TIGTA: Thousands of Complaints of Unacceptable Political Activity by Nonprofits, But No Action by IRS

By:
Chris Gaetano
Published Date:
Oct 9, 2018
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Between 2015 and 2016, the IRS received more than 6,500 complaints alleging unacceptable political activity by nonprofit organizations, which the complainants thought should disqualify the organizations from tax-exempt status, but a report from the Treasury Inspector General for Tax Administration has found that none of the complaints has resulted in revocations or any negative findings. 

Generally, tax-exempt nonprofit organizations are severely limited in the types of political activity in which they can take part. For instance, they normally must refrain from intervening in political campaigns (a 501(c)(4) organization may do so but not as the primary activity of the organization). In theory, engaging in such political activity should disqualify an organization from receiving tax-exempt status. In practice, however, TIGTA said that very little meaningful action has been taken in this realm. 

The year 2015 is significant for this report because that is the year when the IRS, in response to congressional pressure regarding what certain Republicans saw as a political bias in approving or denying tax-exempt status for some nonprofit organizations, shuttered its "dual track process," in which both the referral information and data analytics were used to assess allegations of political campaign intervention by tax-exempt organizations. In its place, the IRS created the Political Activities Referral Committee (PARC) with three experienced managers to independently review referrals containing allegations of impermissible political activity and determine if examinations were warranted. Since shutting down the dual track process, the IRS has referred all complaints regarding unacceptable political activities to this committee. 

In the first year after this change, the IRS received 6,500 complaints about problematic political activity from a nonprofit. Of those, 19 were referred to the PARC. Of those 19, the committee believed 10 merited further examination. Of the 10 recommended examinations, the committee, as of now, has initiated only five. It has not even begun looking at the other five. TIGTA said that an additional 1,000 complaints not forwarded to the PARC, while not nearly as high-profile as the 19, still met the criteria for referral to the PARC. It did note, however, that the PARC's decisions did not appear to be motivated by the political leanings of the organizations themselves. 

TIGTA said that there needs to be a more consistent and comprehensive process for evaluating referrals alleging impermissible political activity. For one, not every case file had all the relevant documentation, and committee members did not always adequately document their research, which tax-exempt laws they evaluated, or the rationale behind decisions made. TIGTA, when interviewing PARC members, found that they were unaware of the requirement to document their activities performed and the associated tax laws evaluated in reviewing referrals and making a determination. 

Further, TIGTA said that staff who received referrals were not always familiar with the Internal Revenue Manual criteria off of which they were working. In fact, TIGTA found that some were instead using factors such as the source of the referral, the amount of documented support included with the referral, sensitivity, or the type of tax-exempt organization to determine if the referral warranted review by the PARC. It warned that allowing this level of discretion increased the risk of bias, the mitigation of which was the point of this entire process in the first place. 

While the IRS agreed it needed to clarify its criteria, the agency also told TIGTA that it was never its intent to forward all referrals with allegations of impermissible political activity to the PARC, adding that if all referrals alleging political activity or lobbying were sent to the PARC, then PARC members would be overwhelmed and unable to review them all. The cases it forwards to the PARC, said the IRS, must be "procedurally sufficient." TIGTA, however, did not find this explanation satisfying. 

"Our concern is that the procedures do not clearly define instances when referrals should not go to the PARC, nor state that this should only happen in limited instances," said TIGTA. "As a result, the IRS is providing the classifiers with the discretion to not forward certain referrals with evidence or allegations of impermissible political activity to the PARC. This circumvents an important process that exists to reduce the risk of bias and ensure that cases are properly considered for referral to examination."

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