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Judicial Watch • JW1559-000067



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Date Created:February 25, 2014

Date Uploaded to the Library:April 16, 2014

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  • demand_answers

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APR 2013 
GOVf!ft:NMl!:NT !:NTIT1S 

FROM: 	Joseph Grant, Government Entities 
SUBJECT: 	"Inappropriate Criteria 
Applications for Review" 
Thank you for the opportunity review the draft report and for your review this 
issue. appreciate your recommendations for improvements our processes. recognize that some errors occurred the handling the influx advocacy 

cases and appreciate TIGTA's acknowledgment our steps improve the 

process. further outlined below, significant improvements this area are 

place and are confident that what transpired here will not recur. believe important put this matter into context. Starting 2010, Exempt 
Organizations (EO) observed significant increase the number section 
501(c)(3) and section 501 (c)(4) applications from organizations that appeared be, planned be, engaged political campaign activity. 

Between 2008 and 2012, the number applications for section 501(c)(4) status more than doubled. also received numerous referrals from the public, media, watchdog groups, and members Congress alleging that specific section 501(c)(4} organizations were engaged 
political campaign activity impermissible extent. 
Similar our approach other areas (e.g., credit counseling, down payment 
assistance organizations, etc.), sought assign cases designated 
employees. Centralization like cases ensures that specific employees who have 
been trained the relevant issues can adequately review the applications. this way the IRS learns new trends (as was the case credit counseling), and can approach cases uniform way promote consistency and quality. While this 
the correct approach for handling certain classes cases, centralization does slow the progress some applications (at least initially). Therefore, important take this action only appropriate situations and designate cases for centralization equitable manner. our view that centralization was warranted this situation. First, important recognize the intensely fact-specific nature the detennination whether 
organization described section 501(c)(4). recog nized exempt under section 501(c)(4), organization must engaged primarily the promotion social welfare. This requires review all activi tiesa classification activities into 
those that promote social welfare and those that not, and balancing both classes activiti es. Note that the promotion social welfare does not include political campaign intervention. And cases where there the potential political campaign intervention, the application process becomes even more difficult. must first determine whether any activities described the application constitute political campaign intervention and must also determine whether the applicant primarily engaged social welfare activity light any political campaign intervention and any other non-exempt activity. There are bright line tests for what constitutes political campaign intervention (in particular, the line between such activity and education) whether organization primarily engaged social welfare activities. 
The second reason that centralization was warranted this case that the applications began receive 2010 were many cases vague the activities the applicants planned conduct. Many applications included what appeared incomplete inconsistent information. For example, number applications indicated that the organization did not plan conduct political campaign activity, but elsewhere described activities that appeared fact such activity. was also clear that many organizations did not understand what activities would 
constitute political campaign intervention under the tax law. For these reasons, was necessary many cases for gather additional information. And believe was important that consistent how developed these cases. 
While centralization was warranted, the manner which initially designated cases for centralization was inappropriate. should centralize like cases review the facts contained the application and not just name. While necessary consider variety informati the screening process (including flags for current emerging issues) recognize that selection based organization name was not appropriate for these cases. the report discusses, have new approval process which designate class cases for centralization. Decisions with respect the centralized collection cases must made much higher level the organization. believe this will prevent recurrence what happened this case. 
The report also describes mistakes that were made the process which these applications were workedl. The IRS recognizes that there were delays and, some instances, information requests that were overbroad. the report notes, took steps modify the original approach. First, reviewed all cases determine the appropriate scope review for each case. also established process which each assigned revenue agent works coordination with specific technical expert. With respect information requests, some cases the Internal Revenue Manual prescribed deadlines for applicants respond were too short, and requested donor names unnecessarily. these instances, informed organizations that they had more time and that would work with them they could provide the 
information requested alternative manner. cases which the donor names were not used making the determination, the donor information was expunged from the file. important understand that centralization these cases did not dictate how the case ultimately was will resolved. the report illustrates, EO's selection organization for further development does not mean that wfll deny the application, but means that needs resolve questions arising from the application before can grant tax-exemption. Moreover, the majority cases selected for full development were not selected based the organizations' names. 
Finally, all cases, whether selected name not, were worked the same fashion. 
The results date support our approach. the nearly 300 section 501(c)(4) advocacy cases, date have approved more than 120 (nearly have withdrawn their requests). Note that the report appears view approvals evidence that should not have looked closely those applications. That not the case. Many these organizations did not supply enough information their initial applications meri approval that further development was necessary. many cases, this further developmen and back-and-forth discussion with the taxpayer allowed conclude that the legal requirements wer.e satisfied and allowed the applicant better understand its responsibilities and the law. dedicated reviewing applications for tax-exempt status impartial manner. Centralization like cases furthers quality and consistency. The mistakes outlined the report resulted from the lack set process for working the increase advocacy cases and insufficient sensitivity the implications some the decisions made. believe the front line career employees that made the decisions acted out desire for efficiency and not out any political partisan viewpoint. And the report discusses, these issues have been resolved. 
Our response your recommendations found the attachment. you have 
any questions about this response, please contact Lois Lerner, Director, 
Exempt Organizations, 202-283-8848. 

May 2013 
Acting Commissioner, Tax Exempt and Government