IRS addresses nonprofit scandal with Q&A

The IRS released a press release addressing common questions asked about the scandal involving the tax exempt application by several nonprofit organizations.

As a CPA who helps nonprofit organizations apply for tax exempt status, I have followed this scandal with a lot of interest.

You can read the entire IRS press release here: https://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-501%28c%29-Organizations

Here are some highlights:

“Section 501(c)(3) organizations are required to get IRS approval. Others, including section 501(c)(4) organizations, are not required to get IRS approval, but often seek it.”

The nonprofits applying for 501(c)(4) status did not need to apply; tax exempt status can be “self declared” by 501(c)(4) organizations. These groups went above and beyond what was required of them and were subject to long delays and inappropriate questioning.

“This office receives approximately 70,000 applications for tax-exempt status of all kinds each year. This includes applications from section 501(c)(3) and section 501(c)(4) organizations. This office, which includes fewer than 200 people working directly on applications…”

70,000 applications for 200 workers is 350 applications per worker per year or about 1.4 applications per work day. I can review a tax exempt application in about 4 hours or 2 applications per work day. So although the workload is heavy, it is not impossible to manage. Yet IRS has a current wait time of about 13 months for processing tax exempt applications. See https://www.irs.gov/Charities-&-Non-Profits/Where-Is-My-Exemption-Application

“12. Did mistakes occur in working the centralized cases?

Yes. Applicants whose cases were centralized unfortunately experienced inappropriate delays and over-expansive information requests in some cases. This was caused by ineffective processes and not related to the selection criteria used for the centralization of a case.”

The IRS blames “ineffective processes” for the delays and over-expansive information requests. It is unclear what they mean by “ineffective processes.”

Let’s hope this scandal means the IRS tax exempt organization will have more efficient and effective processes in the future.

Carol Topp, CPA