increasing backlog of exempt organization applications, it seemingly led to fraudulent applications being approved with lax oversight by the IRS.” He cited a 2019 study by the Taxpayer Advocate Service, which found that 46 percent of approved applicants did not pass the “organizational test” required by statute to establish legitimacy as a charitable organization. “Once approved, bogus charities scam unwitting donors who trust IRS-certified 501(c)(3) organizations to be properly vetted and legitimate,” Pascrell said. “The IRS has failed these citizens.” 

Pascrell asked Rettig to  provide answers to the following three questions by Aug. 3: 

“1 .For both Forms 1023-EZ and Forms 1023, please provide the following: (a) the number of applications received each year since 2015; (b) the number of applications approved; (c) the number of applications rejected; (d) the number of applications returned for additional information that then provided such information; and (e) the number of applications returned for additional information that failed to provide such information. 

2. Describe the procedures for processing Forms 1023-EZ, including who reviews the application, the average amount of time (number of hours) to review the application, and the number of days, on average, from receipt to IRS’s determination. What steps are taken when there is suspected fraud? 

3. Describe the current oversight of the tax-exempt organization application process. What happens with respect to an application when the IRS is notified of concerns by individuals, the media, law enforcement, state tax agencies, or other organizations?”

According to Accounting Today, Pascrell recently demanded that Rettig be fired over another situation reported on by the New York Times article earlier this month. The article revealed that the IRS subjected both former FBI director James Comey and  former acting director Andrew McCabe, to intense tax audits under the IRS’s National Research Program. The audits are supposed to be rare and randomly generated, but both occurred only a few years after both FBI chiefs were fired by former President Trump for their involvement in investigating Russian involvement in the 2016 campaign. Rettig testified behind closed doors to Pascrell’s committee about the audits, as well as to the Senate Finance Committee. Rettig's term is due to expire on Nov. 12, 2022.

In a written statement, the IRS said that it “has referred the matter to the Treasury Inspector General for Tax Administration for review,” adding that IRS Commissioner, Charles P. Rettig had “personally reached out” to the inspector general after learning about the audits. 

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