Our Taxing Times

Another Tax Exempt Twist

By now, everyone should know about the IRS and the tax exempt status “scandal”. For those hiding in the attic the last few weeks, the IRS used key words like: tea party” and “patriot” to give some applications for 501(c)(4) status extra attention.

A 501(c)(4) organization is an organization which is set up to promote social welfare or a local association of employees which has a charitable, educational or recreational purpose. They have become very popular in recent years as a way for an organization to do some limited political activity without having to publish their donors. This is different from a Section 527 political organization. A section 527 group also has tax exempt status but tighter information reporting requirements.

The Treasury Inspector General for Tax Administration TIGTA) has issued their report on the subject and found that the IRS did select some 501(c)(4)  applications for more attention. This action was not politically motivated but based on lack of clear vetting criteria to screen applications for organizations which will be too political.

As with any political scandal there has been much finger pointing, calls for resignations and Congressional hearings. In Friday’s hearing (May17, 2013), Rep. Lloyd Doggett (D-TX) introduced a new twist when he asked TIGTA’s J. Russell George if the scandal would have been avoided if the IRS had followed the actual Internal Revenue Code wording for a 501(c)(4) organization. It turns out that the IRC specifically states that to qualify for tax exempt status under section501(c)(4) an organization must be operated exclusively for social welfare. The regulations the IRS wrote to carry out that section, however, say that the organization only needs to operate primarily for social welfare. Primarily isn’t exclusive.

This isn’t a new argument. Citizens for Responsible Ethics in Washington (CREW) filed a brief on Friday in the Gill v. Department of the Treasury court case. (The IRS had filed to have the case dismissed.) Dr. David Gill is challenging the IRS about their 50 year old regulation defining 501(c)(4) as primarily for social welfare and not following the IRC’s  exclusive definition. While a candidate for Congress, he alleges that he was targeted by a 501(c)(4) organization which would not meet the exclusive test.  

In an already bad year for the IRS, they are now in the spotlight for handling a sensitive subject badly and that they might have been doing it wrong for 50 years.

Thanks to Accounting Today for the head's up.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

TIGTA on Currently Not Collectable Cases

The Treasury Inspector General for Tax Administration (TIGTA) has released a new report highlighting problems with inappropriate case closings for taxpayers seeking “currently not collectable” status.

Sometimes, taxpayer really can’t pay their tax debt. These are people with income that barely covers their modest living expenses. Their case could be classified as “currently not collectable.” In order to qualify, the taxpayer has to submit a financial statement to the IRS to document their income and expenses. Once they have “uncollectable” status, collections are suspended.  However, the case is reviewed every few years to insure that the taxpayer’s status hasn’t changed to where they could now pay on some of their debt.

In this new study, TIGTA found problems with closed “currently not collectable” cases that were handled in the IRS’s walk-in Taxpayer Assistance Offices. There were 2 studies. One was a judgmental sample of 17 cases and the other was a statistically valid sample of 132 cases. Problems these studies found indicated that in some cases there were no financial statements completed or case notes were missing, in other cases the closing code was incorrect, finally there were cases closed without supervisor approval. Because of incomplete information, TIGTA was unable to determine if the cases had been closed correctly.

The IRS agrees with TIGTA’s recommendations to insure that current rules be followed and to create internal controls to check the closing codes.

Thanks to Accounting Today.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.