Tax Analysts Blog

Time Criticizes IRS for EO ‘Rubber-Stamping’

Posted on Jul 14, 2014

Over the weekend, posted an article with the headline “IRS to Rubber-Stamp Tax-Exempt Status for Most Charities After Scandal.” The story reported that the IRS had decided to stop screening 80 percent of exempt organization charitable applications each year and included an interview with IRS Commissioner John Koskinen explaining the IRS’s decision to use the new Form 1023-EZ. The article also said that the IRS’s decision risked fraud and the misuse of charities for political purposes.

Time is a little late to the story, but it has highlighted the concerns that have been expressed since the draft Form 1023-EZ was released for comment in April. Exempt organizations started using Form 1023-EZ on July 1. Koskinen’s comments to Time about the form increasing efficiency and the low risk of additional fraud are virtually identical to his statements in a release issued by the IRS when the form went into effect. At the time, practitioners and others expressed concerns the new form wasn’t asking for enough information. In this week’s Tax Notes, Brad Bedingfield argues that Form 1023-EZ represents a step toward self-certification and that the IRS will need to significantly strengthen its Review of Operations Unit if it wants to stop applicants from acting under false pretenses.

The IRS has moved very quickly to finalize Form 1023-EZ. The new draft form was released in mid-April, and comments were accepted only until April 30. At the time, many expressed reservations about the IRS’s decision to simplify EO determinations, and some thought the entire process seemed to be rushed and lacking consideration. The IRS had considered allowing more groups to use the form in 2012, but decided against it. With its exempt organization unit under siege and the entire agency starved of resources, the attempt at streamlining application approvals shouldn’t be too surprising, but the lack of deliberation is disturbing.

While Time is likely to reinvigorate some of the debate over exempt application determination, it might have been better if the general press had gotten on top of this issue a little earlier. There was almost no general press coverage of the April draft, and only a little more attention was called to the July 1 implementation date.

The mainstream press is frequently late to pick up on key tax stories. Whether it’s the low effective rate paid by U.S. multinationals, persistent abuse of offshore accounts by wealthy taxpayers, or the vague state of exempt organization law, the media frequently arrives loud and late -- typically after it’s too late to truly change things. If publications like Time paid a bit more attention to tax administration instead of sound-bite tax politics, then maybe Congress, the IRS, and the White House might give a little more attention to it too, avoiding the seeming deluge of scandals and faulty enforcement and administration that have plagued the U.S. tax system over the last few years.

Read Comments (4)

AMT buffJul 14, 2014

I favor Congressional repeal of all exemptions, including for churches and
universities. Failing that I believe it should be a free for all. As long as
MoveOn and Media Matters are allowed to retain their exemptions, how could the
IRS defend denying the exemption to any organization for being excessively

edmund dantesJul 14, 2014

The IRS needs to be "de-weaponized." Form 1023EZ is a good step in that
direction. Another good step would be to identify the culprits behind the
targeting of conservative groups for disciplinary action. Unfortunately many
of the key players have already retired.

You can be sure that the press will become quite interested in what is
happening at the IRS if a Republican becomes President in 2017.

edmund dantesJul 15, 2014

Form 1023-EZ is a great idea. IRS should not be in the business of deciding
which speech is political and which is not political. More important, they
should not want to be in that business. Having Form 1023-EZ removes the
temptation that got Lois Lerner and her cohorts into so much trouble.

I would love to see an estimate of the "tax cost" of blanket tax exemptions for
the Tea Parties. They are so small, I expect the revenue would be trivial.
Certainly dwarfed by the revenue losses to all the enormous liberal 501(c)(4)s
like the Sierra Club and

amt buffJul 16, 2014

Did Nina Olson or her staff leak an advance copy of her just-released report to
Time? That report covers this territory in blistering detail.

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