Monday, June 3, 2013

501(c)(4)-Gate: Shocking IRS Scandal or Business as Usual?

By Merry Balson, Esq.

Over the last few weeks I’ve been glued to the media reports as the IRS scandal, dubbed by some "501(c)(4)-Gate", has unfolded. After all, it is not often that the Exempt Organizations division of the IRS makes national news once, much less multiple times in the same month, focusing so much of the nation’s attention on my line of work. If you’ve followed this story at all, you too might be as shocked as members of Congress were to learn that the IRS has targeted various categories of politically backed organizations applying for tax-exempt status. While I am certainly not condoning this kind of behavior, targeting of groups by the IRS, lengthy delays in processing applications, and seemingly unnecessary requests for information from new organizations seeking exemption is certainly not a new phenomenon. Over the last few decades the IRS has targeted gay and lesbian organizations, credit counseling organizations, housing assistance organizations, family-controlled organizations and anyone else the IRS may think either does not deserve the much coveted tax-exempt status or (in the IRS’ experience) is likely to abuse that status. Remember too that, like many other areas of government, the IRS budget has been cut time and again over the last decade or more. While more senior agents have retired, the IRS has either not filled the positions, or filled them with far less experienced personnel who have not had the luxury of their predecessor’s training. Complaints have mounted for years that the IRS is understaffed and undertrained, that processing times for 1023s and 1024s (the applications organizations file with the IRS to obtain tax-exempt status) have become unreasonably long (up to more than a year at this point for many organizations), and that IRS agents routinely ask for seemingly unnecessary and burdensome information in their follow-up requests to new organizations seeking tax-exempt status, but until now, no one in Washington seemed to notice or have any motivation to make any changes. The singling out of political organizations of any nature would absolutely be inappropriate, but to those of us familiar with the long standing problems with the IRS, if the investigations uncover that an internal practice like this existed, it would not be entirely surprising, and though deplorable, it would certainly not be "shocking" given the IRS’ history. We can only hope that whatever the outcome, this new attention to the IRS Tax-Exempt/Government Entities division will bring about some long needed changes that will benefit all tax-exempt organizations, and maybe too a serious review of whether granting tax exemption to any political organization is an appropriate and intended use of taxpayer funds.

Read more about the IRS’ history of burdening nonprofits in the New York Times article published on June 3, 2013 at New York Times.