IRS Should Avoid Bias Risk in Auditing Nonprofits, GAO Finds

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GOVERNMENT SHUTDOWN

The Internal Revenue Service (IRS) building stands in Washington, D.C., U.S., on Wednesday, April 6, 2011. The IRS would have to suspend tax audits, the Small Business Administration's processing of loan applications would be halted and National Parks would close if the federal government is forced into a partial shutdown because of the budget impasse in Congress.

Photographer: Andrew Harrer/Bloomberg

The IRS needs stronger ways to prevent nonprofit groups from facing audits because of employees’ biases, the Government Accountability Office found in a report being issued Thursday.

The Internal Revenue Service concentrates too much authority in individuals who receive public requests to investigate such groups and doesn’t always follow its own procedures, according to the report. Those include rules requiring rotating membership on committees that review some audits.

The agency’s handling of nonprofit groups has been getting attention -- and criticism -- in Congress since May 2013, when the IRS said it had improperly delayed and scrutinized some Tea Party groups’ applications for tax-exempt status. Those application reviews weren’t audits, which occur after a group already has been declared tax-exempt.

The nonpartisan GAO didn’t look for actual instances of bias in audits, and it didn’t find any. The report calls for more consistent procedures and training.

“Without consistent monitoring, there is the possibility returns could be selected for unfair reasons,” according to the report, which will be the subject of a House Ways and Means Committee hearing Thursday.

IRS Agrees

In its response to the report, the IRS said it generally agrees with its findings and that it would begin rotating employees through the review committees and not having them serve on a voluntary basis.

The agency “is committed to further strengthen our internal controls to ensure that we continue to select organizations for examination in a fair and consistent manner,” wrote John Dalrymple, the IRS deputy commissioner for services and enforcement.

Republicans have been probing the IRS since the uproar over the application review, cutting its budget and blasting its inability to locate some e-mails from Lois Lerner, the former director of exempt organizations who was suspended and then retired in 2013.

“This report exposes a new and more egregious frontier of potential targeting in the agency’s audit selection process,” Representative Peter Roskam, the Illinois Republican chairing Thursday’s hearing, said in an e-mailed statement. An audit “can harm or even kill a non-profit organization. That’s why it’s critical that an audit is never undertaken because of the personal bias of a few powerful IRS employees,” he said.

‘No Conspiracy’

After declaring his outrage in 2013, President Barack Obama said this week that what happened at the IRS was the result of a vague law passed by Congress.

“The truth of the matter is that there was not some big conspiracy there,” Obama said during an interview with Jon Stewart on The Daily Show. The “real scandal,” he said, is an underfunded IRS that “cannot go after these folks who are deliberately avoiding tax payments.”

IRS employees were “trying to sort out conflicting demands,” and did so “poorly and stupidly,” Obama said.

The Senate Finance Committee is preparing to release a bipartisan report on the IRS and nonprofit groups before Congress leaves for its August recess. That panel’s investigation started in 2013.

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