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 ahistorical 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.