IRS to Step Up Tax-Exempt Fraud Enforcement

A report from the Treasury Department’s Inspector General for Tax Administration recommends that the IRS adopt a centralized approach to crack down on fraud at nonprofit organizations.

The report found that the IRS’s Tax Exempt/Government Entities Division has made changes in the anti-fraud programs in its five offices, and more cases are being referred to the IRS Criminal Investigation for further investigation and to the Justice Department for possible prosecution. However, the effectiveness of the anti-fraud efforts varies by office, and one of the five offices is responsible for most of the referrals.

Still, the IRS has increased its efforts at combating fraud at tax-exempt organizations in recent years. While only 11 cases had been referred for possible criminal prosecution in fiscal years 2000 through 2002, 48 cases were approved in fiscal years 2006 through 2008. Of those 48 cases, 32 potentially represent about $37 million of additional revenue for the IRS. The TE/GE Division assessed $10 million in civil penalties and related assessments in just four of the cases.

“The Tax Exempt Division has made significant progress in detecting and preventing fraud,” said TIGTA Inspector General J. Russell George in a statement. “However, the IRS should ensure that all of the division’s offices are effectively implementing anti-fraud programs. An effective anti-fraud program will provide greater assurance that the trust placed in tax-exempt organizations by taxpayers and the good work done by most of them are not tarnished.”

The report recommended that the TE/GE Division develop and implement a uniform, division-wide approach with centralized oversight of its anti-fraud program and ensure that all TE/GE offices follow IRS procedures. The IRS agreed with TIGTA’s recommendations and plans to address them.