Explain to me again why targeting NPOs was needed because the Determination Unit was swamped by the overwhelming flood of (c)(4) applications

The huge increase in 501(c)(4) applications is the cited reason for targeting some applications for additional review.

Two problems with that explanation.

First, the increase of (c)(4) applications in 2011 and 2012 is a very small portion of Determination Unit caseload.

Second, the ideological targeting started well before the volume of applications increased.

Increase in (c)(4) applications was cause for targeted review

Appendix I (page 22) of the TIGTA report identifies objective I of the investigation as:

Assessed the actions taken by the EO function in response to the increase in applications for tax-exempt status from organizations potentially involved in political campaign intervention.

Public comments for the reason for the additional review are summarized by The Chronicle of Philanthropy, in an article by Doug Donovan, IRS Rationale for Tea Party Scandal is Debunked by Data.

Top IRS officials have been saying that a “significant increase” in applications from advocacy groups seeking tax-exempt status spurred its Cincinnati office in 2010 to filter those requests by using such politically loaded phrases as “Tea Party,” “patriots,” and “9/12.”

Both Steven Miller, the agency’s acting commissioner until he stepped down Wednesday, and Lois Lerner, director of the agency’s exempt-organization division, have said over the past week that IRS officials started the scrutiny after observing a surge in applications for status as 501(c)(4) “social welfare” groups. Both officials cited an increase from about 1,500 applications in 2010 and to nearly 3,500 in 2012. President Obama ask Mr. Miller to resign on Wednesday.

The Chronicle article quotes the EO Director in her comments from last week that ignited the controversy:

“Between 2010 and 2012, we started seeing a very big uptick in the number of 501(c)(4) applications we were receiving,” she said. “It more than doubled.”

On May 13, 2013, the now resigned (his word) or fired (President’s description) Acting Commissioner said this in a USA Today op-ed:

We sought to centralize work in this area in 2010 because our office of Exempt Organizations observed a sharp increase in the number of section 501(c)(3) and 501(c)(4) applications coming from groups potentially engaged in political campaign intervention. Between 2010 and 2012, the number of applications for 501(c)(4) status more than doubled, from 1,591 to 3,398.

Okay. So the reason for the targeted review was the massive increase in (c)(4) applications.

How big was that overwhelming surge?

So we are all agreed the TIGTA report, the Acting Commissioner, and the EO Director all say the huge increase in (c)(4) apps is the reason targeted reviews had to be developed. Right? They had to cope with that surge of paperwork.

Here’s the data from the TIGTA report on filings from 2009 through 2012. See page 3. I included the total and percentage amounts.

(c)(3) (c)(4) (c)(5) (c)(6) total c4 %
2009     65,179    1,751       543    1,828     69,301 2.5%
2010     59,486    1,735       290    1,637     63,148 2.7%
2011     58,712    2,265       409    1,836     63,222 3.6%
2012      66,543    3,357    1,081    2,338     73,319 4.6%
total    249,920    9,108    2,323    7,639   268,990 3.4%
% of total 92.9% 3.4% 0.9% 2.8% 100.0%


Please explain to me again why that massive flood of 3.4% of total applications was too much for the unit to handle. Please.

That horrendous increase from 1,751 apps in 2009 to 2,265 apps in 2011 is a staggering 514 net increase. That surge of 514 applications was rapidly swelling to an amount getting close to almost 1% of the annual workload from 2009. A veritable tidal wave of applications. A biblical flood of paperwork.

A decrease of 6,079 applications from 2009 to 2011 obviously was insufficient to offset that huge (c)(4) surge.

Oops. My analysis is all wrong. My bad.

After writing a rough draft of my sarcastic comments Wednesday morning, that evening I read the Chronicle article mentioned above – IRS Rationale for Tea Party Scandal is Debunked by Data.

The article pointed out the additional scrutiny started in 2010, before the increase in applications.

I went back to the TIGTA report and sure enough this is what I read again but hadn’t connected before:

The detail timeline in Appendix VII (page 31) says that around March 1, 2010 the Determinations Unit Group Manager asked tax law specialists to search for a specific name in applications. A redacted event has a date of February 25, 2010. Thus the targeting of organizations based on ideology started in either February or March of 2010.

(Tangent: you can add to the list of an expanding scandal that it is no longer first level specialists that went rogue. It was the Group Manager or higher.)

So the targeted review began in February or March of 2010, well before the decrease of 16 applications in FY 2010 would have been visible and long before the 530 increase in 2011 even started.

Please reread the public comments quoted at the start of this post which explain the increase in case load through 2012 is the reason for the focused attention in early 2010.

I guess the start date of early 2010 means that in the best Nixonian tradition the public comments that the 2012 case load caused this situation made by the EO Director and Acting Commissioner are now “inoperative.”

At least those statements weren’t under oath or given to a federal law enforcement official. That would have been a felony instead of merely deceptive.

As a marker for future discussion, the TIGTA report deserves detailed scrutiny.

P.S. If you sense I’m a bit irritated, you are correct. There is a significant risk this fiasco could have serious impact on voluntary compliance. I am often in the situation of encouraging my clients to comply with tax laws and regulations when there are minor compliance issues that arise. How do I motivate clients towards voluntary compliance if they start perceiving they could get either a free ride or extra hassle from the IRS based on the social positions they develop based on their understanding of the bible? I’ll have more to say on that point.

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