According to a newly released report, a Treasury Inspector General for Tax Administration audit found that “ineffective management” had led the Internal Revenue Service to use “inappropriate criteria” to identify applications for tax-exempt status for review, leading to Tea Party and similar organizations receiving undue scrutiny and delays in their applications.

TIGTA’s audit, which was initiated due to concerns raised by members of Congress, found that, starting in 2010, the Cincinnati-based Determinations Unit of the IRS’s Exempt Organizations function began using inappropriate criteria to identify applications for review, which can mean extensive delays and requests for extra information. At first, applications were forwarded to specialists for review if the applicant group’s name included the words “Tea Party; later the words “Patriots” and “9/12” were added as criteria.

The criteria on the unit’s “Be On the Look Out,” or “BOLO,” list were apparently developed to help identify political groups that might be inappropriately applying for tax-exempt status as social welfare groups.

“However, the criteria developed by the Determinations Unit gives the appearance that the IRS is not impartial in conducting its mission,” the TIGTA report said. “The criteria focused narrowly on the names and policy positions of organizations instead of tax-exempt laws and Treasury regulations.”

Various IRS officials, managers and staff questioned by TIGTA all said that the criteria had not come from anyone outside the IRS. Rather, they were the result of flawed local management: “Only first-line management approved references to the Tea Party in the BOLO listing criteria before it was implemented,” the report said. “As a result, inappropriate criteria remained in place for more than 18 months.”

TIGTA also noted that Determinations Unit employees did not consider the potential public perception of the criteria they were using, and displayed a lack of knowledge of what activities are allowed to that sort of exempt organization.

In response to recent outcry about the targeting of particular groups, Acting Commissioner Steven Miller wrote an opinion piece of USA Today claiming that the "mistakes" were the result of poor process, not partisanship. (See "IRS 'Mistakes' Didn't Stem from Partisanship, Acting Chief Says.")

According to TIGTA, approximately one third of the applications identified for extra processing by the Determinations Unit specialists included “Tea Party,” “Patriots” or “9/12;” the remainder did not. Groups whose applications were sent for review have experienced delays of up to three years in some cases, and many still have received neither an approval nor a denial of their tax-exempt status.

 

Recommendations

As a result of its investigation, TIGTA made nine recommendations to the IRS, including that it better document why applications that have potential political connections are chosen for review; that it quickly resolve the still-open cases; and that it develop training for employees prior to each election cycle.

The IRS agreed with seven of the nine recommendations, and proposed alternative corrective actions for two of the recommendations, but TIGTA did not agree that the alternative actions would meet its recommendations.

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