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Highlights from the House Ways & Means Committee IRS Exempt Orgs Hearing

This afternoon, the Oversight Subcommittee of the House Ways & Means Committee held a hearing to discuss the most recent operations of the IRS Exempt Organizations Division with IRS Acting Commissioner Daniel Werfel.  The Republican members of the Subcommittee are still very concerned about improper Exempt Organizations Division operations under its former Director, Lois Lerner, and fear that no one will be held ultimately accountable. Here are some highlights:

  1. Although the IRS targeted conservative and progressive political organizations for additional scrutiny, more progressive groups were approved than conservative ones, and all groups with “progressive” in their names were granted exempt status.
  2. Lois Lerner is still on administrative leave with pay.  Committee members wondered why the IRS has not yet terminated her employment.  The Acting Commissioner testified that the Privacy Act prohibits him from saying anything about Ms. Lerner aside from confirming that she is on paid administrative leave.  Some committee members took issue with the Acting Commissioner’s further statement that the Privacy Act also prevents him from answering the question of whether the IRS has requested Ms. Lerner’s resignation.
  3. A few years ago Lois Lerner told an audience at Duke University that the IRS Exempt Organizations Division can use the tax return examination process to take a closer look at advocacy groups.  As a result, the Subcommittee has expanded its investigation to include whether the IRS improperly targeted conservative advocacy groups for reviews and audits.
  4. Although the Acting Commissioner testified that the Exempt Organizations Division managers were training the application reviewers to focus on an organization’s activities – rather than its name – when determining whether an application deserved further scrutiny, an Exempt Organizations Division reviewer recently testified that managers in Cincinnati are still instructing reviewers to subject advocacy organizations with particular keywords in their names to additional scrutiny.
  5. The Acting Commissioner was surprised to learn that although the IRS Exempt Organizations Division has a new Acting Director, as late as August the Division issued taxpayer letters bearing Lois Lerner’s signature.  (Sustainable Law Group was surprised to see a letter with her signature just two weeks ago.)
  6. The IRS assured the Subcommittee that all improperly requested donor lists were destroyed, but donor lists were included in the documents the IRS sent to the Subcommittee.  The Subcommittee asked the Acting Commissioner to ensure that improperly collected donor lists are in fact destroyed and not used as the basis for any tax examinations and audits.
  7. There is currently a backlog of over 65,000 exemption applications from 501(c)(3) and 501(c)(4) organizations that were submitted for review at least one year ago.  The majority of these applications are for 501(c)(3) status, and the Acting Commissioner could not state what percentage of these applications were filed more than one year ago.

Sustainable Law Group will continue to follow the Subcommittee’s investigation into the IRS Exempt Organizations Division.  If you have any questions regarding tax-exempt organizations or social enterprises, please contact us.

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