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Scandal At The IRS: What Does It Mean For Nonprofits?

irs-lernerThat’s the question everyone in our universe is asking this morning.  With the IRS Exempt Organizations division in the crosshairs, what will all this mean to nonprofits going forward?  It’s hard to guess until we see how explosive this gets.

What we do know is outrageous.  EO Revenue Agents working in the Cincinnati, DC and other offices intentionally, and under orders, singled out Tea Party and conservative groups seeking 501(c)(4) status for intrusive (and abusive) inquiries.  Some of the questions asked are not only ridiculous and unnecessary, they are chilling.  One Tennessee applicant, Linchpins for Liberty, is a nonprofit that mentors high school kids and teaches them principles of limited government.  Even though they have no relation to the Tea Party, they were targeted solely on the basis of their political bent.  Their application was held up for months, then they eventually received a letter of 95 questions in 31 parts.  Below is a screen shot of some of the more egregious questions:

irs questions

Not one of these questions has any bearing on the qualifications for 501(c)(4) status…not one!  Additionally, to ask for a list of students…kids!…who are receiving the mentoring is beyond the pale.  It is Orwellian.  FYI…Linchpins for Liberty is not a Foundation Group client.  Their information is now public because they have spoken out to the media.  They are now represented by the American Center for Law and Justice, who is demanding the IRS approve this application, and 9 others, by Friday, May 17 or face a lawsuit.  Way to go ACLJ.

For the record, plenty of Foundation Group clients have gotten similar treatment.  And as I stated in a previous article, this should anger everyone no matter your political stripe.  The taxing agency of the federal government being used to single out groups based on nothing more than their political beliefs is simply disgusting and potentially criminal.

So what does this all mean in the long run?  It’s really hard to say.  Will new applicants for tax exemption see more pre-screening approvals?  Will the timeline for everyone slow down even more now that the Cincinnati office is in a panic?  Who’s going to get fired?

At a minimum, I expect the process to change significantly as a result of this.  The exact nature of that change is anyone’s guess until this plays out further.  One thing is for sure, this is going to be ugly.


Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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