WASHINGTON — The Internal Revenue Service long has resisted efforts by an internal watchdog to help groups seeking tax-exempt status, creating a culture that enabled agents to improperly target such organizations for additional scrutiny, the National Taxpayer Advocate reported Wednesday.
Nina E. Olson, who runs the independent office within the IRS, said in her annual report to Congress that culture continues today, despite the scandal that has rocked the tax agency for more than a month.
Olson recommended that Congress authorize her to make “apology payments” of up to $1,000 to groups in cases in which “the IRS has caused excessive expense or undue burden to the taxpayer, and the taxpayer has experienced a significant hardship.”
She said her office first approached the IRS about a backlog of applications for tax-exempt status in 2007. Olson has the authority to intervene in cases in which IRS actions are causing a “significant hardship” for taxpayers.
But the report said the agency’s Exempt Organizations division resisted Olson’s efforts, contending that she had no authority to intervene in such cases.
“The attitude that (Exempt Organizations) does not have to be responsive to (the taxpayer advocate) permeated the organization and persists to this day, with one EO employee recently complaining about being ‘so tired of you calling,'” the report said.
The IRS has been under siege since the agency revealed last month that agents had improperly targeted tea party and other conservative groups for additional, often burdensome scrutiny when they applied for tax-exempt status during the 2010 and 2012 elections.
This week, the IRS released documents showing that progressive and liberal groups may have been improperly singled out as well.
The taxpayer advocate does not have the authority to investigate the IRS, so the new report doesn’t shed any light on who ordered agents to target the groups.
The report does, however, provide more details about an IRS division that shunned outside scrutiny even as agents engaged in conduct that has been condemned by the president, members of Congress and the public.
The IRS’ acting commissioner, Danny Werfel, promised to work with Olson’s office “to improve education inside and outside the IRS about taxpayer rights.”
Werfel, who took over the agency last month, added, “We also agree on other areas, including the need to do a better job of reducing the backlog of (tax-exempt) applications.”
The IRS was screening the groups’ applications because agents were trying to determine their level of political activity. IRS regulations say tax-exempt social welfare organizations may engage in some political activity but the activity may not be their primary mission.
The additional scrutiny caused hundreds of applications for tax-exempt status to languish for more than a year, with some waiting more than three years for a decision.
The report said IRS agents are supposed to report taxpayer inquiries to the taxpayer advocate’s office if a case has been delayed more than 30 days beyond the normal processing time. Despite the directive, the Exempt Organizations division did not refer any cases to the taxpayer advocate, even though nearly 300 applications were delayed much longer than 30 days, the report said.
From 2010 to 2013, the taxpayer advocate’s office said it received 19 referrals about cases that may have involved groups that were targeted for additional scrutiny, the report said. Most of the referrals came from congressional offices.
The office didn’t recognize a pattern because of the volume of cases it handles. During the same period, the taxpayer advocate’s office received a total of 915,000 referrals, according to the report.