GAO to Probe IRS Audits of Tax-Exempt Organizations

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House Ways and Means Oversight Subcommittee chairman Charles Boustany, R-La., has asked the Government Accountability Office to assess how the Internal Revenue Service examines tax-exempt organizations in the aftermath of recent scandals.

The IRS has come under fire in recent months over how its Exempt Organizations unit selected political groups for extra scrutiny when they applied for tax-exempt status, leading to a shake-up at the upper echelons of the agency. Boustany’s committee is among those that have been grilling IRS officials after the former head of the Exempt Organizations unit, Lois Lerner, revealed that the unit had been doing searches using terms such as “Tea Party” and “Patriot” to screen the applications in advance of the release of a report by the Treasury Inspector General for Tax Administration. It later emerged that applications by “Progressive” and “Occupy” groups had also received extra scrutiny, as well as other search terms.

Following the revelations, Boustany asked GAO Comptroller General Gene Dodaro to ask the GAO to shed light on the IRS examination process, including what standards and controls are in place to prevent future abuse of taxpayers.

“The Treasury Inspector General for Tax Administration May 14, 2013 audit report, ‘Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review’ showed that right-leaning applicants for exempt status were treated differently on the basis of their beliefs,” Boustany wrote in his letter to Dodaro. “It is imperative that sunshine also be brought to bear on the policies and practices the IRS uses in its Exempt Organizations (EO) examinations unit.”

He asked the GAO to describe the standards the IRS has established for the EO audit selection and audit practices, and whether the criteria meet various objectives such as impartiality, objectivity, tax law compliance and minimization of taxpayer burden. Boustany asked the GAO to examine to what extent the reviews are initiated by referrals or complaints received outside of the EO examinations unit, for example from another IRS unit or outside the IRS altogether.

Congressional Republicans have been trying, so far unsuccessfully, to find evidence of White House involvement in the extra scrutiny given to Tea Party groups that applied for tax exemptions under Section 501(c)4 of the Tax Code before the 2010 elections. However, Senate Democrats had asked the IRS to look into allegations that Tea Party groups were receiving the tax exemptions, but not complying with requirements that 501(c)4 organizations be primarily involved in social welfare, as opposed to political activity. Watchdog groups have also prodded the IRS to reject applications for tax-exempt status from Tea Party groups that became involved in political campaigning.

Boustany asked the GAO to describe the IRS’s controls, such as management reviews and regular updates, for assuring that its standards for examinations, determinations and other reviews in its EO unit are sufficient for achieving its objectives. He also asked the GAO to describe the IRS’s controls for assuring that its standards are known to staff and actually followed in practice by all staff throughout the EO unit. The controls could include training, monitoring and quality assessments. He requested periodic briefings on the GAO’s progress as it carries out its work.

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