The government is supposed to be open to all people and groups no matter their political affiliation. However, in reality we know that this is just not true. One of the most recent examples of this in the federal government is the IRS’s discrimination against Tea Party nonprofit groups.
Recently a federal appeals court accused the IRS of failing to release a list of tax exempt organizations targeted for political scrutiny and scolded the agency for compounding the offense by continuing to fight disclosure.
The court ordered the IRS to quickly turn over the full list of groups it targeted so that a class-action lawsuit filed by the NorCal Tea Party Patriots could proceed. The court also accused Justice Department attorneys representing the IRS in the case of acting in bad faith. This sounds like a PR nightmare for an organization that is asking for more funding from Congress and is generally liked by no one.
The Tea Party is a conservative movement that gained traction in recent years and is largely against taxes. It comes as no surprise then that IRS management within its nonprofit section started to put additional scrutiny and hurdles for Tea Party groups to gain tax exempt status.
The application process for nonprofit organizations is by no means easy. The form that must be filed is 28 pages long and requires various explanations of how the organization will further a recognized tax exempt activity, how it will operate and who gets paid what.
With the required attachments, schedules and other materials that may be necessary, it is not uncommon for these submissions to the IRS to be more than 50 pages.
The nonprofit application is audited once submitted. It is examined to make sure there is no profit being made by insiders and to determine if the organization is formed exclusively for a tax-exempt purpose.
The IRS took that examination process and used it to harass Tea Party organizations and deny exempt status to many of them. The whistleblower in this case was not some right-wing congressman who wanted to make a name for himself, but it was none other than the IRS itself. The IRS has its own internal affairs division known as the Treasury Inspector General for Tax Administration.
In 2013, that division published a report titled “Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review,” which is a nice way of saying the IRS misapplied the law against Tea Party groups. The main issue of the report revolves around the tax-exempt status given to “social welfare organizations.”
While tax-exempt social welfare organizations have been around for a very long time, they became a valuable tool for political organizations in recent years. One of the main reasons is that they can collect money from contributors without disclosing the source of those funds. In March of 2010, IRS staff began screening groups with political sounding names that included “Tea Party” or “patriot.”
Those conservative groups picked out were required to answer a wide range of questions that were often unnecessary and time consuming. This resulted in applications being examined for more than a year and sometimes as long as three years.
The IRS questions were an attempt to determine how political the organizations were. That is perfectly legal except for the fact that conservative organizations bore the brunt of the more invasive examination procedures.
The Treasury Inspector General’s report generated Congressional inquiries and the head of the IRS Exempt Organizations group at the time, Lois Lerner, was summoned to testify before a Congressional committee. At that hearing, she pleaded the Fifth Amendment, which is a citizen’s right to not testify for fear of self-incrimination. Her choice to not testify essentially solidified that she was guilty of something in the public’s eyes. She later pleaded the Fifth again at a subsequent hearing she was summoned to. Let’s just say, she no longer works for the IRS anymore.
In my practice I have seen many instances of the IRS not playing fair and dealing with them can be an uphill battle. When nonprofit group apply and receive a negative determination letter, they have a limited amount of time to appeal the matter to Tax Court where a judge, not the IRS, will make the decision.
If you are having troubles with the IRS in any fashion I recommend that you seek professional help immediately to prevent the loss of any civil protections you may have.
– Darren Pluth is an associate attorney at Calone & Harrel Law Group, LLP. He has worked in the area of tax controversy since 2009. Mr. Pluth may be reached at [email protected]