The IRS Scandal, Day 1611: TIGTA Report, Review Of Selected Criteria Used To Identify Tax-Exempt Applications For Review

Treasury Inspector General for Tax Administration, Agency Statement On Audit Report: “Review of Selected Criteria Used to Identify Tax-Exempt Applications for Review”:

In May 2013, the Treasury Inspector General for Tax Administration (TIGTA) published an audit report in which we reported that between May 2010 and May 2012, the Internal Revenue Service (IRS) used inappropriate criteria to identify for review organizations’ applications for tax-exempt status. TIGTA’s 2013 audit found that the IRS inappropriately selected organizations for scrutiny based on their names or policy positions, instead of indications of significant potential political campaign intervention. Further, TIGTA found that the IRS made requests for unnecessary information and delayed, in some cases for years, making decisions on the organizations’ applications.

This audit was initiated based on bipartisan interest expressed by Members of Congress regarding the IRS’s use of other criteria to select tax-exempt applications for further review. Today, we are releasing a 115-page audit report that provides a historical account of the IRS’s use of 17 additional selection criteria going back as far as 2004. These 17 selection criteria were chosen based on bipartisan input from congressional committees of jurisdiction over the IRS, input from the IRS, and training materials that were not provided to TIGTA during the 2013 audit.

TIGTA found that, between 2004 and 2013, the IRS potentially used more than 250 criteria to identify for further review the applications of organizations seeking tax-exempt status. In our 2013 audit, we found that the process for review of applications for potential political advocacy from May 2010 to May 2012 involved the IRS’s use of a tracking sheet identifying the potential political cases selected for further review; however, the IRS was unable to identify what specific cases, if any, were selected for further review under 16 of the 17 criteria in our current report. Without case selection tracking sheets for the 16 criteria, TIGTA used various other sources to identify 146 cases related to the 17 criteria with indications of political activity, and confirmed that 83 of them were selected for review based on the 17 criteria.

This report is divided into 17 sections, one for each of the 17 criteria. Due to the unique nature of the 17 criteria, it is difficult to compare the criteria to each other, or to compare in aggregate to the criteria reviewed in the 2013 audit. However, TIGTA did find that, while the number of organizations impacted is significantly less than the number detailed in the 2013 report, some organizations in the current report also experienced significant delays and received requests for unnecessary information. In addition, in the 2013 report the majority of cases we reviewed were from organizations applying for I.R.C. § 501 (c)(4) status. In contrast, the majority of the 146 cases in the current report were organizations applying for I.R.C. § 501 (c)(3) status.

Our 2013 report made several recommendations for process improvements and all of them were implemented by the IRS, which we verified in a follow-up audit in 2015. As a result of our 2013 report, the IRS completely revamped the process for reviewing tax-exempt applications, including the elimination of criteria listings, known as “Be On the Lookout” listings, in June 2013. According to the IRS, the revamped process has totally eliminated the backlog of applications and reduced processing cycle times for cases. Since the review process in place when the 17 criteria were potentially used by the IRS is no longer in effect, TIGTA did not make any recommendations for improvement in this audit report.

Treasury Inspector General for Tax Administration, Review of Selected Criteria Used to Identify Tax-Exempt Applications for Review (2017-10-054) (Sept. 28, 2017):

IMPACT ON TAXPAYERS
In a prior audit, TIGTA determined that the IRS used inappropriate criteria to select tax‑exempt applications for further review. Moreover, ineffective management resulted in substantial delays in processing certain applications and allowed unnecessary information requests to be issued. It is critical that tax laws are administered in a fair and impartial manner.

WHY TIGTA DID THE AUDIT
In the prior review, TIGTA audited criteria that the IRS stated it used to select potential political cases for additional review from May 2010 through May 2012. The overall objective of this audit was to provide a historical account of the IRS’s development and use of 17 select criteria from 259 criteria used to identify tax‑exempt applications for review. The 17 criteria discussed in this report were selected based on input from staff of various congressional committees of jurisdiction and the IRS as well as from training documents that were not provided to TIGTA in the prior audit.

WHAT TIGTA FOUND
TIGTA found that, from August 2004 through June 2013, the IRS potentially used 259 criteria to identify tax-exempt applications for further review. Most of these criteria involved issues besides political campaign intervention, such as potential fraud, abuse, and links to terrorism.

In the prior audit, TIGTA found that the IRS used a tracking sheet to show which potential political cases were selected for further review; however, IRS management stated that case listings such as the one provided in the prior audit were not required. Due to the lack of case listings for all but one of the 17 criteria, TIGTA used various sources to identify more than 900 cases that could potentially have been selected for review based on the 17 criteria. However, TIGTA could not verify whether all relevant cases were identified.

Based on TIGTA’s review of case documentation, 181 of the more than 900 cases had evidence of political activities or indications of significant potential political campaign intervention (the subject of the prior audit). Thirty-five of these cases were not processed while the applicable criteria were in use and did not appear to be processed based on the criteria. For the remaining 146 cases, TIGTA determined that 83 were processed based upon the criteria and 63 were processed while the criteria were in use, but TIGTA could not confirm these 63 cases were selected based upon the criteria. Analysis of the 146 cases is shown in each of the 17 sections of the report with information for each of these unique criteria.

• The IRS Scandal, Day 1610: Inspector General Says IRS Gave Extra Scrutiny To Liberal Groups, Undermining GOP Claims Of Ideological Targeting Of Conservative Groups By IRS (Oct. 5, 2017)
• The IRS Scandal, Days 1501-1600 (June 18, 2017 - Oct. 4, 2017)
• The IRS Scandal, Days 1401-1500 (Mar. 10, 2017 - June 17, 2017)
• The IRS Scandal, Days 1301-1400 (Nov. 30, 2016 - Mar. 9, 2017)
• The IRS Scandal, Days 1201-1300 (Aug. 22, 2016 - Nov. 29, 2016)
• The IRS Scandal, Days 1101-1200 (May 14, 2016 - Aug. 21, 2016)
• The IRS Scandal, Days 1001-1100 (Feb. 4, 2016 - May 13, 2016)
• The IRS Scandal, Days 901-1000 (Oct. 27, 2015 - Feb. 3, 2016)
• The IRS Scandal, Days 801-900 (July 19, 2015 - Oct. 26, 2015)
• The IRS Scandal, Days 701-800 (April 10, 2015 - July 18, 2015)
• The IRS Scandal, Days 601-700 (Dec. 31, 2014 - April 9, 2015)
• The IRS Scandal, Days 501-600 (Sept. 22, 2014-Dec. 30, 2014)
• The IRS Scandal, Days 401-500 (June 14, 2014 - Sept. 21,2014)
• The IRS Scandal, Days 301-400 (Mar. 6, 2014 - June 13, 2014)
• The IRS Scandal, Days 201-300 (Nov. 26, 2013 - Mar. 5, 2014)
• The IRS Scandal, Days 101-200 (Aug. 18, 2013 - Nov. 25, 2013)
• The IRS Scandal, Days 1-100 (May 10, 2013 - Aug. 17, 2013)