501(c)(4) Update: TIGTA Final Report, FOIA Requests, More Emails, Pending Legislation

The Treasury Inspector General for Tax Administration issued a new “Final Report” on the IRS handling of exemption applications involving political campaign intervention.  Here are excerpts from the conclusions:

The IRS has taken significant actions to eliminate the selection of potential political cases based on names and policy positions, expedite processing of Internal Revenue Code (I.R.C.) Section (§) 501(c)(4) social welfare organization applications, and eliminate unnecessary information requests. 

First, the IRS eliminated the use of Be On the organizations, if it becomes a permanent Look Out (BOLO) listings, . . . .

Second, the Exempt Organizations function completed processing for 149 of the 160 applications for tax-exempt status that, as of December 2012, had been open for lengthy periods. . . . .

The report further provides that in the absence of BOLO listings the IRS has created an “Emerging Issues Committee” to screen, review, and monitor emerging issues based on actual or planned activities of applicants, as opposed to names or policy positions.  The report also provides of 149 closed applications, the IRS approved 107 (72%) and disapproved 7 (5%), while applicants either withdrew (8 or 5%) or failed to respond to requests for information (27 or 18%) the remaining applications.  Of the 11 applications still open, six are in litigation and five have either proposed adverse determinations or are in Appeals.  Reading between the lines, a Bloomberg article notes that these figures suggest that the IRS has sent Crossroads GPS a denial letter, since the Crossroads application is still outstanding and is not in litigation.  As the Center for Responsive Politics notes, however, the statute of limitations might now bar collection of any taxes from Crossroads even if its application is ultimately denied.  Additional Coverage: Forbes (Peter Reilly).

Relatedly, the NorCal Tea Party Patriots have convinced the federal judge overseeing their lawsuit against the IRS to require the IRS to identify the 298 groups that had submitted applications identified as potential political cases as of May 31, 2012 (mentioned on page 4 of the TIGTA Final Report) in order to facilitate class certification in that litigation.  The Judge’s order explains why she concluded Internal Revenue Code section 6103 does not prevent this limited discovery.  Additional coverage: Forbes (Peter Reilly).

In other news, TIGTA managed to recover 6,400 emails to or from Lois Lerner from between 2004 and 2013, although it is unclear how many might be duplicates of the tens of thousands of emails previously recovered by the IRS and turned over to Congress.  No final word from the congressional committees reviewing the emails regarding whether they add anything to the ongoing investigations, although initial indications are that there is little new in them.  Coverage:  CNNForbes (Kelly Phillips Erb); The Hill.

Finally, the House has passed a package of bills relating to the 501(c)(4) application mess, although their fate in the Senate (and on the President’s desk) is uncertain.  The most prominent is H.R. 1104, which would extend a gift tax exemption to 501(c)(4) social welfare organizations, 501(c)(5) labor, agricultural, and horticultural organizations, and 501(c)(6) trade associations and chambers of commerce.  Currently donors to 501(c)(3) charities generally enjoy such a deduction (under Internal Revenue Code section 2522), and transfers to 527 political organizations are exempt from the gift tax (under section 2501(a)(4)).  The other bills are H.R. 709 (termination for political targetting), H.R. 1026 (taxpayer privacy), H.R. 1058 (Taxpayer Bill of Rights), H.R. 1152 (use of personal email accounts prohibition), H.R. 1295 (self declaration process and declaratory judgment actions for 501(c)(4)s), and H.R. 1314 (right to appeal).  Coverage: Forbes (Robert W. Wood); Politico.

Lloyd Mayer