The Current IRS Firestorm over Conservative Political Nonprofits: Any Lessons for the Rest of the Tax-Exempt Community?

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Jeff Tenenbaum discusses the IRS’ inappropriate flagging of conservative political groups for additional review during the 2012 election season

On May 10, 2013, the nonprofit tax bar – and much of the country – was rocked by reports that Lois Lerner, director of the Internal Revenue Service’s Exempt Organizations Division apologized for the Service’s inappropriate flagging of conservative political groups for additional review during the 2012 election season. She made this apology in response to a question from longtime nonprofit tax attorney Celia Roady at the annual meeting of the American Bar Association’s tax section in Washington, DC. Lerner admitted that would-be tax-exempt entities that included the words “Tea Party” or “patriot” in their applications for recognition of exempt status were singled out for additional scrutiny, including burdensome questionnaires and, in some cases, improper requests for the names of their donors.

And on May 14, 2013, the Treasury Inspector General for Tax Administration released his report on the issue, concluding that “early in Calendar Year 2010, the IRS began using inappropriate criteria to identify organizations applying for tax-exempt status to review for indications of significant political intervention.” The report said that “the IRS . . . identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention.” Would-be 501(c)(4) exempt organizations are permitted to engage in some political campaign intervention, but it cannot constitute the primary activity of the organization.

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