Paul L. Caron
Dean


Sunday, June 28, 2015

The IRS Scandal, Day 780

IRS Logo 2Forbes:  Joan Farr Claims IRS Denial Of Exempt Status Is Example Of Persecution Of Christians, by Peter J. Reilly:

Joan Farr tells me that the IRS denial of exempt status to the Association For Honest Attorneys is another instance of an organization being persecuted because it is Christian and conservative.  I contacted Ms. Farr, because I was pretty sure that PLR 201524206, a revocation of exempt status, was referring to A.H.A.!. (On the A.H.A.! website she is listed as Joan Heffington, which is the name she used while running for Governor of Kansas in the 2010 Republican primary.  In her 2014 run for the Senate as an independent she went by Joan Farr. Ms. Farr is a widow and Farr was her maiden name which she has readopted.) Ms. Farr confirmed that A.H.A.! was the organization in the ruling. ...

Ms. Farr indicates the “facts” in the ruling are inaccurate.  Here is the IRS version. The agent determined that some of the services that AHA provided for compensation were not related to its exempt purpose and should have been taxed as UBTI.

The agent found many transactions for personal expenses and at least one instance of an expenditure related to the campaign for governor.

During the review of the bank statements, the agent found a check written to “cash”. The memo section the check reflected “cash for campaign“. The agent asked to provide the exempt purpose of this payment. said this check was for repayment of the loan.

So you have UBTI, inurement and political activity.  Other than that Mrs. Lincoln how did you enjoy the play?

Ms. Farr had loaned the organization a lot of money, so any expenditures not related to the exempt purpose were actually loan repayments.  This ended up leading to an attempt to reconstruct the loan balance, which took a lot of effort on Ms. Farr’s part, but ended up not satisfying the IRS.

Ms. Farr indicated that AHA had never grossed more than $25,000 meaning it never had to file a complete Form 990.  Based on the drama about the loan balance, it was clear that nobody was maintaining a general ledger.  Revenue agents are trained as accountants and it makes accountants happy when they have a general ledger with everything classified.  I also have to say that having an entity pay back your loan by paying your bills for you is a very bad idea.  If there had been a general ledger with those items charged to the officer loan accountant that would have been better, but much better would be the two step process of a loan repayment via a check to Ms. Farr and her paying the bills out of her personal account.

I can’t rule out that the selection of her organization for audit had something sinister behind it, but having spoken to her a bit, I could understand how she might exhaust the patience of a revenue agent.  Inserting an accountant between her and the IRS might have saved the day.  On the other hand you have to wonder why this organization would be a priority with the IRS.

https://taxprof.typepad.com/taxprof_blog/2015/06/the-irs-scandal-day-780.html

IRS News, IRS Scandal, Tax | Permalink

Comments

"On the other hand you have to wonder why this organization would be a priority with the IRS."

With such limited funds it really isn't a wonder how the administration chose to prioritize its spending.

Posted by: wodun | Jun 28, 2015 10:42:08 AM

Mr. Wodun: Let me see if I understand. AHA applied for exempt status. AHA does not qualify for exempt status, based on an examination of its finances and operations. But you think the IRS should have recognized AHA as tax-exempt anyway, because the Administration "chose to prioritize its spending" in a way with which you and Mrs. Farr (or whatever name she goes by this week) disagree? Please explain what President Obama did wrong this time, IYHO.

Posted by: Publius Novus | Jun 29, 2015 7:56:07 AM