TREASURY
INSPECTOR GENERAL FOR TAX ADMINISTRATION
Improvements Have Been Made to Educate Tax-Exempt Organizations and Enforce the Prohibition Against Political Activities, but Further Improvements Are Possible
June 18, 2008
Reference Number: 2008-10-117
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
Redaction Legend:
1 = Tax Return/Return InformationPhone Number |
202-622-6500
Email Address
| inquiries@tigta.treas.gov
Web Site |
http://www.tigta.gov
June 18, 2008
MEMORANDUM FOR COMMISSIONER, TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Improvements Have Been Made to Educate Tax‑Exempt Organizations and Enforce the Prohibition Against Political Activities, but Further Improvements Are Possible (Audit # 200710036)
This report presents the results of our review of the Exempt
Organizations (EO) function’s process for reviewing alleged political campaign
intervention by tax‑exempt organizations.
The overall objective of this review was to assess the effectiveness of the Tax Exempt and Government Entities
(TE/GE) Division in addressing alleged political campaign intervention by
Internal Revenue Code Section 501(c)(3)[1] organizations and to determine whether
actions to date had detected potential repeated campaign intervention by
previously identified organizations. This audit was requested by the former
Internal Revenue Service (IRS) Commissioner and was conducted as part of the
Treasury Inspector General for Tax Administration Office of Audit Fiscal Year
2008 Annual Audit Plan related to the Major Management Challenge of tax
compliance initiatives.
Impact on the Taxpayer
The Political Activities Compliance Initiative (the
Initiative) was implemented to educate tax-exempt organizations about the types
of prohibited political activities and to notify organizations of the program
implemented by the TE/GE Division to enforce this prohibition. The EO function increased its efforts to
educate tax-exempt organizations about prohibited political activities and
enhanced several internal processes.
However, it could further improve its effectiveness by tracking the
reasons why timeliness goals are not always met and by ensuring that all
employees clearly understand what should be included in the Initiative. These
actions should increase the likelihood that tax‑exempt organizations will
stop the prohibited activities before the relevant election and that tax‑exempt
organization activities will be evaluated consistently and fairly.
Synopsis
The TE/GE Division effectively focused on prohibited political campaign intervention by emphasizing efforts to educate tax-exempt organizations about prohibited political activities, improving internal processes, and setting up a program to detect tax‑exempt organizations that are potentially involved in repeated campaign intervention. For example, the Division published a “Fact Sheet” in February 2006 with detailed examples of the types of activities the IRS investigated during the 2004 election cycle, along with related commentary to help tax‑exempt organizations better understand what activities constitute political intervention. The EO function also improved the 2006 Initiative by more clearly defining timeliness guidelines and procedures for evaluating and assigning referrals for examination.
While the EO function
created more detailed timeliness standards for evaluating referrals, the TE/GE Division did not always meet the
timeliness standards. As a result,
tax-exempt organizations might not be
notified prior to the relevant election, thereby providing less assurance that
prohibited political activities will cease prior to the relevant election. The EO function tracks the amount of time required
to process a referral that warrants examination for potentially prohibited
activity from the date it is received to the date first contact is made with
the tax‑exempt organization advising it that it might be involved in a
prohibited political activity. However,
the amount of time taken to perform each individual activity was not always
tracked, which limits EO function management’s ability to pinpoint the
source of processing delays.
In addition, employees within the EO function did not always understand why certain referrals were not included in the Initiative. Employees responsible for initially identifying and researching referrals with alleged political intervention identified 12 referrals (in addition to the 100 referrals selected for the 2006 Initiative) that were not included in the Initiative, despite having issues similar to referrals that were included in the Initiative. However, upon reviewing the information, the Referral Committee responsible for fairly and impartially considering whether referrals have examination potential decided that the referrals did not meet the criteria for the Initiative. We believe that it is appropriate for an experienced, independent Referral Committee to reject referrals for the Initiative under certain circumstances, and we understand that criteria cannot be written to address every situation. However, we also believe that due to the sensitivity of the referrals involving potentially prohibited political activities, all employees must clearly understand what should be included in the Initiative.
Recommendations
We recommended that the Director, EO, ensure that all referrals of potentially prohibited political intervention are reviewed in a timely manner. To ensure the success of the Initiative, all significant activities should be tracked to ensure that adequate staffing is available to meet the EO function’s established timeliness goals. In addition, we recommended that the Director, EO, seek to improve the consistent understanding of prohibited political intervention criteria within the EO function.
Response
The Commissioner, TE/GE Division, agreed with our findings with respect to these issues and has completed several corrective actions to address the recommendations in our report. These actions include 1) continuing to monitor established timeliness goals in the 2008 Initiative, 2) modifying the timeliness goals to accommodate a new electronic case processing system, 3) continuing the policy requiring the Referral Committee to review political activity referrals on an as-required basis, 4) starting the 2008 Initiative earlier than the 2006 Initiative to reduce backlog, 5) reminding all personnel of the importance of the expedited time periods, and 6) training 30 additional agents on the Initiative to increase the TE/GE Division’s ability to handle caseload in a timely manner. In addition, Division management ensured that all employees involved in the 2008 Initiative received the same training on political campaign intervention by Internal Revenue Code Section 501(c)(3) organizations and instituted a process for the Referral Committee to provide feedback to the EO Classification function staff concerning why a referral was not selected for the Initiative.
The Commissioner, TE/GE Division, also provided perspective on how the Division processes referrals of potentially prohibited political activities by tax-exempt organizations. Management’s complete response to the draft report is included as Appendix IV.
Office of Audit Comment
The Commissioner, TE/GE Division, provided alternate corrective actions for our recommendation to ensure
that all referrals of potentially prohibited political intervention are
reviewed in a timely manner. Actions
such as training additional personnel to handle the caseload and starting the
Initiative earlier in the year could help the IRS to better meet its timeliness
goals. We agree with the alternate corrective
actions and suggest that Division management continue to monitor timeliness
goals and take additional actions if referrals are not processed in a timely
manner.
Copies of this report are also being sent to
the IRS managers affected by the report recommendations. Please contact me at (202) 622-6510 if you
have questions or Nancy A. Nakamura, Assistant Inspector General for
Audit (Headquarters Operations and Exempt Organizations Programs), at (202)
622-8500.
Educational
Activities Were Enhanced and Procedures Were Improved
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
IV – Management’s Response to the Draft Report
Abbreviations
|
EO |
Exempt Organizations |
|
IRS |
Internal Revenue Service |
|
TE/GE |
Tax Exempt and Government Entities |
Organizations that are exempt from Federal income taxes under Internal Revenue Code Section 501(c)(3)[2] are prohibited from directly or indirectly participating or intervening in any political campaign on behalf of, or in opposition to, any candidate for public office. The prohibition applies to campaigns at the Federal, State, and local levels. Charities, educational institutions, and religious organizations, including churches, are covered by this prohibition.
As a result, these organizations are prohibited from endorsing candidates, making campaign donations, engaging in fundraising, distributing statements, or becoming involved in any other activities that may be beneficial or detrimental to any particular candidate. For example, allowing a candidate to use an organization’s assets or facilities would violate the prohibition if other candidates are not given the same opportunity to use the organization’s assets or facilities. Activities that encourage people to vote for or against a particular candidate on the basis of partisan criteria are also prohibited.
Referrals concerning potentially prohibited activities are received in the Exempt Organizations (EO) Classification function, where employees research the issue presented in each referral by gathering supporting evidence. This evidence is then provided to an independent, experienced group of EO function employees, known as the Referral Committee.[3] The Committee considers the referral and supporting evidence and decides whether the referral warrants an examination. Referrals that the Committee determines warrant examination are forwarded to an EO Examination function group that notifies the tax-exempt organization that it will be investigated for potentially prohibited political activity.
The prohibition against political activities for charities and churches has existed since the 1954 revision of the Internal Revenue Code. However, in the 2004 election cycle, the Internal Revenue Service (IRS) recognized that referrals of potential political intervention by charities and churches were increasing. In response, the IRS initiated a Political Activities Compliance Initiative (the Initiative) in June 2004. The Initiative expanded on the IRS’ prior educational efforts to remind tax-exempt organizations about the prohibition against political activities and the consequences of violating the prohibition. The IRS also enhanced its enforcement program to move quickly on specific, credible referrals of prohibited activities by expediting the processing of referrals to more quickly notify tax-exempt organizations when the IRS was reviewing potentially prohibited political activities. The enforcement program will also determine:
· Whether the organization participated in prohibited political activities.
· The remedies for organizations that are determined to have participated in prohibited political activities. Remedies could include revocation of tax-exempt status.
In November 2004, we commenced a review of the Initiative at the requests of the IRS Commissioner and the Commissioner, Tax Exempt and Government Entities (TE/GE) Division. The audit was limited to an assessment of the process for reviewing referrals and did not assess the results of examinations or determine whether the activities by the tax-exempt organizations involved potentially prohibited political activity. We reported in February 2005 that the TE/GE Division handled referrals of potential political campaign intervention consistently, but the referrals were not always processed in a timely manner.[4]
After the completion of our previous audit, the EO Examination function continued to work the examinations of potentially prohibited political activity as part of the 2004 Initiative. As shown in Figure 1, IRS results from the 2004 Initiative substantiated that tax-exempt organizations were engaging in prohibited political activity.
Figure 1: Results of 2004 Initiative
|
IRS
Examination Results |
Action
Taken by the IRS |
Number of Cases |
Percentage of Cases |
|
Prohibited Political Activities
Identified |
Written Advisory Sent to Tax‑Exempt
Organization |
71 |
65% |
|
Tax-Exempt Status Revoked |
5 |
5% |
|
|
No Prohibited Political Activities
Identified |
Closing Letter Issued to Tax‑Exempt
Organization |
29 |
26% |
|
Pending |
Pending |
5 |
5% |
|
Total Examination Cases |
110 |
100% |
|
Source: IRS political activity campaign database as
of January 25, 2008.[5]
Because a high number of the organizations examined in the 2004 Initiative were found to have engaged in prohibited political activity, the TE/GE Division enhanced the process to expedite the processing of potentially prohibited political activity referrals for the 2006 election cycle in an attempt to stop prohibited activities before the relevant election. In addition, Division management anticipates a vigorous 2008 election cycle and has pledged in media reports to follow up on all referrals judged worthy of pursuit.
This review was performed at the National Headquarters of
the TE/GE Division in
We conducted this performance audit in accordance with
generally accepted government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on
our audit objective. Detailed information
on our audit objective, scope, and methodology is presented in
The TE/GE Division effectively focused on
prohibited political campaign intervention by emphasizing efforts to educate
tax-exempt organizations about prohibited political activities, improving
internal processes, and setting up a program to detect tax‑exempt
organizations that are potentially involved in repeated campaign
intervention. While educational
efforts and streamlined processes enabled the IRS to make substantial improvements
to the Initiative, the IRS could make further enhancements by having data
readily available to pinpoint the reasons why timeliness goals are not always
met and by ensuring that all employees clearly understand what should be
included in the Initiative.
Educational Activities Were Enhanced and Procedures Were Improved
The TE/GE Division
has enhanced its efforts to educate tax-exempt organizations (specifically
charities and churches) about prohibited political activities, including the
enforcement consequences of engaging in these types of activities. The Division effectively accomplished this since
our last report in February 2005 by completing the following activities:[6]
·
Publishing
the results of the 2004 Initiative in February 2006. Because the 2004 election cycle involved the
EO function’s first formal Initiative to address prohibited political activity,
this was the first time the public had been provided with a detailed report
including specific instances of alleged and confirmed political intervention,
lessons learned from performing the examinations, the methodology for selecting
the cases for the Initiative, and planned actions for the Initiative to move
forward. The results revealed that
approximately 70 percent of tax‑exempt organizations examined in the
2004 Initiative engaged in some level of prohibited political activity.
·
Publishing
a “Fact Sheet” in February 2006. While
the IRS has issued Fact Sheets in the past concerning prohibited political
activities, this Fact Sheet included detailed examples of the types of
activities the IRS investigated during the 2004 election cycle, along with
related commentary to help tax-exempt organizations better understand what
activities constitute political intervention.
The document also reflected the IRS’ interpretation of tax laws
enacted by Congress, as well as Department of the Treasury regulations and
court decisions.
Educating
tax-exempt organizations about political activity prohibitions is a priority
for the EO function.
·
Publishing
another Fact Sheet in February 2008 to provide an explanation of the IRS
referral process for complaints alleging abuse of an organization’s tax‑exempt
status, including complaints alleging prohibited political activities. When reviewing referrals, the IRS follows
special procedures to assure the public of its objectivity in the treatment of
tax‑exempt organizations.
·
Publishing
a new Revenue Ruling in June 2007. While
the IRS has previously issued revenue rulings concerning prohibited political
activities, this Ruling enhanced education efforts by providing
21 examples that illustrate the application of the facts and circumstances
to be considered when determining whether a tax-exempt organization
participated or intervened in any political campaign.
·
Increasing
the frequency of press releases, newsletters, and educational efforts covering
prohibited political activities by tax-exempt organizations to reach out to
tax-exempt organizations that might be unaware of the prohibition. Included in this effort were
nine newsletters distributed since the issuance of our last report on the
2004 Initiative, several workshops focusing on small to mid-size tax-exempt
organizations, and presentations at six IRS tax forums in both Calendar
Years 2006 and 2007.
·
Sponsoring
a video program for the first time on the IRS web site that included IRS subject-matter
experts explaining the political campaign intervention rules that apply to tax-exempt
organizations. In addition, the IRS
initiated a telephone forum to answer questions regarding the prohibition against
political campaign activity by tax-exempt organizations.
· Updating a webpage on the IRS web site specific to political campaign intervention. With the increased focus on educational activities, this webpage provides one place where taxpayers and tax-exempt organizations can obtain press releases, revenue rulings, tax law, Initiative reports for 2004 and 2006, and other educational postings.
·
Anticipating
the potential for an increase in prohibited political activities by starting
the Initiative earlier in the election year.
For example, the EO function started the 2006 Initiative in March,
which was 3 months earlier than the 2004 Initiative. In anticipation of the potential for an
increase in activities as a result of the presidential election, the 2008
Initiative was moved up even further to January 1, 2008.
The EO function also
improved the 2006 Initiative by more clearly defining timeliness guidelines and procedures for evaluating and assigning referrals for
examination. Employees assigned to
evaluate referrals follow specific timeliness goals that were created to enable
the TE/GE Division to quickly initiate contact with the tax-exempt organization
advising it that it might be involved in prohibited political activity. Other process improvements included:
·
Conducting training in December 2005 on political
activity issues for most employees involved in the processing of referrals to
educate employees about specific issues surrounding the prohibition against political
activities.
·
Prioritizing referrals based on the complexity of
the issue, as well as the type of tax-exempt organization being investigated,
to provide better assurance that referrals are routed to employees best
qualified to handle the issue.
·
Increasing the priority of working political
activity referrals in relation to other work performed within the EO Examination
function.
·
Improving information used to manage the
Initiative. After the 2004 election
cycle, the EO function gathered information on the results of the
Initiative. During the 2006 Initiative,
an analyst was assigned to
continually track the status of the referrals, compile statistical data on the
results of the referrals examined in the Initiative, and report the results on
the types of referrals and violations identified.
· Establishing a process to identify potential repeat offenders from prior election cycles. ****1****
·
Initiating a sub-project to identify and investigate
prohibited contributions by tax-exempt organizations to candidates for public
office.
Improving Selected Processes Could Assist in Meeting Timeliness Goals and Improve the Understanding of Referral Criteria
The EO function increased its
efforts to educate tax-exempt organizations about prohibited political
activities and improved some internal
processes. However, additional
improvements can be made to ensure that tax-exempt organizations receive timely
notification that they might be involved in prohibited political activity. Also, the EO function needs to clarify why
certain referrals are not included in the Initiative. These actions should increase the likelihood that
tax‑exempt organizations will stop the prohibited activities before the relevant
election and that tax‑exempt organization activities will be evaluated
consistently and fairly.
Improving data collected
on timeliness could help the EO function meet its timeliness goals
The EO function created
more detailed timeliness standards for evaluating referrals (e.g., it set
specific timeliness goals for EO Classification function employees to process
referrals and for EO Examination function employees to establish contact
with tax-exempt organizations). However, it did not always meet the timeliness
standards. As a result, tax-exempt
organizations might not be notified
prior to the relevant election, thereby providing less assurance that
prohibited political activities will cease prior to the relevant election.
Referrals
were not always reviewed in a timely manner for examination potential.
Referrals were not always researched in a timely manner and evaluated for
examination potential by employees in the EO Classification function. In addition, referrals were not directed in a
timely manner to employees responsible for contacting the organization and
conducting the examination in the EO Examination function groups. Overall, 63 of the 100 referrals selected for
examination in the 2006 Initiative were not processed in a timely manner using
the established expedited process. As
noted in Figure 2, about 20 percent of the cases missed the IRS’ expedited
timeliness goals by more than 30 calendar days.
Figure 2: Referral Processing Time for the 2006
Initiative
|
|
|
Referrals
That Missed the Expedited Timeliness Goals |
Timeliness
Goals Missed by Fewer Than 16 Calendar Days |
Timeliness
Goals Missed by Between 16 and 30 Calendar Days |
Timeliness
Goals Missed by More Than 30 Calendar Days |
|
Referrals Involving
Churches |
43 |
30 |
7 |
8 |
15 |
|
Referrals Involving
Charities |
57 |
33 |
19 |
8 |
6 |
|
Total Initiative
Referrals |
100 |
63 |
26 |
16 |
21 |
Source: Analysis of the EO function’s timeliness reports for the 2006 Initiative.[8]
The EO function tracks the amount of time required to process a referral
that warrants examination for potentially prohibited activity from the date it
is received in the EO Classification function to the date first contact is
made with the tax-exempt organization advising it that it might be involved in
a prohibited political activity. The
amount of time taken by the various segments of the EO function, such as Classification,
EO Counsel (for church referrals), and the Examination groups, is also
separately tracked.
However, the amount of time taken to perform each individual activity
within the EO Classification function was not always tracked, which limits
EO function management’s ability to pinpoint the source of processing
delays. In addition, the
EO function has not set specific timeliness goals for each activity in the
Classification function. Individually
tracking the amount of time it takes to 1) research and build a case for the
Referral Committee to review, 2) determine if an examination is warranted, and 3)
assign a referral to an EO Examination function group would enable EO
function management to better identify and remedy bottlenecks in the processing
of referrals.
After the 2006 election cycle, the EO function analyzed the referrals to
assess delays by reviewing referrals involving churches included in the 2006
Initiative and concluded that the referrals generally did not meet processing
time standards due to backlogs in the EO Classification and Examination
functions. The primary reasons for the
delays included 1) having insufficient staff to work referrals in the
Classification function due to scheduled vacation time and 2) the
EO function not always applying the time standards for expediting
Initiative referrals because some Examination groups had become saturated with
cases identified from the referrals.
The Director, EO, advised us that the decision to not track individual
activities was purposeful so that the EO Classification function would have
greater flexibility for prioritizing the work.
However, having additional data to determine where bottlenecks might be
occurring would provide the EO function with information needed to adapt to
increasing receipts by ensuring that appropriate staffing is available
to meet established timeliness goals.
Improving communication among different employees
involved in processing referrals would increase understanding of referral
criteria
Criteria
used to evaluate referrals were interpreted differently among employees within
the EO function.
While the EO function enhanced its efforts to educate tax-exempt
organizations about prohibited political activities by providing examples of prohibited
activities and through other educational activities, employees within the EO
function did not always
understand why certain referrals were not included in the Initiative. Employees responsible for initially
identifying and researching referrals of alleged political intervention
identified 12 referrals (in addition to the 100 referrals selected for the
2006 Initiative) that were not included in the Initiative, despite having issues similar to referrals that were
included in the Initiative. Upon
reviewing the information, the Referral Committee decided the referrals did not
meet the criteria for the Initiative.
However, the Referral Committee determined that the referrals needed to
be examined and used its discretion to forward the referrals for examination
outside of the Initiative. Examinations
conducted outside the Initiative are not subject to expedited time standards
and are not given priority over
non-Initiative cases. In addition,
examiners may use their discretion to close non-Initiative cases without
conducting the examination due to other priority work.
We reviewed copies of the 12 referral files and
concluded that there were indications of prohibited political activity,[9] but we did not
make a determination as to whether the referrals should have been included in
the Initiative. We
believe that it is appropriate for an experienced, independent Referral
Committee to reject referrals for inclusion in the Initiative under certain
circumstances, and we understand that criteria cannot be written to address
every situation. However, we also
believe that sound management practices dictate that due to the
sensitivity of the referrals involving potentially prohibited political
activities, all employees must be aware of and clearly understand criteria for
determining what referrals should be included in the Initiative.
One reason this might have occurred is that not all
employees received the specialized training for the 2006 Initiative. In addition, EO function employees who provide
cases to the Referral Committee might not receive adequate feedback in the case
file when a case is rejected for the Initiative. Providing the same training to all employees
involved in the Initiative and ensuring adequate feedback from the Committee as
to why a referral is not selected would clarify what constitutes prohibited
political activity and provide better assurance that all organizations
potentially involved in prohibited political activities are being treated
consistently and fairly.
Recommendations
The Director, EO, should:
Recommendation 1: Ensure that all referrals of potentially prohibited political activities are evaluated in a timely manner by:
Management’s Response: TE/GE Division management agreed with the finding, and they have completed several corrective actions to address this recommendation. The Division analyzed the timeliness data in the 2006 Initiative to determine whether the timeliness goals should be modified but believed that any further sub-division of these goals, particularly in the Classification stage, would impede its flexibility in meeting these goals. Division management plans to maintain the same goals as those employed in the 2006 Initiative, with one modification as noted in the first bullet below. The Division will, however, continue to monitor its timeliness goals in the 2008 Initiative. Management has taken the following actions to improve the Division’s ability to meet the timeliness goals:
· Modified the timeliness goals by adding 2 days for a group manager to assign a case to an agent, to accommodate the new electronic case processing system.
· Required the Referral Committee to continue meeting on an as‑required basis to review referrals concerning political campaign intervention during the period between the 2006 and 2008 cycles.
· Started the 2008 Initiative earlier than the 2006 Initiative to reduce backlog.
· Reminded all personnel about the importance of the expedited time periods via email and in monthly conference calls.
· Trained an additional 30 agents on the Initiative to increase the Division’s ability to handle its caseload in a timely fashion.
Office
of Audit Comment: The Commissioner, TE/GE Division, provided alternate corrective actions for our
recommendation to ensure that all referrals of potentially prohibited political
intervention are reviewed in a timely manner.
Actions such as training additional personnel to handle the caseload and
starting the Initiative earlier in the year could help the IRS to better meet
its timeliness goals. We agree with the
alternate corrective actions and suggest that Division management continue to
monitor timeliness goals and take additional actions if referrals are not
processed in a timely manner.
Recommendation 2: Seek
to improve the consistent understanding of prohibited political intervention
criteria within the EO function by ensuring that:
Management’s Response: TE/GE Division management agreed with this recommendation and has implemented corrective actions. All employees involved in the 2008 Initiative, including the members of the Referral Committee, received the same training on political campaign intervention by Internal Revenue Code Section 501(c)(3) organizations. In addition, Division management instituted a process for the Referral Committee to provide feedback to the EO Classification function staff concerning why a referral was not selected for the Initiative.
Appendix I
Detailed Objective, Scope, and Methodology
The overall
objective of this review was to assess the effectiveness of the TE/GE Division in
addressing alleged political campaign intervention by Internal Revenue Code Section
501(c)(3)[10] organizations and to determine whether
actions to date had detected potential repeated campaign intervention by
previously identified organizations. To
accomplish this objective, we:
I.
Reviewed
actions taken by TE/GE Division management since our
February 2005 report[11] to educate Section 501(c)(3)
organizations about their responsibilities related to political activities.
A. Interviewed EO function management to
determine whether any education and outreach efforts were taken related to
political activity.
B.
Obtained any press releases, letters, or
other correspondence/documentation issued by the TE/GE Division to assess the
adequacy of management’s corrective actions to recommendations made in our
prior report.
C.
Interviewed EO function management to
determine current plans for the 2008 election year and whether any changes
in the process will be made based on the results of the Political Activities
Compliance Initiative (the Initiative).
II.
Evaluated
the process established by TE/GE Division management during the
2006 election year for reviewing referrals of political campaign
intervention, addressing any noncompliance identified in the area, and
capturing accurate and complete results for the Initiative.
A. Interviewed Division management to determine
the process established to review referrals of political campaign intervention
during the 2006 election year.
B.
Obtained any procedures or documentation
related to the revamping of the existing process for receiving and reviewing
referrals of political campaign intervention to assess the adequacy of
management’s corrective actions to recommendations made in our prior report.
C.
Evaluated processes for capturing Initiative
results and assessed whether all referrals were included in the Initiative’s
results.
D. Reviewed cases identified as potentially not
being captured in the Initiative and assessed whether they contained indications of
prohibited political activity.
III.
Assessed
actions taken to address the untimeliness of processing referrals reported in
the 2006 Initiative results.
IV.
Determined
whether EO function actions to date have detected repeat potential political
campaign intervention by Section 501(c)(3) organizations.
A. Interviewed EO function management to
determine actions taken since the issuance of our prior report to identify
repeat allegations of political intervention by Section 501(c)(3)
organizations.
B.
Obtained any procedures or documentation
related to identifying and addressing repeat allegations of political campaign
intervention by Section 501(c)(3) organizations.
C. Reviewed the results of any actions taken since the issuance of our prior report to determine whether any repeat allegations of political campaign intervention have been identified and addressed.
Data validation methodology
We obtained an extract of the EO function’s referral database. Validations performed included ensuring that only appropriate data were included in each field and that the time period for the data met our requirements. We determined that the data were sufficiently reliable for our use.
Internal controls methodology
Internal controls
relate to management’s plans, methods, and procedures used to meet their mission,
goals, and objectives. Internal controls
include the processes and procedures for planning, organizing, directing, and
controlling program operations. They
include the systems for measuring, reporting, and monitoring program
performance. We determined that the
following internal controls were relevant to our objective: the EO function’s policies, procedures, and
practices for planning, managing, and monitoring the Initiative. We
evaluated these controls by interviewing management, reviewing applicable
information, and analyzing referrals with potential political activity.
Appendix II
Major Contributors to This Report
Nancy
A. Nakamura, Assistant Inspector General for Audit (Headquarters Operations and
Exempt Organizations Programs)
Troy
D. Paterson, Director
James
V. Westcott, Audit Manager
Theresa
M. Berube, Lead Auditor
Marjorie
A. Stephenson, Senior Auditor
Donald
J. Martineau, Auditor
Appendix III
Commissioner C
Office
of the Commissioner – Attn: Chief of
Staff C
Deputy Commissioner for Services and Enforcement SE
Deputy Commissioner, Tax Exempt and Government Entities Division SE:T
Director, Exempt Organizations, Tax Exempt and Government Entities Division SE:T:EO
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis RAS:O
Office of Internal Control OS:CFO:CPIC:IC
Audit Liaison: Director, Communications and Liaison, Tax Exempt and Government Entities Division SE:T:CL
Appendix IV
Management’s Response to the Draft Report
The response was removed due
to its size. To see the response, please
go to the Adobe PDF version of the report on the TIGTA Public Web Page.
[1] Internal Revenue Code Section 501(c)(3) (2006).
[2] Internal Revenue Code Section 501(c)(3) (2006).
[3] The Referral Committee is comprised of three members who are experienced EO function technical employees (e.g., senior examiners, function specialists, group managers, or area managers). The Committee’s responsibility is to fairly and impartially consider whether information items referred have examination potential.
[4] Review of the Exempt Organizations Function Process for Reviewing Alleged Political Campaign Intervention by Tax Exempt Organizations (Reference Number 2005-10-035, dated February 2005).
[5] We did not verify the information provided by the EO function. Percentages might not add up to 100 percent due to rounding.
[6] Review of the Exempt
Organizations Function Process for Reviewing Alleged Political Campaign
Intervention by Tax Exempt Organizations (Reference
Number 2005-10-035, dated February 2005).
****1****
[8] We did not verify the accuracy of this information.
[9] We determined that there were indications of potentially prohibited political activities by comparing the referrals to the 2006 Fact Sheet, applicable revenue rulings, EO function Initiative training documents, and EO function educational materials.
[10] Internal Revenue Code Section 501(c)(3) (2006).
[11] Review of the Exempt Organizations Function Process for Reviewing Alleged Political Campaign Intervention by Tax Exempt Organizations (Reference Number 2005-10-035, dated February 2005).