Senators to IRS: Don’t Let Politics Trump Policy on Non-Profit Group Designations

In letter to IRS Commissioner Shulman, lawmakers write, “It is critical that the public have confidence that federal tax compliance efforts are pursued in a fair, even-handed, and transparent manner - without regard to politics of any kind.”

WASHINGTON – Today, 12 Republican Senators urged the Internal Revenue Service (IRS) to prevent politics from playing a role in any action taken on non-profit 501(c)(4) organizations. In a letter led by U.S. Senators Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, and Rob Portman (R-Ohio), the lawmakers questioned the recent selective enforcement on tax-exempt organizations and requested a detailed analysis of the agency’s process for the approval and renewal of a tax-exempt designation under section 501(c)(4).

“It is critical that the public have confidence that federal tax compliance efforts are pursued in a fair, even-handed, and transparent manner – without regard to politics of any kind,” wrote the Senators.

They continued, “It is imperative that organizations applying for tax-exempt status are able to rely on a consistent and foreseeable review structure from the IRS. Any significant changes to the IRS review process should be implemented only after appropriate notice and opportunity for comment from the public and affected parties.”

Joining Hatch and Portman on the letter are Senators Mitch McConnell (R-Ky.), Chuck Grassley (R-Iowa), Lamar Alexander (R-Tenn.), Bob Corker (R-Tenn.), Pat Roberts (R-Kan.), John Cornyn (Texas), Kay Bailey Hutchison (R-Texas), Jon Kyl (R-Ariz.), John Thune (R-S.D.), and Rand Paul (R-Ky.).

Below is the full text of the letter:

Hon. Douglas H. Shulman
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20230

Dear Commissioner Shulman:

We have received reports and reviewed information from nonprofit civic organizations in Kentucky, Ohio, Tennessee, and Texas concerning recent IRS inquiries perceived to be excessive.  It is critical that the public have confidence that federal tax compliance efforts are pursued in a fair, even-handed, and transparent manner—without regard to politics of any kind.  To that end, we write today to seek your assurance that this recent string of inquiries has a sound basis in law and is consistent with the IRS’s treatment of tax-exempt organizations across the spectrum. 

As you know, the designation as a tax-exempt organization under section 501(c)(4)(A) is reserved for “[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, … the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.”  An organization “may carry on lawful political activities and remain exempt under section 501(c)(4) as long as it is primarily engaged in activities that promote social welfare.”   The 501(c)(4) designation has been conferred on many organizations in America that espouse political or public policy viewpoints—including Priorities USA, the sister organization of “[t]he super PAC supporting President Obama,”  and American Crossroads, the sister organization of a super PAC supporting Republicans.

Civic and social welfare organizations have long performed valuable roles and offered numerous benefits to our society, and tax exemptions for such organizations can be traced all the way back to the Tariff Act of 1913.  It is imperative that organizations applying for tax-exempt status are able to rely on a consistent and foreseeable review structure from the IRS.  Any significant changes to the IRS review process should be implemented only after appropriate notice and opportunity for comment from the public and affected parties.

A number of our constituents have raised concerns that the recent IRS inquiries sent to civic organizations exceed the scope of the typical disclosures required under IRS Form 1024 and accompanying Schedule B—the forms that all 501(c)(4) organizations must submit.  Understandably, this has prompted some concerns about selective enforcement and the duty to treat similarly situated taxpayers similarly.  To address these concerns, we respectfully request that you provide answers to the following questions:

1. What is the IRS’s process for approval and renewal of a tax-exempt designation under section 501(c)(4)?

2. Are all 501(c)(4) applicants required to provide responses and information beyond the questions specified in Form 1024 and Schedule B?  If not, when and on what basis does the IRS require an applicant to make disclosures not described in Form 1024 and Schedule B? 

3. Which IRS officials develop and approve the list of questions and requests for information (beyond the questions specified in Form 1024 and Schedule B) which are sent to 501(c)(4) organizations? What are the objective standards by which the responses to such requests for information are evaluated? 

4. How do additional requests for information sent by the IRS to 501(c)(4) applicant organizations (beyond the information required by IRS Form 1024 and Schedule B) relate to a specific standard of review previously established by the IRS?  Has the IRS published such standards?  Does the decision to approve or deny applications for tax-exempt status adhere to these standards, particularly if these standards have not been published and are not readily known?

5. Is every 501(c)(4) applicant required to provide the IRS with copies of all social media posts, speeches and panel presentations, names and qualifications of speakers and participants, and any written materials distributed for all public events conducted or planned to be conducted by the organization?  If not, which 501(c)(4) applicants must meet this disclosure requirement and on the basis of what objective criteria are they selected?

6. Form 1040 does not require specific donor information, as the instructions for the form indicate that the statement of revenue need not include “amounts received from the general public…for the exercise or performance of the organization’s exempt function.”  In addition, the annual schedule of contributors required by the IRS for 501(c)(4) organizations is limited to donors giving the organization $5,000 or more for the year, and the names and addresses of contributors are not required to be made available for public inspection (according to IRS Form 990, schedule B).  However, some of the IRS letters recently sent to 501(c)(4) applicant organizations specifically ask  for the names of all donors and the amounts of each of the donations, and  furthermore state that this information will in fact be made available for public inspection.  These specific requests for donor information appear to contradict the published IRS policy. Given this discrepancy,  please provide any correspondence (including emails, written notes, and electronic documents) generated with respect to the decision to send letters in 2012 requesting all donor information from 501(c)(4) applicant organizations, including correspondence between IRS employees, or between or among the IRS, the Department of Treasury, and the White House.

7. Many applicant organizations have stated that the IRS gave them less than 3 weeks to produce a significant volume of paperwork, including copies of virtually all internal and public communications.  What is the typical deadline for responses to an IRS inquiry for additional information under section 501(c)(4)?

8. Form 1024 and related disclosures by 501(c)(4) organizations are generally “open for public inspection.”   In the interest of addressing any concerns about uneven IRS enforcement of section 501(c)(4) eligibility requirements, can you please provide us with copies of all IRS inquiries sent to and responses received from Priorities USA?  Those documents would provide a useful basis for comparison to other inquiries the IRS has addressed to section 501(c)(4) applicants.

Given the potentially serious implications of selective or discriminatory enforcement, we request that you hold further IRS-initiated demands for information from 501(c)(4) applicants beyond the extensive information already required of all applicants (in Form 1024 and Schedule B), until the agency provides a response demonstrating these recent IRS requests are consistent with precedent and supported by law. 

Thank you for your prompt attention to this matter.

Sincerely,

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