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Judicial Watch • IRS HQ Targeting – PDF 1068

IRS HQ Targeting – PDF 1068

IRS HQ Targeting – PDF 1068

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DEPARTMENT OFTHE TREASURY
 
INTERNAL REVENUE SERVICE ASHINGTON,D.C.20224
 
DEPUTY COMMISSIONER
 
June 4,2012
 
Thn Honorable CarlLevi

Chrm

Perm anentSubcommit Investigations
 
Senate Commit Homeland Security
 
and GovernmentAf
airs
 
United States Senate ash

ington,D.C. 20515
 
DearSenatorLevin:
 
Iam respondingtoyourlet
ertoCommissionerSh30,2012,

ulman dated March

requesting information aboutthe tax-exemptsector. appreciate yourinterestand
 
supportoftheadministrationofth

eIRSef
ortsinthetaxlawasitappliestotax-exempt
 
organizations. Thetelepheldwithyourstaffon

isresponsefol
owsthoneconversationh ay4,2012.
 
Question Areentitiesseekingtax-exemptstatusunderSection501(c)(4)

required subm itan application they

eIRSforreview andapproval,orcanth

hem selves outas houtfiling application

oldthavingtax-exemptstatuswith

undergoing IRS review? 

Tholdth.

elawal
owssection501(c)(4)organizationstohemselvesoutastax-exempt

OrganizationsalsocanapplyforIRSrecognitionastax-exempt. eth heran
 
organizationisself-asbeendeterminedbyth

declaredundersection501(c)(4)orheIRS
 
tomeettheorganizationmustfileForm 990 requirements ofsection 501(c)(4),th

annualinformation returns.
 
Question assistin responding yourspecific sub-questions,we are providing background
 
information aboutoursystem forprocessingapplicationsfortax-exemptstatus,aswel 

asthatgovernpublicinspectionofIRSdocumentsrelating statutorydisclosure rules
applicationsfortax-exemptstatus,including applicationsforstatusundersection
 
501(c)(4),arefiled withacentralized IRS Submission Processing Center,whenters

ich

theEP/EODeterminationSystemandprocessestheduser

eapplicationsintotheat
ach

fees. Thensenttoth""ons

eapplicationistheExemptOrganizations(EO)Determinati
iceinCincinnati,Ohnicalscreening.

ioforinitialtech

Thnicalscreeningisconductedbyexperiencedrevenueagentswhe

istechoreviewth

applicationsand,basedontheapplicationsintoth

atreview,separatethefol
owingfour
 
categories:
 
  Applications thatcan approved immediatelybased onthe completeness ofthe application and the information submit
ed;  
  Applications thatneed onlyminoradditionalrequired information inthe file orderto approve the application;  
  Applicationsthatdo notcontain the information needed considered substantial
ycomplete;and  
  Applications thatrequirefurtherdevelopmentbyan agentin orderto determine whetherthe application meetsthe requirementsfortax-exemptstatus.  

Organizationswhntothcategoryaresentlet
ersinforming

oseapplicationsfal
iefourth

them thatmoredevelopmentofthatth

eirapplicationisneeded,andtheywil
 
contactedoncetheirapplicationhasbeenassignedtoarevenueagentTh
 
applicationsaresenttounassignedinventory,wheyareh

erethelduntilarevenueagent
 
withtheappropriatelevelofexperienceforthemat
erisavailabl

eissuesinvolvedinthe
 
tofurthecase.1

erdevelop

Oncetherevenueagentnotifiesthe

ecaseisassigned,theorganizationandreviewsth

application. Baseduponestablishefactsandcircumstancesset precedentandth

forthintherevenueagentrequestsadditionalinformationand

eapplication,th

documentation tocompletetheexemptstatusapplicationmaterial

efilepertainingtoths

(theso-cal "on.

administrativerecord")andmakesadeterminatierean
 
applicationforexemptionpresentsissuestherdevelopmenttocomplete

atrequirefurth

theapplicationrecordItherevenueagentengagesinabackandforthth

dialoguewithe
 
organizationinordertoobtainthon. Thdialogue

eneededinformatiisbackandforth

herequirementsforexemptionandwh

elpsapplicantsbet
erunderstandthatisneeded
 
tomeettheIRStoobtainal
the

em,andal
owstheinformationrelevanttoth

determination. EnclosureAdescribestheappropriatelevelofexperi

ecriteriausedtodeterminethence. The application forrecognition oftaxexemptstatus,anypaperssubmit insupportofth

application,andanylet
erorotherdocumentissuedbytheIRS witheapplicati

respectto thon.
 
andling offul
developmentcases. For
 
example,insituationswhereareanumberofcasesinvolvingsimilarissues(such

ereth

ascreditcounseling organizations,down paymentassistanceorganizations,
 
organizationsthve

atwere automatical revoked and areseeking retroacti

reinstatement,and mostrecently,advocacyorganizations),th IRS wil
assign casesto
 
designated employeesto promote consistency. Additional
y,inth

esecases,EO
 
Techighn

nical(anof
iceofhergraded specialistsin ExemptOrganizations),i

consultationwiththiefCounsel,maydevelopeducationalmaterialsto IRS
iceofCh

assistth revenue agentsinissuespot
ing and crafting questionsto developcases
 
consistently.
 
Itisimportantto developacomplete administrative record forth

eapplication. Because
 
thersupportexemptionordenial,itisimportantforth

eadministrativerecordmusteithe
 
recordtobecomplete. Iftheadministrati

eapplicationisapproved,notonlyisthve
 
record made publiclyavailable (withcertain limited exceptionsoutlined below),but
 
organizations theadministrativerecordheIRS

atactasdescribedinthaverelianceonth

determination. Iftheorganizationmayseekreviewfrom

eapplicationisdenied,the
 
Office ofAppeals. Thich

eAppealsOf
ice,whisindependentofExemptOrganizations,
 
reviewsthtsownindependent

ecomplete administrative record and makesi

determinationofwhertherequirementsfortax-exempt

etheorganizationmeetsth

status. Itistotheorganization'sbenefittohaveal
ofiefileinth

tsmaterialsintheevent Determinationsdeniesexemptionandth organization seeksAppealsreview. If,

basedontheadministrativerecord,the

einformationintheAppealsOf
icedecidesth

organizationmeetstheapplicationwil requirementsfortax-exemptstatus,th

approved. IftheAppealsOf
iceagreesthatthouldbedenied,th application she
enge isnon-exemptstatusbypaying anytaxowed asataxabl

organization maychte
 
entity,and seeking arefund infederalcourt.
 
Intherethichereied

osecaseswheapplicationraisesissuesforwhthsnoestablish

publishich

edprecedentorforwhnon-uniformitymayexist,EO Determinationsmay
 
referthnicalInEOTecheapplicationsarereviewedby

eapplicationtoEOTech. nical,th

taxlawspecialistswhelawandwh

osejobistointerpretandprovideguidanceontho
 
workcloselywithIRSChei

iefCounselat
orneysonthssues.
 
Similartothnicaltaxlawspecialistsdevelop

eprocessinEO Determinations,EO Tech

cases basedontheissuesinthon.

efactsandcircumstancesofthespecificapplicati

EOTechdialoguewitheorganizationinorder

nicalstaffengagesinabackandforthth

toobtainthetethew

einformationneededtocompleadministrativerecord.If,uponrevi

ofal
ofthatanorganizationdoesnotmeetth

einformationsubmit
ed,itappearsthe reasonsth

erequirementsisissued. Then
 
theorganizationact

eadministrativerecordismadepubliclyavailable,andifthsas
 
describedinthasrelianceonthe

eapplicationrecord,itheIRSdetermination.Ifth

applicationisdenied,thal
engeisnon-exemptstatusbypayingany

eapplicantmaycht

ofthibitsthe

eCodeprohedisclosureofinformationaboutspecifictaxpayersunlessth

disclosureisautheCode. Section6104ofthres

orizedbyaprovisionoftheCoderequi IRS tomake certain materialsavailable forpublicinspection,including
 
organization'sapprovedapplicationforrecognitionoftaxexemptionandForm 990
 
annualinformationreturns. Ifth IRS approvesan organization's application fortax

exemptstatus,section6104(a)requirestheapplicationandsupportingmaterialsbe

atth

madeavailableforpublicinspection. Thatrequirementisfoundi

eonlyexceptiontothn
 
section 6104(a)(1)(0),whexemptsfrom disclosureinformationtheIRS

ichatth

determinesrelatesto any"trade secret,patent,process,styleofwork,orapparatusof
 
thatwouldadverselyaf
ectthatcould

eorganization"theorganizationorinformationth

adverselyaf
ectnationaldefense. long-standing statutoryrequirementsregarding exemption applications,including

Form 1024,areseparatefrom

oserequiringpublicavailabilityofForm 990annual
 
informationreturns,wharecontainedinsection6104(b)Undersection6104(b),

ich.
 
Form 990annualinformationreturnsarealsosubjecttopublicinspection,withthe sol

exceptionofdonorinformationcontainedinScheForm 990.

edule ofthe
 
olding ofnamesandaddressesofdonorsfrom publicdisclosureappliesonlyto

with

Form 990;th

isexceptiondoesnotextendtoinformationobtainedfrom Form 1024and
 
supporting materials.4
 
Inlighestatutoryrequirementtomakeapprovedapplicationspublic,organizati

tofthons
 
arenotifiedtheyprovidewil
beavailableforpublicinspectiononpage

atinformation

twooftheForm 1024instructions.

isnoticeisreiterated inanydevelopmentlet
ers
 
senttothe organizations. administrative record ofapproved applications,including

theapplicantand application,supporting documentsand correspondence between IRS areavailable upon request

th.
 
Undersection6110oftheIRSultimatelydeniesth Code,ifthe application for
 
recognition oftax-exemptstatus,th

edeniallet
erand background informationwil
 
opento publicinspection,withcertain identifying and oth

erinformation redacted. Thedisclosureruleshavebeeninplacesince1958,andthistoryprovidedth legislative
 
fol
owingrationaleforpUblicdisclosureofexemptionapplications:"[that

e]commit believesth

makingthetothe

eseapplicationsavailablepublicwil
providesubstantialadditionalaidtoth

InternalRevenue Service iethe

ndetermining wherorganizationsareactual
yoperating

mannerinwhthavestatedinthon."H.R.Rep.No.85-262,at

icheyheirapplicationsforexempti

41-42(1957).In1987,CongressaddedwheCode,thres

atisnowsection6104(d)tothatrequi

organizationstomakethetothisruleto

eirreturnsavailablepUblic,andin1996extendedth

application materials.
 
ose section 527 organizations

501(c)(4),please indicate:
 
(a) thedateonwhanentity

eapproximateaveragenumberofdaysbetweenthich

submitsan application for501(c)(4)tax-exemptstatusandthich dateon application isapproved ordenied; average case processing time fordetermination casesclosed FY2011 was
 
104days. However,itisdif
icultto predicth long itwil
take toful
yprocessany

specificapplication. Case processing time can varygreatlydepending anumber
 
offactors,includingwherthroughtechnicalscreeningor

ethecasecanbeclosedth

requiresful
development,thth

eavailabilityofan agentwithe appropriate
 
experience leveltoful
ydeveloptheparticularissuesand

eapplication,th

individualizedfactsandcircumstancespresentedinthebackand application,th

forthdialoguebetweentheapplicanttoful
ydevelopth revenue agentand the
 
application,andwheracaseistransferredtoEOTech.

ethnical

(b) ifitisnotprovided onaroutine basis,approximatelywh

atpercentage ofsuch
 
applicants receivean IRS questionnaireseeking information aboutany

politicalactivities,andheIRSdetermineswherandwhat

owthethentosendth

questionnaire;and
 
Weunderstandthereferenceinyourlet
erto questionnaire"isintendedto

atth"

relatetodevelopmentlet
erstheordinarycourse

eIRS sendstoorganizations inth

oftheinformationastho

eapplicationprocesstoobtaintheIRSdeemsnecessaryt

makeadeterminationwherthelegalrequirementsfor

etheorganizationmeetsth

tax-exemptstatus. Thsnostandardquestionnaireusedinthons

ereiedeterminati

processseeking information aboutpoliticalactivities.
 
Theorganizationandsolicitsadditionalinformationwhe

eIRScontactsthenth

organizationdoesnotprovidesuf
icientinformationinresponsetothonson questi

the applicati

eForm 1024tomakeadeterminationorifissuesareraisedbython.
 
Wherdevelopment,th

enanapplicationneedsfurthecaseisassignedtoarevenue
 
agentwitheappropriatelevelofexperienceforthe

theissuesinvolvedinth

application. generalproceduresforrequesting additionalinformation develop
 
application are included section 7.20.2 ofth. InternalRevenue Manual

Alththatdescribesthe

oughereisatemplatelet
erthegeneralinformationonth

casedevelopmentprocess,the let
erdoesnot,and could not,specifyth

informationtoberequestedfrom anyparticularorganizationbecauseofth broad
 
range ofpossiblefacts. Enclosure isacopyofthetemplate let
er.

atth

ensure thelegalrequirementsoftax-exemptionaresatisfieddependson
 
theissuesraisedbyth application and the application. Consequently,revenue
 
agentsprepare individualized questionsand requestsfordocumentsrelevanttoth
 
application,whichareat
acheabovedescribedgeneraltemplatelet
.With

edtother

certaintypesofapplicationswheissuesaresimilarormorecomplex,EO

ereth

Technical,incoordination withiefCounsel,maydevelop educationalmaterialst

Cho revenue agentsin issuespot
ing and crafting questionstodevelop

assistthose
 
casesconsistently.
 
Thisorh

erevenueagentusessoundreasoningbasedontaxlawtrainingandher
 
experiencetoreviewtheadditionalinformationneeded application and identifyth make aproperdetermination regarding theorganization'sexemptstatus.
 
revenue agentpreparesindividualized questionsand requestsfordocumentsbased
 
onthinthon.

efactsandcircumstancessetfortheparticularapplicati

Thartprovidesth

ebelowchetotalnumberofapplicationsclosedforFY2008-2011,5
 
aswel
aspreliminaryinformationforpartof2012.6 Thartprovidesth below che
 
percentage ofal
exemptionapplicationsclosedeachyearththnical

roughetech

screening process(i.e.,nodevelopmentlet
erssent).
 
FiscalYear
 
2008 2009 2010 2011 2012 

Totalnumberofapplicationsclosed 84,220 77,305 65,590 61,004 28,570
 
rough

Percentage ofapplications closed

tech59% 56% 60% 70%

nicalscreening 57%
 
Althoughweareablenumberofcasesclosedduringth

etoproducethistimeperiod
 
thatreceived developmentlet
ers,oursystemsdo nottrackth specifictypesof
 
questionsaskedinthesecases.

edevelopmentlet
ersfortherefore,manual
 
review ofeache particularorganization and

filewould benecessaryto determine

th.

edevelopmentlet
erssent ReportsofthedbyStatisticsofIncome(SOl) IRS data requested arecreated and publish

Division.Th IRS Data Bookprovidesinformation IRS activities conducted during afiscalyear
 
period(October1thSeptember30).DataBookinformationisupdatedannual

roughisSOl
 
dataisfrom IRSDataBook,Table24,ClosuresofApplicationsforTax-ExemptStatus,by

Organization Type and InternalRevenueCode Section,FiscalYear2008 (and subsequentfiscal
 
years 2009-2011)athrs.gov/taxstats/index.h.isdatareflosures
p:/
www.itmIThectsal
casecl

forthese include notonly initialapplicati

eExemptOrganizationsDeterminationsfunction.Thons
 
fortax-exemptstatus,butalsoothaspublicchon

erdeterminations,sucharityandprivatefoundati

statusdeterminations,advanceapprovalofschipgrantprocedures,andgroup

olarsh

determinationsoftax-exemptstatus. ThedataforFY2012reflectsthepreliminaryinformationavailablethth

roughesecond quarter
 
th2013.
 
(c) approximatelyhatquestionnai

owmanydaysafteranapplicationisfiledthre
 
istypical
ysent. mentionedabove,organizationswhntothcategory

oseapplicationsfal
iefourth

aresentlet
ersinformingthatmoredevelopmentofths theirapplication

needed,andthattheywil
becontactedoncethasbeenassignedt

eirapplication
 
arevenueagent. eapplicationsaresenttounassignedinventory,wheyare

Thereth

helduntilarevenueagentwiththei

eappropriate levelofexperience forthssues
 
involvedinthemat
erisavailabletofurtherdevelopthecasei

ecase. Onceths
 
assigned,theorganizationandreviewsthon.

erevenueagentnotifiestheapplicati

Basedupontheestablishedprecedentandthi

efactsand circumstances setforthn
 
therevenueagentwil
requestadditionalinformationand application,th

documentationtocompletetherevenueagentwil
coordinate

efile. Ifapplicable,th

withEOTechiefCounseltodeveloprequestsforinformationtobe

nicaland

issuedtotheorganization. Foral
oftheti

ese reasons,itisdif
icultto predictthme
 
framebetweentheissuanceofa

efiling ofan application fortax-exemption and

developmentlet
er.
 
Question3. A1997letterfromtheNational

eIRS denying tax-exemptstatustoth

PolicyForum,copyat
ached,made publicinconnection withaSenate
 
investigation intofederalelectioncampaigns,indicatestheIRSbasedits

atth

denialon thatth

efacttheorganizationwasengagedinpartisanpoliticalactivity,
 
at"partisan politicalactivitydoesnotpromote socialwelfare asdefined

stating

insection501(c)(4),"and benefit[s]selectindividualsorgroups,insteadofth
 
communityasawhole.Isitstil
theIRSth epositionofthata501(c)(4)

organization cannotengage inanypartisan politicalactivity,even asasecondary

activity?
 
Asnotedabove,section6103ofthibitsth

eInternalRevenue Code prohe disclosure
 
information aboutspecifictaxpayersunlessthorizedbysome

edisclosure isauth

provision intheCodepermitspubli InternalRevenue Code. Section 6104(a)ofthc
 
disclosure ofan application forrecognition oftaxexemptstatusand supporting

materialsonlyaftertheorganizationhasbeen recognized asexempt. Undersection
 
6110 oftheIRSultimatelydeniesth Code,ifthe application forrecognition oftax

exemptstatus,the deniallet
erissubjectto publicinspection,withidentifying and oth
 
information redacted,toassisttheIRS'reasoningwhso

epublicinunderstandingthileal

protectingtheorganizatioughyoureferencewhatappearstobea

eidentityofthon. Alth

proposeddeniallet
erthavebeenmadeavailablepubliclybysourcesoth

atmayher
 
theIRS,IRSDisclosureCounselhatsection6103continuestoapply

anthasadvisedth qualifyforexemption asasocialwelfare organization described insection 501(c)(4), Section6103(f)oftheCodesetsforththich meansbywhcongressionalcommit
ees may

atisnototh organization mustbe primarilyengaged inth

enetearningsofwhdonotinureto epromotionofsocialwelfaredoesnot
 
orinopposition toanycandidateforpublicof
ice.9 Neverth

eless,asection 501(c)(4)
 
socialwelfare organization can engage inpoliticalactivitiesaslong asitisprimarily

engaged inactivitiesthatpromotesocialwelfare.1o regulationsdo notimpose
 
complete banonpoliticalactivitybysection501(c)(4)organizations.eth Wheran
 
organizationmeetsthefacts requirementsofsection 501(c)(4)depends upon
ofth

andcircumstancesofthve. particularapplicant,and noonefactorisdeterminati

Arevenueagentmustfirstdeterminewheractivitiesundertakenbython

ethe organizati

primarilyfurtheorganizationisengagedinsomeactiviti

eranexemptpurpose. Ifthes
 
thatdonotpromotesocialwelfare,thenthescopeofth

eagentmustreviewthe
 
activitiestodeterminewher,basedonal
the

ethefactsandcircumstances,th

organization'sexemptactivitiesarethes. Ifthearor

eprimaryactivitieapplicationisuncl

notsuf
icientlydetailedastowhethertheorganizati

eprimaryactivityconductedbython
 
isexemptsocialwelfareactivity,thowuponthssue

erevenueagentwil
needtofol
-isi adevelopmentlet
er.
 
Itisalsoimportanttonotethatdeterminationlet
ers

atsection 6110(k)(3)providesth

(including bothproposed andfinallet
ers)maynotbe used orcited asprecedent.
 
Determinationlet
ersarebasedontheapplicant

especificfactsandcircumstancesofth.
 
Question4. IsittheIRSth

epositionofthatanentityclaimingtax-exemptstatus
 
undersection 501(c)(4)can engage nonpartisan politicalactivityasa
 
secondaryactivity,andthe

atpoliticalactivitycanconsumeupto49% ofth

entity'sexpenditures and resources.
 
Todetermine wheran organization operatesprimarilyforth

ethepromotionofsocial
 
welfare,the IRS consideral

ecourtsandthefactsandcircumstances,includingbut
 
notlimitedtothsstatedpurposes,expenditures,principalsourceof

eorganization'

revenue,numberofemployeesandvolunteers,andtimeandef
ort. eIRSh

Thas
 
taken noposition afixed percentage oranyonefactorin precedentialguidance.
 
BIRC 501(c)(4);Treas.Reg.1.501(c)(4)-1. Treas.Reg.1.501(c)(4)-1(a)(2)(i Rev.Rul.81-95,1981-1 C.B.332. Rev.Rul.81-95,1981-1 C.B.332. Treas.Reg.1.501(c)(4)-ed). Rev.Rul.68-45,1968-1

1(a)(2)(Nopercentage testestablish

C.B.259 (Principalsource ofincome doesnotdetermine organization's primaryactiVityunder
 
501(c)(4);al factsand circumstances areconsidered). See,general
yHaswel
v.United 

States,500 F.2d 1133,1142,1147 (CI.Ct.1974)("A percentage test...isnotappropriate.Such
 
atestobscurestheorganization'sactivitiesinrelationtoives

ecomplexityofbalancingthtsobjecti

andcircumstancesinthecontextofthetotalityofthon.) organizati".See,Contracting Plumbers 

v.UnitedStates,488 F.2d 684,686 (2d Cir.1973)(multiple factors relevantin applying ths

standard,including formative

istory,stated purposes,and actualoperations). Seegeneral

Question Treasuryregulation applicableto 501(c)(4)organizationsstates:
 
"Thon promotion ofsocialwelfaredoesnotincludedirectorindirectparticipati

orintervention politicalcampaignson beh

alfoforin opposition any

candidate forpublicoffice." Treas.Reg.1.501(c)(4)-1(a)(2)(i
).W ould IRS
 
general
yview itasaviolation ofth

atregulation ifa501(c)(4)organization:
 
(a)Madeacashon apoliticalorganizationwhistax-exemptunder

contributiich

Section 527andfunctionsasacampaign committee toelectaparticular
 
candidate publicoffice?
 
(b)Madeacashcontributiontoapoliticalactioncommitteewhwas

ich

establisheFederalElectionCampaignAct(FECAct)andwh underthich
 
routinelymakescashcontributionstocampaign committees,eachofwh

ich
 
wasestablish toelectaparticularcandidate publicoffice?
 
(c) Madeacash

contribution toapoliticalaction committee orSection 527
 
politicalorganizationwhichmakesindependentexpenditures beh

alfofor opposition oneormorecandidatesforpublicoffice?
 
(d)Madeacashcontributiontoanationalpoliticalpartywhengagesi

ichn
 
partisanpoliticalcampaignstoelectmultiplecandidatesfrom same
 
politicalpartyto publicoffice?
 
(e)Madeacashcontribution toapoliticalaction committee orSection 527
 
politicalorganizationwhisengagedinpartisanpoliticalactivity,butdoes

ich

notcampaign onbeh

alfoforinopposition toanyparticularcandidate for
 
publicoffice?
 
(f) Madeacashcontribution toapoliticalactioncommittee orSection 527
 
politicalorganizationwhisengagedinnonpartisanpoliticalactivityand

ich

doesnotcampaign beh

alfoforin opposition toanyparticularcandidate
 
forpublicoffice? noted previously,asection 501(c)(4)organization maydirectlyorindirectly

participate orintervene apoliticalcampaign aslong asitisprimarilyengaged
 
activitiesthare. Treasuryregulationsprovideth

atpromotesocialwelfatpromotionof
 
socialwelfare doesnotinclude certain activities,including politicalcampaign
 
intervention. iibitasection501(c)(4)organizationf Throm regulation doesnotproh

engaginginsuchactivity.Rathepoliticalcampaigninterventionactivitydoesnot

er,th

counttowardsthatpromotesocialwelf

eorganization'sexemptactivitiesthare.
 
Therefore,iftheorganizationengagesinsuchasviolated"noruleunderth

activity,ith"e
 
regulations. Asdiscussed,al
factsand circumstancesare relevantindetermining
 
etherequirementsfortaxexemptionareultimatelysatisfied.

wherth

The same legalrequirements applyineachofth

efactspat
erns articulated inyour
 
questions. respecttoeachefactpat
ernsthiledepending ithofthatyou specify,wh

efactsand circumstances,politicalactivitywould notbeforasocialwelfare
 
purpose,tho

eorganization doesnotviolate anyInternalReview Coderule applicable

section 501(c)(4)organizationsifitengagesinsuchactivity.

efactsand
 
circumstancesneedtobeconsideredtodeterminewherthe

ethisactivityaf
ectsth

section 501(c)(4)organization'stax-exemptstatus.

Question6.Wouldthon

eIRS general
yview itasaviolation ofTreasuryRegulati

1.501(c)(4)-1(a)(2)(i
),ifa501(c)(4)organization weretocoordinate itspolitical
 
activitieswith

acampaign committee,politicalaction commit
ee,ornational
 
politicalparty? Pleaseexplain.
 
Asstated,section 501(c)(4)organizationsmayengage insome politicalcampaign
 
activityprovidedthatsuchintervention,alongwitheractivityth

othatdoesnotpromote
 
socialwelfare,doesnotconstitutethes. Thaw

eorganization'sprimaryactivitietaxl

doesnotexplicitlyprohon 501(c)(4)organization from coordinating political

ibitasecti

activity.
 
However,suchcoordination could raise issuesofprimaryactivity,inurementorprivate
 
benefit. us,forexample,ifanorganization'sactivitiesareconductedprimarilyforth

The
 
benefitofa politicalpartyoranyotherthe

erprivategroupofindividuals,rathanth

communityasawheorganizationisnotoperatedprimarilytopromotesocial

ole,th

welfare. Accordingly,conferring asuf
icientamountofprivate benefiton select
 
individualswil
preclude exemption undersection 501(c)(4)ifthe

atprivate benefitisth

primaryactivityofthon.

eorganizati

Question7. Iunderstandthavepetitionedth

atsomepersonsheTreasury

DepartmenttoclarifyorreviseTreasuryRegulation 1.501(c)(4)-1(a)(2)(i
 
Pleaseindicatewhertharulemaking,wherit

etheIRSplanstoengageinsucheth

wouldfirstsolicitcommentsonwhouldbeincludedinth

atshatrulemaking,and
 
whetherorwhrulemakingeffortheduledtobegin.

enanysuchasbeensch

TheIRS,incol
aborationwithth'

eTreasuryDepartmentsOf
ice ofTaxPolicy

("eguidancetheIRSintend

Treasury"),annual
ydevelopsalistofthatTreasuryandth

toworkonduringthe upcoming guidance plan year. Certain typesofguidance are
 
issuedinproposedform toal
owanopportunityforpubliccomment.
 
Thecurrentpublicinterestinth

eIRSisawareofthisissueandwil
seriouslyconsider
 
anyproposedcheIRShedthe

anges. Treasuryandthavenotyetestablishelistofth Rev.Rul.68-45,1968-1 C.B.259.Seealso,e.g.Contracting PlumbersCoop.Restoration 

Corp.v.U.S.,488 F.2d 684 (2d Cir.1973)(This

ere are multiple factors relevantinapplying

standard,includingformativehattaxmay

istory,stated purposes,and actualoperations).Note

applyin certain casesunderInternalRevenue Codesection 527(f). IRC 501(c)(4);Treas.Reg.1.501(c)(4)-1. See Contracting PlumbersCoop.Restoration 

Corp.V. U.S.,488 F.2d 684,687(2d Cir.1973)(Organization wasnotprimarilydevoted
 
common goodwhenitprovidedsubstantialanddif
erentbenefitstoboththtsprivat

epublicandie
 
members). American CampaignAcademyV.Commissioner,92T.C.1053,1078(1989),a
 
section 501(c)(3)case,hatanorganizationwasnotoperatedexclusivelyforexempt

eldth

purposeswhvatebenefitsonapoliticalpartyandies.

enitconferredsubstantialpritscandidat

30,2013. The2012-2013GuidancePriorityListwil
bemade selection ofitemsforth col
aboration withTreasuryafterreview and evaluation ofcomments received.
 
Question Ifth IRS were denyan entity'srequestto betreated astax

exem ptunderSection 501(c)(4),would IRS automatical
yapplycorporate
 
incometaxestotheentitytoapplyfortax-exempt

atentityorwould ital

ergrounds?

status oth hen asection 501(c)(4)organization receives afinaldetermination let
erdenying its
 
applicationfortax-exemptstatus,theorganizationthe

elet
eradvisesthatitmustfil

Federalincometaxreturnsfortheyearslistedinthin30daysofth

elet
erwithe
 
issuanceoftheorganizationrequestsanextensionoftimet

edeniallet
er,unlesstho
 
file.EnclosureCisacopyofther

isstandardfinaldeniallet
 
Ifthecasebelievestheorganizationmaynotmeet

erevenueagentassignedtothatth

therequirementsof requirements ofasection 501(c)(4)organization,butmaymeetth

anothertax-exemptprovision,the issueofwherth

etheorganizationwantstobe
 
consideredforexemptionundertherprovisioncouldbediscussedwithe

atothth

organizationthroughdevelopmentlet
erspriortotheapplicati

efinalresolution ofthon.
 
Iftheorganizationindicatesthatitdoesnotwanttoproceedundertherprovisi othon
 
andcontinuestopursuesection501(c)(4)exemption,the IRS would denyth

application and organization would betreated asataxable entity.
 
Pleasenotethatsomeorganizationswithdrawthenth

eirapplicationforexemptionwhey

learnthcoming.Othdraw,butdonotrespond

atadenialisforthersdonotformal
ywith

torequestsforinformationnecessarytodevelopthons. Afteradditional

eirapplicati

failed
emptstogettheapplicant,th

einformationfromthoseapplicationsareclosed "failure establish."
 
Question9. Ifthatanentitywasimpermissibly IRS were determineth

participatinginpartisanpoliticalactivity,doesthaveunilateralauth

eIRShorityto
 
reclassifyitasaSection 527 politicalorganization instead ofaSection 501(c)(4)

socialwelfare organization?
 
ethne heran organization failsto qualifyundersection 501(c)(4)doesnotdetermi

wheritisapoliticalorganization undersection 527. Section 527 appliestoaparty,

eth

commit
ee,orothatisorganizedandoperatedprimarilyforth

erorganization the
 
purpose ofaccepting contributions ormaking expendituresforanexemptfunction (as
 
defined section 527(e)(2)). Subjectto certain exceptions,to betax-exemptunder
 
section 527,apoliticalorganization isrequired togive noticeelectronical
ytoth

Service. Section 527(i)(1);Rev.Rul.2003-49,2003-e C.B.903. Section 527 also provides forth

taxationofcertainorganizationstheIRS.IRC 527(f),(i)(4)

erevenueagentassignedtothatth

organization maynotmeetth requirements ofasection 501(c)(4)organization,but
 
atoth

discussedwiththroughefinalresolution

eorganizationthdevelopmentlet
erspriortoth

ofthon. Ifthatitdoesnotwanttoproceedunder

eapplicatieorganizationindicatesth

therprovisionandcontinuestopursuesection501(c)(4)exemption.th

eothe IRS would
 
denytheorganizationwouldbetreatedasataxableentity. application and

Question10.Ifanentityweredeniedtax-exemptstatusbython IRS underSecti

501(c)(4),hose funds would pastcontributionsand incomeearned onth

general
ybetreated underth

etaxcode?
 
Ifan organization isdeniedtax-exemptstatus,th organization isataxable entityasof
 
theorganizationoriginated. That

edatethefinaladversedeterminationlet
erstatesth

eorganizationisrequiredtofileFederalincometaxreturns,general
yaForm 1120,

U.S.CorporationIncomeTax. Theorganization'scontributionsand

etaxtreatmentofth

otheA.

erincome isdetermined undernormalrulesofSubtitl

Question 11.WheIRSusetodeterminewh

atconsiderationsdoesthenanentity

thouldbesubjecttoa

atisdenied tax-exemptstatusunderSection 501(c)(4)sh

penalty? how are

atpenaltiesareavailableandheycalculated?

ere isnopenaltyspecifical
yapplicable toan organization asaresultofadenialof
 
tax-exemptstatus. Anorganizationthe

atisdenied tax-exemptstatusisadvised inth

finaldeniallet
erthas30daysfrom th'erfileincome

atithefinaldeniallet
ertoeithtsi

taxreturnsorrequestadditionaltimetofiletheorganizati

etaxable returns. Ifthon
 
timelyfiledForm 990annualreturnsduringthatth

eperiodoftimetheapplicationfor
 
tax-exemptstatuswaspending and timelyfilesitstaxable returnsoncetax-exemption
 
denied,theorganization wil
notbesubjecttopenalties. Ifth

eorganization doesnot
 
timelyfiletaxablereturns,tho organization maybesubjecttofailure tofile orfailure

paypenaltiesundersection 6651 ofth

eCode.
 
TheCode,iscalculatedatarateof

efailuretofile penaltyundersection 6651(a)(1)ofth

5percentoftheamountrequiredtobeshownastaxonthefailuretofilei return ifths
 
fornotmorethan1month,withadditionalmonth

anadditional5percentforeachor
 
fraction thatthe

ereofthefailuretofilecontinues,nottoexceed25percentinth

aggregate.
 
TheCode,iscalculatedata

efailure paytaxpenaltyundersection 6651(a)(2)ofth

rateof0.5percentoftheamountofthetaxshereturnifth

ownonthefailuretopayisfor
 
notmorethan1month,withadditionalmonth

anadditional0.5percentforeachor
 
ereofthefailuretopaycontinues,nottoexceed25percentinth

fraction thatthe
 
aggregate.
 
eorganizationcanshatth

failure paywasdueto reasonable causeand notduetowil
fulneglect.
 
Question 12. Pleaseprovideacopyofthatth

estandard questionnaire the IRS
 
sendsto entitiesclaiming tax-exemptstatusunderSection 501(c)(4)to obtain
 
informationaboutthes. Inaddition,pleaseprovideanywritten

eirpoliticalactiviti

guidance providedtoIRSagentsregardingthn issue ofpoliticalactivityi

connection withSection 501(c)(4).
 
There isnostandard questionnaire usedtoobtain information aboutpoliticalactivities.
 
Alththatdescribesthon

oughereisatemplatedevelopmentlet
erthegeneralinformati

onthelet
erdoesnotspecifyth

ecasedevelopmentprocess,theinformationtobe
 
requestedfromanyparticularorganization. EnclosureBisacopyofthet

etemplateler amountand typeofdevelopmentnecessaryto processasection 501(c)(4)
 
applicationtoensurethelegalrequirementsoftax-exemptionaresatisfieddepends

atth severalfactors,whincludethensivenessofthn

ichecompreheinformationprovidedi

theissuesraisedbython. Consequently,revenueagents

eapplicationandtheapplicati

prepare individualized questionsandrequestsfordocumentsrelevanttoth

eapplication,
 
wharethedtothet

ichenat
acheabovedescribedgeneraltemplateler

Inconnectionwithrecentcases,EOTecheet

nicalprepared adrafteducationalguidesh

onthatwassh

eissueofpoliticalactivityforsection501(c)(4)applicationstharedfor
 
commentwithsomeemployeesinEO Determinatiatguidesher

ons. Theetwasneith

mandated norfinalized.
 
Question13.Pleaseindicatehavebeenissuedbyth

owmanyletterrulingshe
 
IRS sinceJanuary1,2007,to denyorrevoke

etax-exemptstatus ofan
 
organization underSection 501(c)(4)dueto involvementwithpartisan
 
nonpartisan politicalactivity. Ifthasissued10orlesssuch

eIRS hletterrulings,
 
pleaseprovidecopiesofal
suchlet
ers. Ifthasissuedmoreth

eIRShan10such
 
letterrulings,please provideasample containing discussionsofth widest
 
varietyofissuesrelated toth

edenialoftax-exemptstatusunderSection 501(c)(4)

dueto partisan ornonpartisan politicalactivity.
 
Preliminarily,aspreviouslystated,section6103ofthibits InternalRevenue Codeproh

thedisclosurei

edisclosureofinformationaboutspecifictaxpayersunlessths
 
autheInternalRevenueCode. Section6104(a)ofth

orizedbysomeprovisionofthe
 
Code permitspublicdisclosure ofanapplication forrecognition oftax-exemptstatus
 
and supportingmaterialsonlyafterthasbeenrecognizedasexempt

eorganization
 
Undersection6110oftheIRSultimatelydeniesth

eCode,iftheapplicationfor
 
eidentityofthon.
 
eapplicationprocessfortax-exemptstatusdoesnotinvolvethax

exemption;rathedenialofapplicatiedenialof

er,itonlyconcernsthons. IRSdataonth

applications iskeptinreportspublisheIRSStatisticsofIncome(SOl)Divisi

edbython. Data Bookprovidesinformation IRS activitiesconducted during afiscalyear
 
period(October1thSeptember30)Wehedthsas

rough. aveat
achesereport

Enclosures th05. Foryourconvenience,he

-rough-owever,we are replicating

totalnumberofdetermination denialsforsection 501(c)(4)organizationsforFY 2007

2012 inthartbel chow.
 
Notethenumberofdenialsdoesnotreflectaful
pictureofapplicationsnot

atth

approved. Someorganizationswitheirapplicationforexemptionwhey

draw then

learnthcoming.Othdraw,butdonotrespond

atadenialisforthersdonotformal
ywith

torequestsforinformationnecessarytodevelopthons. Afteradditional

eirapplicati

failed
emptstogettheinformation,those applicationsareclosed as"failure
 
establish
 
FiscalYear Thon

eNumberofSocialW elfareOrganizati

Applicationsth

atwere Denied
 
2007
 
2008
 
2009 

2010 

2011 

2012111 

*Fewerth
 
Pleasenotethatalthoughenumbersofapplicati

IRSautomatedsystemstrackthons
 
closedasdenied,thenamesofthe

eydonottracktheapplicantorganizationsorth

reasonsforthedenials. Absentmanualreview ofth

efiles,weare unabletostate
 
whetheranyofthparti

esedenialswereissuedduetoinvolvementwithsanor
 
nonpartisan politicalactivity. ThepreliminaryinformationavailableforOctober1,2011th

edataforFY2012reflectsthrough
 
April11,2012.SOlDataBookinformation isupdatedannual
y,withecompleteFY2012

2013.
 
staffcontactCath

erine Barre at(202)622-3720.
 
Sincerely,
 
Steven T.Mil
 
DeputyCommissionerforServicesand
 
Enforcement
 
Enclosures