IRS Pressed to Explain Audits of Veterans’ Organizations

The American Legion and other veterans’ organizations are expressing concern over reports that the Internal Revenue Service is requiring them to maintain military service records for their members or face stiff penalties.

The conservative news site, the Daily Caller, reported last week that the IRS is now requiring American Legion posts to maintain dates of service and character of service records for all their members, with a penalty of $1,000 per day if they don’t comply. The American Legion only recently learned about a section of the 2011 Internal Revenue Manual pertaining to audits of veterans’ organizations.

However, according to a report by a local Georgia news outlet, the Dalton Daily Citizen, leaders of two American Legion posts say they hadn’t ever heard about the issue before, nor been approached by the IRS to provide documentation of their members’ service records.

A Republican senator has written a letter to the IRS asking for details about the reports, which have also been reported by the Fox News Channel. Sen. Jerry Moran, R-Kan., demanded answers in a letter addressed last Tuesday to IRS acting commissioner Daniel Werfel about IRS efforts to audit veteran service organizations in Kansas and across the country. He asked that the IRS cease carrying out the audits until the mandate is reviewed to be certain the privacy of veterans is respected.

“Even after they return home from war, veterans in America continue to fight battles,” Moran wrote. “Many struggle to find a job, face difficulties accessing quality health care services, or wait senselessly long periods of time for their benefits claims to be processed by the federal government. The last thing veterans should have to worry about is their privacy within veteran service organizations, or the ability of those organizations to endure seemingly arbitrary IRS audits and the severe financial penalties that could ensue. This news is deeply concerning to me and the thousands of veterans I represent in Kansas.”

Moran asked that the following questions be addressed by the agency: What legal authority does the IRS have in carrying out a mandate for personal, military service records? Was this mandate reviewed by IRS general counsel?

He asked Werfel to provide documentation that gives the IRS the authority to collect this information. Moran also asked under whose leadership was the mandate initiated, for what direct purpose, and who had the approving authority for the mandate. He also wanted to know if veteran service organizations were ever specifically notified of the requirement. If so, he asked Werfel to provide the documentation that was issued to these organizations, and if not, to explain why organizations were not notified. “Is it true that an organization unable or unwilling to provide this information could be charged penalty fees of $1,000 per day?” Moran also asked. “Please provide clarification regarding the penalty for noncompliance.”

Accounting Today also asked the IRS for an explanation and received the following statement from an IRS spokesperson. “By law, the IRS cannot comment on individual taxpayers or organizations,” said the IRS. “Given the unique role of veterans’ organizations in our country, there are special rules in the nation’s tax law to provide tax-exempt status. In fact, there are specific criteria set by Congress that these groups must meet to qualify and operate under Internal Revenue Section 501(c)(19), ranging from membership guidelines to fund-raising efforts.

“For example, tax laws require that qualifying veterans groups must have at least 75 percent of their members who are past or present members of the Armed Forces and 97.5 percent of the total membership must be from the Armed Forces, cadets or have other close relationships to members of the military,” the IRS added. “The IRS conducts exams of veterans’ organizations to ensure adherence to such details of the tax code. Given the important role these charities play in the nation, exams help protect the integrity of the tax-exempt sector and the important groups operating under the special provisions of the tax law. There is no special enforcement effort underway regarding 501(c)(19) organizations, just regular compliance activity. The IRS also has a variety of special publications and other outreach to assist these groups in meeting the criteria outlined under the federal tax law.”