WASHINGTON — One solution the IRS has offered to the recent scandal over its handling of tax-exempt applications: a “fast-track” process, through which certain groups can simply declare themselves social welfare organizations and promise not to spend too much money on political activity.
But some lawmakers, campaign finance watchdogs, and nonprofit experts say this new “self-certification” option is a makeshift solution that lets the IRS off the hook from making tough calls about pending applications.
Under current rules, certain tax-exempt groups — those organized as 501(c)(4) organizations — are supposed to operate primarily for social welfare purposes. They can engage in some political electioneering, as long as it is not their main focus.
But political groups have eagerly sought the 501(c)(4) designation because such groups do not have to disclose their donors. Figuring out which groups legitimately deserve tax-exempt status and which are political organizations posing as do-gooders isn’t easy.
The Cincinnati IRS field agents at the center of the targeting scandal clearly struggled to figure out what constituted political activity — and to measure how much was too much. Under these new self-certification rules, some skeptics have questioned how a tea party activist in Ohio would be able to make those determinations if the federal tax agency’s own employees had such a hard time.
Sen. Rob Portman, R-Ohio, said the new expedited process “may help alleviate the backlog of applications,” but it’s hardly a great solution.
“Even this simplified process involves difficult determinations and by its very nature lacks perfect clarity,” he said. “Organizations may have trouble identifying which of their undertakings should be classified as promoting social welfare and which constitute political activities.”
Moreover, some critics say, the new process looks like an open invitation for bad actors to snag IRS approval for tax-exempt status with no real examination by the agency, a move that could set a new precedent for how the agency handles all such applications.
“My frank opinion is it’s just a giveaway,” said Paul Streckfus, a former IRS employee and now editor of the Exempt Organizations Tax Journal. The IRS “is basically saying ‘Just tell us you’re going to be good and we’ll give you exemption.’”
Fred Wertheimer, president of Democracy 21, a campaign finance watchdog group, said the new process “potentially will help groups who are improperly claiming (tax-exempt) tax status” and appears to codify ambiguous rules that would allow groups to engage in more political activity than the law envisioned.
The new acting IRS chief, principal deputy commissioner Danny Werfel, unveiled the new process last month as one element of the agency’s effort to address the targeting scandal, in which agents in the IRS’s Cincinnati field office used inappropriate criteria to flag some tax-exempt applications for extra scrutiny.
An inspector general’s report, issued in May, concluded the IRS put terms like “tea party” and “patriot” on a watch list and subjected groups with those words in their names to a lengthy, burdensome review process. Since then, new evidence shows the IRS also flagged progressive and other groups for heightened review.
Werfel said under the new IRS process, any group that has been waiting for tax-exempt status for more than 120 days will be able to self-certify. Those who are eligible will have to swear, under penalty of perjury, that at least 60 percent of their organization’s resources will be devoted to a “social welfare” purpose and they will not spend more than 40 percent of their time or money on political campaign activities.
“This is a self-certification process which allows them a streamlined path to tax-exempt status if they agree they will operate within defined limits,” Werfel told lawmakers on the House Ways and Means Committee during a June 27 hearing.
He noted that under current law, groups already can skip the application process altogether and just start operating as a tax-exempt organization. Then when it comes tax time, they have to file a 990 —the IRS form used by tax-exempt groups — detailing their spending.
With this new process, Werfel said the IRS will secure a promise in advance from the groups that their political activities will be limited. And the IRS always can audit groups after they secure the tax-exempt status to make sure they are in compliance.
But experts say it’s unlikely the IRS will do any after-the-fact investigation.
“I seriously doubt if there will be any checking up,” Streckfus said. “The last thing the IRS wants to do is revisit any of these cases.”
During the recent House hearing, Rep. Aaron Schock, R-Ill., highlighted another potential problem. He asked Werfel how these new rules might apply to Organizing for Action, an advocacy group devoted to pushing President Barack Obama’s agenda.
Schock noted that OFA had recently sent out “millions of emails” to Obama supporters urging them to use Twitter, Facebook and other social media to “call out” 85 Republican lawmakers that OFA labeled “climate change deniers.” The move came after Obama delivered a major address on limiting greenhouse gas emissions.
“I’m wondering whether or not that activity, those hours, and that money would be classified under the political campaign activities or under the promoting social welfare category,” Schock asked.
Werfel did not directly answer, saying experts would have to determine whether the activities were intended to influence the outcome of an election.
“If you can’t make a determination, how can we then ask a non-attorney, non-IRS commissioner, non-IRS employee to make that same determination under penalty of perjury to classify their activity as either advocating for, promoting social welfare or political campaign activity?” Shock asked.
It’s unclear if Organizing for Action — or other politically active tax-exempt groups — are eligible for the self-certification option. The IRS said Monday about 80 groups are eligible for the expedited approval but the agency can’t disclose the names of those organizations.
A spokesman for Organizing for Action did not respond to an email requesting comment. On its website, OFA says it’s operating as a 501(c)(4), but it’s not clear whether the IRS has signed off on the group’s application or if its pending.
Similarly, a Republican-leaning group, Crossroads GPS, which spent $71 million trying to influence the outcome of the 2012 congressional and presidential elections, did not respond to messages seeking comment on the self-certification process. A Crossroads spokesman said earlier this year that it had applied for tax-exempt status in September 2010, but had not received IRS approval yet.
Jay Sekulow, chief counsel of the American Center for Law and Justice, a conservative group that represents some of the tea party groups targeted by the IRS, said he is still reviewing the self-certification option and determining the “appropriate response.”
But it “does not change the fact that the IRS should do its job and grant the appropriate tax exemptions using viewpoint neutral processes,” Sekulow said. “Its self-certification plan does not cure (the IRS’) constitutional failings.”
Streckfus said the IRS might have to go to self-certification for all tax-exempt groups, because of an increase in such applications.
The number of groups seeking 501(c)(4) status nearly doubled from 2009 to 2012. Overall, about 140 agents, most based in the Cincinnati office, are charged with examining about 70,000 applications per year.
“It’s basically an impossible task to review (all of) them,” Streckfus said. “Some of us have said the IRS will have to go to self-certify for everybody.”
That could be a good option, if the agency shifts its emphasis to auditing groups after the fact, he said. But it’s not clear the IRS is able or willing to do really thorough follow up.
So groups might self-certify and then “go on their merry way” trying to influence federal elections, Streckfus said.
SOURCE http://www.coshoctontribune.com/article/20130710/NEWS01/307100001/Critics-question-IRS-new-fast-track-path-tax-exempt-status
But some lawmakers, campaign finance watchdogs, and nonprofit experts say this new “self-certification” option is a makeshift solution that lets the IRS off the hook from making tough calls about pending applications.
Under current rules, certain tax-exempt groups — those organized as 501(c)(4) organizations — are supposed to operate primarily for social welfare purposes. They can engage in some political electioneering, as long as it is not their main focus.
But political groups have eagerly sought the 501(c)(4) designation because such groups do not have to disclose their donors. Figuring out which groups legitimately deserve tax-exempt status and which are political organizations posing as do-gooders isn’t easy.
The Cincinnati IRS field agents at the center of the targeting scandal clearly struggled to figure out what constituted political activity — and to measure how much was too much. Under these new self-certification rules, some skeptics have questioned how a tea party activist in Ohio would be able to make those determinations if the federal tax agency’s own employees had such a hard time.
Sen. Rob Portman, R-Ohio, said the new expedited process “may help alleviate the backlog of applications,” but it’s hardly a great solution.
“Even this simplified process involves difficult determinations and by its very nature lacks perfect clarity,” he said. “Organizations may have trouble identifying which of their undertakings should be classified as promoting social welfare and which constitute political activities.”
Moreover, some critics say, the new process looks like an open invitation for bad actors to snag IRS approval for tax-exempt status with no real examination by the agency, a move that could set a new precedent for how the agency handles all such applications.
“My frank opinion is it’s just a giveaway,” said Paul Streckfus, a former IRS employee and now editor of the Exempt Organizations Tax Journal. The IRS “is basically saying ‘Just tell us you’re going to be good and we’ll give you exemption.’”
Fred Wertheimer, president of Democracy 21, a campaign finance watchdog group, said the new process “potentially will help groups who are improperly claiming (tax-exempt) tax status” and appears to codify ambiguous rules that would allow groups to engage in more political activity than the law envisioned.
The new acting IRS chief, principal deputy commissioner Danny Werfel, unveiled the new process last month as one element of the agency’s effort to address the targeting scandal, in which agents in the IRS’s Cincinnati field office used inappropriate criteria to flag some tax-exempt applications for extra scrutiny.
An inspector general’s report, issued in May, concluded the IRS put terms like “tea party” and “patriot” on a watch list and subjected groups with those words in their names to a lengthy, burdensome review process. Since then, new evidence shows the IRS also flagged progressive and other groups for heightened review.
Werfel said under the new IRS process, any group that has been waiting for tax-exempt status for more than 120 days will be able to self-certify. Those who are eligible will have to swear, under penalty of perjury, that at least 60 percent of their organization’s resources will be devoted to a “social welfare” purpose and they will not spend more than 40 percent of their time or money on political campaign activities.
“This is a self-certification process which allows them a streamlined path to tax-exempt status if they agree they will operate within defined limits,” Werfel told lawmakers on the House Ways and Means Committee during a June 27 hearing.
He noted that under current law, groups already can skip the application process altogether and just start operating as a tax-exempt organization. Then when it comes tax time, they have to file a 990 —the IRS form used by tax-exempt groups — detailing their spending.
With this new process, Werfel said the IRS will secure a promise in advance from the groups that their political activities will be limited. And the IRS always can audit groups after they secure the tax-exempt status to make sure they are in compliance.
But experts say it’s unlikely the IRS will do any after-the-fact investigation.
“I seriously doubt if there will be any checking up,” Streckfus said. “The last thing the IRS wants to do is revisit any of these cases.”
During the recent House hearing, Rep. Aaron Schock, R-Ill., highlighted another potential problem. He asked Werfel how these new rules might apply to Organizing for Action, an advocacy group devoted to pushing President Barack Obama’s agenda.
Schock noted that OFA had recently sent out “millions of emails” to Obama supporters urging them to use Twitter, Facebook and other social media to “call out” 85 Republican lawmakers that OFA labeled “climate change deniers.” The move came after Obama delivered a major address on limiting greenhouse gas emissions.
“I’m wondering whether or not that activity, those hours, and that money would be classified under the political campaign activities or under the promoting social welfare category,” Schock asked.
Werfel did not directly answer, saying experts would have to determine whether the activities were intended to influence the outcome of an election.
“If you can’t make a determination, how can we then ask a non-attorney, non-IRS commissioner, non-IRS employee to make that same determination under penalty of perjury to classify their activity as either advocating for, promoting social welfare or political campaign activity?” Shock asked.
It’s unclear if Organizing for Action — or other politically active tax-exempt groups — are eligible for the self-certification option. The IRS said Monday about 80 groups are eligible for the expedited approval but the agency can’t disclose the names of those organizations.
A spokesman for Organizing for Action did not respond to an email requesting comment. On its website, OFA says it’s operating as a 501(c)(4), but it’s not clear whether the IRS has signed off on the group’s application or if its pending.
Similarly, a Republican-leaning group, Crossroads GPS, which spent $71 million trying to influence the outcome of the 2012 congressional and presidential elections, did not respond to messages seeking comment on the self-certification process. A Crossroads spokesman said earlier this year that it had applied for tax-exempt status in September 2010, but had not received IRS approval yet.
Jay Sekulow, chief counsel of the American Center for Law and Justice, a conservative group that represents some of the tea party groups targeted by the IRS, said he is still reviewing the self-certification option and determining the “appropriate response.”
But it “does not change the fact that the IRS should do its job and grant the appropriate tax exemptions using viewpoint neutral processes,” Sekulow said. “Its self-certification plan does not cure (the IRS’) constitutional failings.”
Streckfus said the IRS might have to go to self-certification for all tax-exempt groups, because of an increase in such applications.
The number of groups seeking 501(c)(4) status nearly doubled from 2009 to 2012. Overall, about 140 agents, most based in the Cincinnati office, are charged with examining about 70,000 applications per year.
“It’s basically an impossible task to review (all of) them,” Streckfus said. “Some of us have said the IRS will have to go to self-certify for everybody.”
That could be a good option, if the agency shifts its emphasis to auditing groups after the fact, he said. But it’s not clear the IRS is able or willing to do really thorough follow up.
So groups might self-certify and then “go on their merry way” trying to influence federal elections, Streckfus said.
SOURCE http://www.coshoctontribune.com/article/20130710/NEWS01/307100001/Critics-question-IRS-new-fast-track-path-tax-exempt-status
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