Inspector General Reports on 2004 IRS Exams of Non-Profit Political Activities

The Treasury Department has posted online a May 12 audit report by the Treasury Inspector General for Tax Administration titled Statistical Profile of Alleged Political Intervention by Tax-Exempt Organizations in the 2004 Election Season. The audit, undertaken at the request of the Senate Finance Committee, examines the Internal Revenue Service's performance in its 2004 initiative to promote compliance with the prohibition against political campaign intervention by non-profits. The report finds:

For the 2004 Initiative, the IRS opened 110 examinations.... Examinations most often were initiated after referrals were received from sources external to the IRS and were almost evenly distributed between churches and charities. The examinations mainly concerned tax-exempt organizations that had allegedly been involved in a single instance of potentially prohibited political intervention and involved issues/campaigns at the national level slightly more than at the State and local level. In addition, examinations involved a wide array of issues, such as distribution of printed and electronic information, as well as verbal statements and direct political contributions....

As of November 2008, the IRS' inventory system showed that the IRS had substantiated prohibited political activity in 76 (71 percent) of the 107 examinations it had completed. While reviewing case information, we found that this number was overstated. Based on our review of case files, the IRS incorrectly coded 14 cases as involving violations of the political intervention prohibition when no violations occurred. While the data still shows that a majority of examinations resulted in the IRS determining that tax-exempt organizations had violated the prohibition, it is important that this information be accurate because it is reported to external stakeholders. We determined that the incorrect coding was due to confusion over how to classify case results on the inventory system.