TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION 

Status of Actions Taken to Improve the 

Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

March 27, 2015 

Reference Number: 2015-10-025 

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 Information 

Phone Number / 202-622-6500 

E-mail Address / TIGTACommunications@tigta.treas.gov

Website / http://www.treasury.gov/tigta
HIGHLIGHTS

STATUS OF ACTIONS TAKEN TO conducted interviews with a random sample of 

IMPROVE THE PROCESSING OF employees, who confirmed that BOLOs or 

TAX-EXEMPT APPLICATIONS similar listings were no longer being used. 

INVOLVING POLITICAL CAMPAIGN Second, the Exempt Organizations function 

INTERVENTION completed processing for 149 of the 

160 applications for tax-exempt status that, as of 

Highlights December 2012, had been open for lengthy 

periods. To expedite processing of 

I.R.C. § 501(c)(4) social welfare applications, the 

Final Report issued on March 27, 2015 IRS developed an optional expedited 

self-certification process. This expedited 

Highlights of Reference Number: 2015-10-025 process is not available to other types of 

to the Internal Revenue Service Commissioner organizations, e.g., labor organizations and 

for the Tax Exempt and Government Entities business leagues, with similar political campaign 

Division. intervention limitations. 

IMPACT ON TAXPAYERS Third, the IRS has developed preapproved 

questions and has instituted a quality review In a prior audit, TIGTA found that ineffective process to provide better assurance that management resulted in 1) inappropriate criteria unnecessary information requests are not sent being used to identify for review organizations to applicants. applying for tax-exempt status based on names 

and policy positions instead of indications of The Department of the Treasury is revising draft 

political campaign intervention, 2) substantially guidance to address how to measure the 

delayed processing of certain applications, and “primary activity” of social welfare organizations. 

3) unnecessary information requests being Until this guidance is finalized, the IRS does not 

issued. Recommendations from the prior audit have a clearly defined test for determining 

were made to help ensure that applications for whether an organization’s request for exemption 

tax-exempt status are processed in a fair, as a social welfare organization should be 

impartial, and timely manner. approved. As a result, for those applicants not 

choosing the optional expedited process, the 

WHY TIGTA DID THE AUDIT IRS continues to use a subjective facts and 

circumstances process. The overall objective of this audit was to 

assess the IRS’s actions in response to WHAT TIGTA RECOMMENDED 

TIGTA’s recommendations to improve the 

identification and processing of applications for TIGTA recommended that the IRS take action to 

tax-exempt status involving political campaign improve the timing and execution of future 

intervention. training. In addition, if the optional expedited 

self-certification process for I.R.C. § 501(c)(4) 

WHAT TIGTA FOUND organizations becomes a permanent process, 

the IRS should consider providing this option to The IRS has taken significant actions to additional organizations with similar political eliminate the selection of potential political cases campaign intervention limitations. based on names and policy positions, expedite 

processing of Internal Revenue Code (I.R.C.) In their response to our report, IRS management 

Section (§) 501(c)(4) social welfare organization agreed with both recommendations. The IRS 

applications, and eliminate unnecessary plans to improve the timing and execution of 

information requests. future training and consider extending the 

optional expedited process to other types of First, the IRS eliminated the use of Be On the organizations, if it becomes a permanent Look Out (BOLO) listings, which TIGTA process. determined had contained inappropriate criteria 

regarding political advocacy cases. TIGTA 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220

TREASURY INSPECTOR GENERAL 

FOR TAX ADMINISTRATION 

March 27, 2015 

MEMORANDUM FOR COMMISSIONER, TAX EXEMPT AND GOVERNMENT ENTITIES 

DIVISION 

FROM: Michael E. McKenney 

Deputy Inspector General for Audit 

SUBJECT: Final Audit Report – Status of Actions Taken to Improve the 

Processing of Tax-Exempt Applications Involving Political Campaign 

Intervention (Audit # 201410009) 

This report presents the results of our review to assess the Internal Revenue Service’s (IRS) 

actions in response to the Treasury Inspector General for Tax Administration’s (TIGTA) 

recommendations1

 to improve the identification and processing of applications for tax-exempt 

status involving political campaign intervention. This review is included in our Fiscal Year 2015 

Annual Audit Plan and addresses the major management challenge of Tax Compliance 

Initiatives. 

Management’s complete response to the draft report is included as Appendix VI. 

Copies of this report are also being sent to the IRS managers affected by the report 

recommendations. If you have any questions, please contact me or Gregory D. Kutz, Assistant 

Inspector General for Audit (Management Services and Exempt Organizations). 

 

1

 TIGTA, Ref. No. 2013-10-053, Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review 

(May 2013). 
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

Table of Contents 

Background .......................................................................................................... Page 1 

Results of Review ............................................................................................... Page 2 

Significant Actions Have Been Taken to Address 

Prior Audit Recommendations ...................................................................... Page 2 

Recommendation 1: ........................................................ Page 11 

Recommendation 2: ........................................................ Page 16 

Appendices 

Appendix I – Detailed Objective, Scope, and Methodology ........................ Page 20 

Appendix II – Major Contributors to This Report ........................................ Page 24 

Appendix III – Report Distribution List ....................................................... Page 25 

Appendix IV – Letter 5228 ........................................................................... Page 26 

Appendix V – Glossary of Terms ................................................................. Page 30 

Appendix VI – Management’s Response to the Draft Report ...................... Page 32 
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

Abbreviations 

BOLO Be On the Look Out 

EO Exempt Organizations 

I.R.C. Internal Revenue Code 

IRS Internal Revenue Service 

TIGTA Treasury Inspector General for Tax Administration 
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

Background 

In a May 2013 audit report,1 the Treasury Inspector General for Tax Administration (TIGTA) 

determined that the Internal Revenue Service (IRS) used inappropriate criteria that identified for 

review organizations applying for tax-exempt status based upon their names or policy positions 

instead of indications of potential political campaign intervention.2 These applications (hereafter 

referred to as potential political cases)3 were forwarded to a team of specialists4 for review. We 

reported that ineffective management: 1) allowed inappropriate criteria to be developed and stay 

in place for more than 18 months, 2) resulted in substantial delays in processing certain 

applications, and 3) allowed unnecessary information requests to be issued. As a result, TIGTA 

made nine recommendations to provide reasonable assurance that applications are processed in a 

fair and impartial manner in the future without unreasonable delay. 

The results of this follow-up report are based on audit work performed at the Exempt 

Organizations (EO) function offices in Washington, D.C., and Cincinnati, Ohio, during the 

period November 2013 through November 2014. During the time frame leading up to this audit 

and during this audit, the IRS was making other changes to the tax-exempt application process 

that went beyond the audit process covered in our prior audit. This audit focused only on actions 

taken that were relevant to our prior nine recommendations. 

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 Appendix I. Major contributors to the report 

are listed in Appendix II. 

 

1

 TIGTA, Ref. No. 2013-10-053, Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review 

(May 2013). 

2

 For the definition of “political campaign intervention” and other terms, see Appendix V. 

3

 Until July 2011, the Exempt Organizations Rulings and Agreements office referred to these cases as Tea Party 

cases. Afterwards, the Exempt Organizations function referred to these cases as advocacy cases. 4

 Initially, the team consisted of one specialist, but it was expanded to several specialists in December 2011. 

The Exempt Organizations function referred to this team as the Advocacy team. 

Page 1
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

Results of Review 

Significant Actions Have Been Taken to Address Prior Audit 

Recommendations 

The IRS has taken significant actions to address the nine recommendations made in our prior 

audit report. These actions are designed to: 1) eliminate the selection of potential political cases 

based on names and policy positions, 2) expedite processing of Internal Revenue Code (I.R.C.) 

Section (§) 501(c)(4) social welfare organization applications, and 3) eliminate unnecessary 

information requests. The following provides our detailed analysis of corrective actions taken by 

the IRS on all nine recommendations. 

The IRS has taken adequate corrective actions to address Prior 

Recommendation 1 

Prior Recommendation 1: Ensure that the memorandum requiring the Director, Rulings and 

Agreements, to approve all original entries and changes to criteria included on the Be On the 

Look Out listing prior to implementation be formalized in the appropriate Internal Revenue 

Manual.

Prior audit results 

The IRS developed and began using criteria to identify potential political cases for review that 

inappropriately identified specific groups applying for tax-exempt status based on their names or 

policy positions instead of developing criteria based on tax-exempt laws and Treasury 

Regulations. In August 2010, the criteria for potential political cases in the first Be On the Look 

Out (BOLO) listing were “Tea Party organizations applying for I.R.C. Section (§) 501(c)(3) or 

I.R.C. § 501(c)(4) status.” This criterion was included on the BOLO listing as an emerging 

issue. EO function officials stated that Determinations Unit specialists interpreted the general 

criteria in the BOLO listing and developed expanded criteria for identifying potential political 

cases. The expanded criteria included additional names as well as policy positions espoused by 

organizations in their applications. 

The Determinations Unit developed and implemented inappropriate criteria in part due to 

insufficient oversight provided by management. For example, only front-line management 

approved references to the Tea Party criteria contained in the BOLO listing before it was 

implemented. In May 2012, the Director, Rulings and Agreements, issued a memorandum 

requiring all original entries and changes to criteria included on the BOLO listings be approved 

at the executive level prior to implementation. 

Page 2
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

Current audit results 

On June 20, 2013, the IRS issued a memorandum 

suspending the use of the BOLO listings and other 

listing used to identify cases or issues (including 

emerging issues) for further review. The 

IRS’s 30-day report issued on June 24, 2013, and an 

August 9, 2013, memorandum also included this 

guidance and further stated that, “In the absence of 

BOLO lists, the Determinations Unit will continue to screen5

 for information affecting the 

determination of applications for tax-exempt status, including activity tied to political campaign 

intervention, but it will be done without regard to specific labels of any kind.” In addition, 

references to the BOLO listings and another previously used criteria listing6

 were removed from 

the Internal Revenue Manual. 

We interviewed a statistically valid sample of 85 Determinations Unit employees to determine if 

they: 1) were still using BOLO listings or other similar listings to identify cases or issues for 

further review and 2) knew the factors or criteria that should and should not be considered when 

reviewing a potential political case. All of the employees stated that they were not using 

BOLO or similar listings, nor did they know of anyone else using such listings.7 In addition, 

83 (98 percent) of 85 Determinations Unit employees responded that they only considered the 

activities and/or facts and circumstances of each case or used interim guidance8 when 

determining if there was potential political campaign intervention. The other two employees 

stated that they did not know what criteria to use to identify potential political campaign 

intervention. 

In the absence of BOLO listings containing emerging issues, the EO function, in 

September 2013, issued a memorandum creating a committee to serve as the central point of 

contact within the EO function to screen, review, and monitor emerging issue referrals and to 

make appropriate recommendations regarding them. Emerging issues include matters involving 

abusive transactions, fraud, antiterrorism, large cases, and complex or sensitive issues9

 for which 

guidance is needed and require coordination within, and in some instances outside of, the 

EO function. 

 

5

 The IRS indefinitely suspended screening of applications in February 2014. 

6

 A similar listing, known as the Touch and Go listing, was used prior to the implementation of the BOLO listing in 

Calendar Year 2010.

7

 See Appendix I for our sampling methodology. 

8

 Interim Guidance Memorandum on Initial Classification of Applications, dated September 30, 2013. This 

memorandum provided procedures that screening is based on facts and circumstances of the stated activities rather 

than the name or labels of the organization. 

9

 Political campaign intervention issues would be considered under complex or sensitive issues. 

Page 3

Soon after the release 

of TIGTA’s prior report, 

the IRS suspended the 

use of BOLO listings.
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

We reviewed the Emerging Issues Committee charter and related procedures and confirmed that 

EO function senior managers on the committee determine if emerging issues require further 

development. This elevates the review process above the front-line manager level in the 

Determinations Unit. In addition, we reviewed committee meeting minutes and resulting 

referrals. All of the documentation we reviewed indicates that decisions on referrals containing 

emerging issues are being made based upon activities and not names or policy positions. Since 

decisions are made by a committee and not a single front-line manager, as we found in our 

previous audit, the approvals provide increased assurance that emerging issues are being 

considered impartially. 

The IRS has taken adequate corrective actions to address Prior 

Recommendation 2 

Prior Recommendation 2: Develop procedures to better document the reason(s) applications 

are chosen for review by the team of specialists, e.g., evidence of specific political campaign 

intervention in the application file or specific reasons the EO function may have for choosing to 

review the application further based on past experience.

Prior audit results 

We reviewed all 298 applications that had been identified as potential political cases as of 

May 31, 2012, and sent them to the team of specialists. In the majority of cases, we agreed that 

the applications submitted included indications of significant political campaign intervention. 

However, we did not identify indications of significant political campaign intervention for 

91 (31 percent) of the 296 applications10 that had complete documentation. Applications that 

were forwarded to the team of specialists experienced substantial delays in processing, and some 

organizations received additional request letters asking for unnecessary information. 

We discussed our results with EO function officials, who disagreed with our findings regarding 

applications for which we did not identify indications of significant political campaign 

intervention. Although EO function officials provided explanations about why the applications 

should have been identified as potential political cases, the case files did not include the specific 

reason(s) the applications were selected. To provide further assurance that Determinations Unit 

employees are handling tax matters in an impartial manner, we concluded that the IRS should 

specifically document why applications are chosen for further review for potential significant 

political campaign intervention. 

 

10 We could not complete our review of two cases due to inadequate documentation in the case files. 

Page 4
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

Current audit results 

The IRS has substantially changed its procedures for processing applications for tax-exempt 

status since our prior audit. We believe that the current procedures address our original concern 

that only applications with indications of significant political campaign intervention should be 

worked as potential political cases and the basis for selection should be clearly documented in 

the file. In early Calendar Year 2014, the IRS issued an interim guidance memorandum 

indefinitely suspending the process of screening applications for tax-exempt status and no longer 

assigns applications with indications of significant political campaign intervention to a specific 

team of specialists in the Determinations Unit for processing.11 Instead, the IRS developed 

different processes for I.R.C. §§ 501(c)(3) and 501(c)(4) applications. 

IRS officials stated that I.R.C. § 501(c)(3)12 applications with indications of political campaign 

intervention can be worked by any grade level 12 or higher Determinations Unit specialist 

because Determinations Unit specialists have now been trained on how to identify and process 

potential political cases.13 In addition, group managers and independent Quality Assurance 

personnel are required to review additional information request letters and related case files 

before the letters are sent to organizations to determine whether the scope of the requests are 

appropriate. The addition of independent reviewers to evaluate the scope of additional 

information requests provides greater assurance that these requests are necessary and contain 

only relevant questions. 

For I.R.C. § 501(c)(4) applications, the IRS designed an optional expedited process14 in which 

Determinations Unit specialists send a letter to organizations whose applications include 

indications of political campaign intervention.15 Organizations can choose to make 

representations to the IRS under penalties of perjury regarding their past, current, and future 

activities and receive a determination letter based on those representations. Figure 1 shows the 

specific representations that applicants must make under penalties of perjury. 

 

11 As we were concluding our audit work, the EO function issued guidance to formally end the screening process 

and allow Determinations Unit employees to work any cases which are appropriate for their grade level. 

12 I.R.C. § 501(c)(3) charitable organizations are prohibited from directly or indirectly participating in or intervening 

in any political campaign on behalf of or in opposition to any candidate for public office. 

13 Training is discussed in more detail under the Prior Recommendations 3, 6, and 9 subheading. 

14 As of the end of our fieldwork, the guidance document relating to the optional expedited process had not been 

incorporated into the Internal Revenue Manual. 15 Before a letter can be sent to an organization, the IRS must determine that there are no other outstanding issues 

surrounding tax-exempt status except for political campaign intervention. 

Page 5
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

Figure 1: Letter 5228 Representations Regarding 

Past, Present, and Future Activities for I.R.C. § 501(c)(4) Applicants 

During each past year of the organization, during the current tax year, and during each 

future tax year in which the organization intends to rely on a determination letter issued 

under the optional expedited process, the organization has spent and anticipates that it 

will spend 60 percent or more of both the organization’s total expenditures and its total 

time (measured by employee and volunteer hours) on activities that promote social 

welfare (within the meaning of Section 501(c)(4) and the regulations thereunder). 

During each past tax year of the organization, during the current tax year, and during 

each future tax year in which the organization intends to rely on a determination letter 

issued under the optional expedited process, the organization has spent and anticipates 

that it will spend 40 percent or less of both the organization’s total expenditures and its 

total time (measured by employee and volunteer hours) on direct or indirect 

participation or intervention in any political campaign on behalf of (or in opposition to) 

any candidate for public office (within the meaning of the regulations under 

Section 501(c)(4)). 

Source: IRS Letter 5228. See Appendix IV for the complete letter. 

If an organization chooses not to make the representation, the application is transferred to the 

Technical Unit to independently analyze the application before contacting the applicant for 

additional information. As of October 7, 2014, 12 applications were received and worked by the 

Technical Unit since this process was extended to all organizations applying for tax-exempt 

status under I.R.C. § 501(c)(4) in December 2013. We reviewed the case files of these 

applications. There were indications of potential political campaign intervention documented in 

****1***** case files before the case was transferred to the Technical Unit for review. ***1*** 

*****************************************1************************************

*****************************************1************************************

*********************1**********************************.16 The addition of an 

independent review of applications by tax law specialists in the Technical Unit provides greater 

assurance that only applications for tax-exempt status that contain indications of political 

campaign intervention are worked as potential political cases.17 

 

16 ***************************************1*************************************************. 

17 As we were concluding our audit work, the IRS informed us that portions of the interim guidance will be included 

in the Internal Revenue Manual, but cases will no longer be worked in the Technical Unit due to an organizational 

realignment. Guidance on the revised process had not been issued when we concluded our audit work. 

Page 6
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

The IRS completed corrective actions to address Prior Recommendations 3, 6, 

and 9; however, actions should be taken to improve the timing and execution of 

future training 

Prior Recommendations 3, 6, and 9:

 Recommendation 3: Develop training or workshops to be held before each election cycle 

including, but not limited to, the proper ways to identify applications that require review 

of political campaign intervention. 

 Recommendation 6: Develop training or workshops to be held before each election cycle 

including, but not limited to a) what constitutes political campaign intervention versus 

general advocacy (including case examples) and b) the ability to refer for follow-up those 

organizations that may conduct activities in a future year which may cause them to lose 

their tax-exempt status. 

 Recommendation 9: Develop training or workshops to be held before each election cycle 

including, but not limited to, how to word questions in additional information request 

letters and what additional information should be requested. 

Prior audit results 

The IRS used inappropriate criteria to identify tax-exempt applications for review. The criteria 

focused narrowly on the names and policy positions of organizations instead of tax-exempt laws 

and Treasury Regulations. In addition, an internal IRS review determined that there appeared to 

be some confusion by Determinations Unit specialists and applicants on what activities are 

allowed by I.R.C. § 501(c)(4) organizations. The IRS also referred some applications that were 

approved to another unit for follow-up.18 Lastly, we determined that the Determinations Unit 

sent requests for information that we later (in whole or in part) determined to be unnecessary for 

98 (58 percent) of 170 organizations. This information was requested because employees lacked 

sufficient guidance and there were no managerial reviews of questions before additional 

information requests were sent to organizations seeking tax-exempt status. 

Current audit results

The IRS developed and provided extensive political campaign intervention training for relevant 

Rulings and Agreements office employees, including all Determinations Unit employees.19 In 

addition to providing written materials to its staff, the IRS developed virtual e-Learning sessions 

using web-based software as well as smaller technical workshops held in face-to-face settings to 

address potential political campaign intervention. 

 

18 The IRS has changed this process since the issuance of our prior report. Organizations are now referred to the 

EO function Examinations Classification Unit for an assessment of whether an examination of the organization is 

warranted. 

19 The training was held between May and August 2014. 

Page 7
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

The required training appropriately addressed: 1) the use of activities, instead of names and 

policy positions, to identify applications for further review, 2) what constitutes political 

campaign intervention versus general advocacy, 3) the type of additional information that should 

be requested and the appropriate wording of questions in additional information request letters, 

and 4) a change in process for referring organizations to the EO function Examinations office.20 

In addition, this training included a detailed case study with handouts and exercises the staff was 

asked to complete related to organizations seeking tax-exempt status under I.R.C. §§ 501(c)(3) 

and 501(c)(4) and how to address issues presented in the case study to determine if potential 

political campaign intervention is indicated in the application. The case study was subsequently 

discussed in the smaller individual group sessions. 

Although the IRS addressed our prior recommendations regarding training, we identified 

additional steps the IRS should take to improve upon the timing and execution of the training. 

Training may not be offered timely 

The IRS provided initial training to its staff and plans to provide recurring training before each 

election, as we recommended. However, the EO function only completed training employees in 

late August 2014. While that is understandable because the IRS had to develop the training and 

the election cycle was already underway, we are concerned about the timing of the training going 

forward. EO function officials informed us that political campaign intervention training will be 

incorporated into their fiscal year training plan, and they plan to complete training prior to the 

end of June in each year with a Federal general election. We believe this may be too late in the 

election cycle for the training to be useful, as organizations involved in campaign-related 

activities may apply for tax-exempt status much earlier in the election cycle. 

In order for training to be effective, it needs to be delivered timely. According to Office of 

Personnel Management guidance, “Federal agencies must be agile in their delivery of 

‘just-in-time’ training to meet rapidly changing responsibilities and assignments.” In addition, 

IRS Policy Statement 6-55 states that the IRS shall “...within the limits of appropriated funds, 

make available to its employees all training determined by appropriate levels of management to 

be needed for effective performance....” 

Monitoring of attendance could be improved 

As of August 27, 2014, 173 (79 percent) of 21921 personnel required to take the political 

campaign intervention training have completed all of the training sessions. The remaining 

 

20 Previously, some applications were approved and referred for follow-up to the Review of Operations Unit 

because the IRS suspected that the organization’s activities might jeopardize its tax-exempt status but did not have 

sufficient cause to deny exemption. These applications are now referred to the EO function Examinations 

Classification Unit, consistent with all other internal referrals.

21 The IRS stated that one employee was on extended medical leave. 

Page 8
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

46 employees did not complete one or more of the training sessions (nine employees) and/or did 

not attend the training sessions for the required amount of time (40 employees).22 

The Tax Exempt and Government Entities Division Learning and Education office gave 

employees credit for attending if they attended all of the sessions, with a 10-minute grace period 

for each session. Staff overseeing training would compare the exact length of time of the session 

to how long the employee was connected to the web-based software. Employees were advised 

when they had not met the attendance requirement and were asked to go back into the software 

and listen to the part of the recording they had missed to complete the required training. 

However, this methodology did not identify all employees who missed certain segments. Our 

analysis of the attendance records, for the 40 employees who did not attend the training sessions 

for the required amount of time, showed that employees: 

 Signed onto the session in advance of the start time and were credited with attending the 

session when they had missed more than 10 minutes. 

 Signed on more than 10 minutes after the training session started but stayed connected to 

the system after the training ended. 

 Disconnected in the middle of the session, which resulted in gaps in the training that 

exceeded 10 minutes. 

 Did not complete watching replays of the training sessions. 

Figure 2 shows that most of the 40 employees missed only 11 to 15 minutes of a training session, 

while other employees missed more of the training. 

 

22 Three employees did not complete a training session and did not attend another session for the required length of 

time. Therefore, these numbers will not add up to 46. 

Page 9
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

Figure 2: Amount of Training Time Missed by Employees 

 

0

5

10

15

20

25

Number of

Employees

Missed Training (in minutes)

11 to 15 16 to 20 21 to 25 26 to 30 31 to 35 36+

Source: TIGTA analysis of IRS training records. 

If employees miss key portions of training sessions, they may not have the knowledge needed to 

effectively and efficiently carry out their responsibilities. Accurate monitoring of training 

attendance is essential to ensure that the staff is adequately trained to identify issues involving 

political campaign intervention. 

After reviewing our analysis, IRS officials responded that they thought a 15-minute grace period 

was acceptable for these sessions instead of the 10-minute grace period previously used. 

IRS officials stated that this extended grace period was in part due to issues involved with a large 

number of employees attempting to log in to training sessions at the same time. IRS officials 

also stated that they would direct those employees missing more than 15 minutes of any session 

to retake the sessions. 

The Learning and Education office did not evaluate the effectiveness of the training 

We determined that the IRS did not complete the process designed to evaluate the effectiveness 

of the training. Each of the training modules developed in response to our recommendations 

contained an “Evaluation Process” section describing the process that would be used to evaluate 

the training. This process, in accordance with IRS policy, requires evaluation of the process in 

phases. 

As part of the Level 1 phase (Learner Reaction), the Learning and Education office solicited 

informal feedback (four questions) from the staff immediately at the completion of each of the 

training sessions so that presenters could get immediate feedback. Formal evaluation of the 

sessions should have been sent out to the participants once the recordation of the training was 

complete on IRS tracking systems (within a week of course completion). However, IRS officials 

informed us that training evaluations were not automatically sent to employees after training was 

completed because of an oversight when inputting the courses into the training system. Once the 

Page 10
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

oversight was discovered, management did not believe asking employees to complete the 

surveys would be an effective use of resources and time due to the time that had passed and the 

quality of the information received from the informal feedback. 

In addition, the Learning and Education office did not compile or evaluate case study results 

completed by students to determine if they learned skills and acquired knowledge as a result of 

the training. This phase of the evaluation process is referred to as Level 2 feedback (Learner 

Achievement). Learning and Education office officials stated that they did not consider 

reviewing the results of the case study when conducting the Level 2 evaluation at the time of the 

training. As we were completing our audit fieldwork, management informed us that they would 

be performing a Level 3 evaluation (Impact on Job Performance). 

Considering the importance of effectively training employees on proper handling of tax-exempt 

applications, improvements in the timing and execution of future training are needed. 

Recommendation 

The Commissioner, Tax Exempt and Government Entities Division, should: 

Recommendation 1: Assess the timing and execution of training on political activities and 

incorporate any “lessons learned” into future training plans. The review should include, but not 

be limited to: 

 Completing training on political activities earlier in the election cycle so employees can 

effectively apply it. 

 Reviewing the methodology used to determine training attendance and requiring 

employees who miss more than the allotted time to retake the missed segments. 

 Evaluating all phases of the political campaign intervention training as outlined in 

IRS policy to gather credible data to improve training, which should in turn lead to 

improved job performance. 

Management’s Response: The IRS agreed with this recommendation and states it 

has assessed and evaluated the delivery of initial training on political activities and will 

incorporate best practices and lessons learned into future training plans. Specifically, the 

IRS: 

 Recognizes the importance of completing training on political activities earlier in an 

election cycle and will begin delivery of training on political activities by March 1 of 

election years. 

 Concurrent with its increasing use of virtual e-Learning technology, has already 

identified improved methods to accurately track attendance by employees within the 

parameters of the technology. The IRS will apply this improved methodology and 

Page 11
Status of Actions Taken to Improve 

the Processing of Tax-Exempt Applications 

Involving Political Campaign Intervention 

procedures to determine training attendance and require employees who miss more 

than the allotted time to retake training sessions. 

 Will use data gathered from its evaluation of the political activity training provided 

between May and August 2014 to improve the materials and processes for the next 

cycle of training, which it intends to deliver in March 2016. 

The IRS developed new procedures that address Prior Recommendation 4, but 

documentation was not complete for the two requests submitted to the Technical 

Unit 

Prior Recommendation 4: Develop a process for the Determinations Unit to formally request 

assistance from the Technical Unit and the Guidance Unit.

Prior audit results 

Organizations that applied for tax-exempt status and had their applications forwarded to the team 

of specialists experienced substantial delays. Potential political cases took significantly longer 

than average to process due to ineffective management oversight. Once cases were initially 

identified for processing by the team of specialists, the Determinations Unit program manager 

requested assistance via e-mail from the Technical Unit23 to ensure consistency in processing the 

cases. However, EO function management did not ensure that there was a formal process in 

place for initiating, tracking, or monitoring requests for assistance. As a result, the 

Determinations Unit waited more than 20 months (February 2010 to November 2011) to receive 

draft written guidance from the Technical Unit for processing potential political cases. 

Current audit results 

The IRS issued an interim guidance memorandum creating a formal process for Determinations 

Unit specialists to request assistance from the Technical Unit. All requests for technical 

assistance must be in writing and accompanied by a completed EO Technical Assistance Request 

Form and tracking sheet. Specific time frames are included in the procedures for completing 

different steps in the process. For example, the Technical Unit must acknowledge receipt of the 

request within two workdays and enter the request on the Technical Unit case tracking system. 

Follow-up on the status of outstanding requests is required every 30 days, and the Technical Unit 

has up to 120 days to provide a response. These new procedures adequately address our prior 

recommendation. 

Between July 15, 2013, and August 26, 2014, documentation provided by the EO function 

showed that the Determinations Unit submitted two requests for technical assistance to the 

 

23 During our prior review, the IRS informed us that the Determinations Unit sought assistance from the Technical 

Unit. The Technical Unit in turn worked with the Guidance Unit, which provides formal and informal guidance that 

explains how certain laws, such as regulations, revenue rulings, revenue procedures, notices, and announcements, 

may apply to tax-exempt organizations. 

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Technical Unit. To help validate this number, we interviewed a statistically valid sample of 

85 Determinations Unit employees and 31 of 35 Technical Unit employees24 to determine if there 

were other technical assistance requests during this time frame.25 None of the employees 

interviewed identified any other requests. Although the tracking sheets were incomplete for 

these two requests, the Technical Unit provided responses to the Determinations Unit for each of 

them within 40 days. During our review, EO function management indicated that they reminded 

employees to complete all steps in the tracking process going forward.

The IRS has taken adequate corrective actions to address Prior 

Recommendation 5 

Prior Recommendation 5: Develop guidance for specialists on how to process requests for 

tax-exempt status involving potentially significant political campaign intervention. This 

guidance should also be posted to the Internet to provide transparency to organizations on the 

application process.

Prior audit results 

The Determinations Unit stopped working on potential political cases in October 2010 while it 

waited for assistance from the Technical Unit. Draft written guidance was not received from the 

Technical Unit until November 2011, which was 13 months after the Determinations Unit 

stopped processing the cases. As of the end of our prior audit work in February 2013, the IRS 

had developed draft guidance (in the form of a guide sheet) that included issues that specialists 

should look for when processing potential political cases.26 The draft guide sheet had not been 

finalized because the EO function decided to provide training instead. 

In its response to our prior report, the IRS proposed that the training developed as a result of 

other recommendations in the report would satisfy this recommendation. TIGTA disagreed and 

believed that specific guidance should be developed and made available to specialists processing 

potential political cases. Making this guidance available on the Internet for organizations could 

also address a concern raised in the IRS’s response that many applications appear to contain 

incomplete and inconsistent information.27 

Current audit results 

After the prior audit report was issued in May 2013, the IRS implemented significant changes to 

the process for reviewing applications for tax-exempt status. The IRS developed, internally 

 

24 Four employees were not interviewed because they had either retired, transferred to another part of the IRS, were 

on extended medical leave, or were under emotional stress. 

25 See Appendix I for our sampling methodology. 

26 Similar guide sheets involving other topics are available to the public on the IRS’s website. 

27 In response to the National Taxpayer Advocate’s 2007 Annual Report to Congress, the IRS commented that 

putting guide sheets for processing applications for tax-exempt status on its Internet site would result in fewer 

delays. 

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issued, and posted guidance documents on the Internet in the form of interim guidance 

memorandums. One of these guidance documents was for an optional expedited process28 for 

I.R.C. § 501(c)(4) organizations involving potential political campaign intervention that had 

already applied for tax-exempt status. Another updated the process for reviewing 

I.R.C. § 501(c)(3) applications for tax-exempt status. The IRS also developed a template with 

prewritten questions that specialists could choose from when preparing an additional information 

request letter. Specialists may adapt the prewritten questions or compose unique questions to 

solicit additional information from the applicant. This letter template is published on the Internet 

for the public. 

The revised letter and all of the template questions went through a comprehensive review process 

prior to its implementation in January 2014. Subject matter experts from across the EO function, 

along with the Tax Exempt and Government Entities Division Chief Counsel Office, the Office 

of Taxpayer Correspondence, and the Office of the Taxpayer Advocate, reviewed the revised 

letter prior to implementation. In addition, the IRS revised its process to require managers or the 

Determinations Unit Quality Assurance group to review additional request letters involving 

potential political campaign intervention prior to issuance. 

In December 2013, the IRS also expanded the optional expedited process to all organizations 

applying for I.R.C. § 501(c)(4) status whose applications indicate that the organizations may be 

involved in political campaign intervention or in providing private benefit to a political party. 

IRS officials decided to adopt this approach in part to address the backlog of cases identified in 

our prior review and because it resulted in the best use of taxpayer and Government resources. 

In addition, they thought that establishing a safe harbor provision in this area was consistent with 

the IRS’s approach in other fact-specific areas in which reasonable people can disagree and the 

law is not well-developed. 

Other types of organizations applying for tax-exempt status that may be involved in potential 

political campaign intervention activities are processed following the procedures for any 

application for tax-exempt status needing further development. The optional expedited process 

has not been offered to these organizations that may be involved in political campaign 

intervention and, as shown in Figure 3, according to the IRS have similar restrictions. 

 

28 The optional expedited process is discussed in more detail under the Prior Recommendation 2 subheading. 

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Figure 3: Common Tax Law Restrictions 

on Activities of Tax-Exempt Organizations 

501(c)(4) 501(c)(5) 501(c)(6)

Receive tax-deductible charitable contributions NO29 NO NO 

Receive contributions or fees deductible as a business expense YES YES YES 

Substantially related income exempt from Federal income tax YES YES YES 

Investment income exempt from Federal income tax YES YES YES 

Engage in legislative advocacy YES YES YES 

Engage in candidate election advocacy LIMITED LIMITED LIMITED 

Engage in public advocacy not related to legislation or election of candidates YES YES YES 

Source: Excerpt from http://www.irs.gov/Charities-&-Non-Profits/Common-Tax-Law-Restrictions-on-Activitiesof-Exempt-Organizations. 

The optional expedited process was established in the interest of effective and efficient tax 

administration and to assist in the transparent and consistent review of applications for 

tax-exempt status under I.R.C. § 501(c)(4). While the IRS has closed many of the cases 

associated with its backlog of I.R.C. § 501(c)(4) applications, the optional expedited process 

remained in place as we were completing our audit work. If the IRS permanently adopts the 

process and does not expand it to include other subsections, it may lead to inconsistent treatment 

and additional burden for those organizations filing under a different I.R.C. subsection. 

Regardless of the type of organization applying for tax-exempt status, the IRS does not have 

guidance for measuring the primary activity of an organization. Without a clearly defined test 

(sometimes referred to as a “bright-line” test) to measure the primary activity of an organization, 

the IRS uses the facts and circumstances approach to determine if an organization’s political 

activities constitute its primary activity. 

Because the Department of the Treasury is drafting guidance on how to measure the primary 

activity of I.R.C. § 501(c)(4) social welfare organizations, we are not making a recommendation 

related to providing guidance on processing applications for I.R.C. § 501(c)(4) tax-exempt status 

with potential political campaign intervention at this time.30 

 

29 The IRS stated that there are some exceptions to this restriction. 30 The guidance is discussed in more detail under the Prior Recommendation 8 subheading. 

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Recommendation 

Recommendation 2: If the optional expedited process for I.R.C. § 501(c)(4) organizations 

becomes a permanent process, the Director, EO, should consider providing this option to 

additional organizations with similar political campaign intervention limitations. 

Management’s Response: The IRS agreed with this recommendation. If the 

optional expedited process for I.R.C. § 501(c)(4) organizations becomes a permanent 

process, the IRS will consider providing this option to additional organizations with 

similar political campaign intervention limitations. As part of its consideration, the IRS 

will evaluate data trends and consult with the Office of Chief Counsel (Tax Exempt and 

Government Entities Division) to ensure that any extension of the process is consistent 

with current statutory and regulatory requirements regarding political campaign 

intervention applicable to the type of I.R.C. § 501(c) organization under consideration. 

The IRS has taken adequate corrective actions to address Prior 

Recommendation 7 

Prior Recommendation 7: Provide oversight to ensure that potential political cases, some of 

which have been in process for three years, are approved or denied expeditiously. 

Prior audit results 

Ineffective oversight by management led to significant delays in processing potential political 

cases. Draft written guidance was not provided by the Technical Unit until November 2011, 

13 months after the Determinations Unit stopped processing the cases. Many organizations 

waited much longer than 13 months for a decision. For example, as of December 17, 2012, the 

IRS had been processing several potential political cases for more than 1,000 calendar days. For 

the 296 potential political cases we reviewed,31 as of December 17, 2012, 108 applications had 

been approved, 28 were withdrawn by the applicant, none had been denied, and 160 cases were 

open from 206 to 1,138 calendar days (some crossing two election cycles). 

Current audit results 

We reviewed the 160 cases that were open as of December 17, 2012, to determine whether 

appropriate oversight is being provided to ensure that they are approved or denied expeditiously. 

As of December 4, 2014, 149 of the 160 open cases had been closed. Figure 4 shows how 

each of the 149 cases were closed. Figure 5 shows that for the 149 cases closed32 since 

 

31 By December 17, 2012, two cases were no longer being processed by the team of specialists. 32 For 136 cases we used the date the application was closed on the Employee Plans/Exempt Organizations 

Determination System as the closed date. For 13 cases, we used the determination letter issuance date as the closed 

date because the IRS stated it did not have resources to timely close the cases on the system. The fact that these 

cases were not administratively closed on the system did not affect the 13 organizations receiving tax-exempt status. 

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December 17, 2012, most were closed in one to three years, while a handful were closed in less 

than a year, and the remaining 22 cases took three to six years to close. 

Figure 4: Closed Case Status 

Closed Case Status Total Cases 

Approved 107 (72%) 

Failure to Establish33 27 (18%) 

Withdrawn by Applicant 8 (5%) 

Disapproved 7 (5%) 

Total: 149 

Source: TIGTA analysis of case file and Employee Plans/Exempt 

Organizations Determination System data. 

Figure 5: Total Length of Time Cases Were Open 

Range of Elapsed Days From 

Postmark Date to Closing Date Total Cases 

Up to 1 year 5 

More than 1 year to 2 years 60 

More than 2 years to 3 years 62 

More than 3 years to 4 years 19 

More than 4 years to 5 years ***1*** 

More than 5 years to 6 years ***1*** 

Total: 14934

Source: TIGTA analysis of case file and Employee Plans/Exempt 

Organizations Determination System data. 

 

33 Instances in which applicants do not respond to requests for information. The IRS sends the applicant a letter 

telling them the application is in suspense for 90 days. If no response is received during that time, the case is closed 

as failure to establish and the applicant has to reapply to obtain tax-exempt status. If the applicant responds within 

90 days, the case is reactivated. 

34 The EO function indicated that 13 of 35 eligible applicants received Letter 948-e, Determination Letter for 

Organizations Eligible Under the Optional Expedite Process, granting them tax-exempt status because the 

organizations self-certified their eligibility for Section 501(c)(4) tax-exempt status. The remaining applicants were 

not eligible for various reasons, e.g., their application was closed before the optional expedited process began or the 

applicant was not requesting I.R.C. § 501(c)(4) status. 

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Figure 6 shows that for the 149 cases closed since December 17, 2012, 60 were closed between 

December 17, 2012, and May 14, 2013, (the date our prior report was issued). The majority of 

the remaining closures were made within one year of the issuance of our prior report. 

Figure 6: Length of Time Cases Were Open 

Since Prior TIGTA Report Issuance 

Range of Elapsed Days From TIGTA 

Report Date to Closing Date Total Cases 

Closed before TIGTA report issuance 60 

Up to 1 year 66 

More than 1 year to 11⁄2 years 23 

Total: 149 

Source: TIGTA analysis of case file and Employee Plans/Exempt 

Organizations Determination System data. 

Figure 7 shows the status for the 11 cases open as of December 4, 2014. 

Figure 7: Status of Cases That 

Were Open as of December 4, 201435

Current Status Total Cases 

Ongoing litigation 6 

Proposed adverse determination or in Appeals 5 

Total: 11 

Source: TIGTA analysis of case file and Employee Plans/Exempt 

Organizations Determination System data. 

Six cases involving litigation 

As of December 4, 2014, six of the open cases were related to applicants in litigation with the 

IRS. Processing of these cases was suspended because of the litigation. A determination letter 

or ruling on tax-exempt status ordinarily is not issued if an issue involving the organization’s 

tax-exempt status under I.R.C. § 501 is pending in litigation. If the IRS is able to make a 

determination on the tax-exempt status while the case is being litigated, the EO function can send 

the determination letter to the Department of Justice which chooses whether to issue it.36 

 

35 The IRS provided documentation on the day our draft report was issued that a proposed adverse determination 

was issued for a case previously under development. We updated our results accordingly. 36 The IRS informed us that the Department of Justice retains jurisdiction of cases involved in litigation with the 

IRS. 

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Five cases involving proposed adverse determinations or in Appeals 

Five of the open cases involved instances in which organizations are entitled to protest a 

proposed determination or appeal a determination made by the IRS. When the IRS proposes an 

adverse determination, officials from organizations applying for tax-exempt status are provided 

the opportunity to meet with IRS officials (referred to as a Conference of Right) to provide 

additional information in support of their application. The IRS must consider the additional 

information provided by the applicant and either approve the application or address the 

additional information in its rationale for denying the application. If the application is denied, 

the organization may appeal the EO function’s decision to the Office of Appeals. 

The IRS has taken adequate corrective actions to address Prior 

Recommendation 8 

Prior Recommendation 8: Recommend to IRS Chief Counsel and the Department of the 

Treasury that guidance on how to measure the “primary activity” of I.R.C. § 501(c)(4) social 

welfare organizations be included for consideration in the Department of the Treasury Priority 

Guidance Plan. 

Prior audit results 

An internal IRS review determined that there appeared to be some confusion by Determinations 

Unit specialists and applicants on what activities are allowed by I.R.C. § 501(c)(4) organizations. 

We believe this could be due to the lack of specific guidance on how to determine the 

primary activity of an I.R.C. § 501(c)(4) organization. Treasury Regulations state that 

I.R.C. § 501(c)(4) organizations should have social welfare as their primary activity; however, 

the regulations do not define how to measure whether social welfare is an organization’s primary 

activity. 

Current audit results 

Guidance was included for consideration in the Department of the Treasury 2013–2014 Priority 

Guidance Plan on how to measure the primary activity of I.R.C. § 501(c)(4) social welfare 

organizations and the Department of the Treasury 2014–2015 Priority Guidance Plan on 

proposed regulations under I.R.C. § 501(c) relating to political campaign intervention. However, 

without finalized guidance, the IRS does not have a “bright line” test to measure the primary 

activity of an organization. Unless the organization makes representations to the IRS under 

penalties of perjury regarding their past, current, and future activities as part of the optional 

expedited process, the IRS still uses the facts and circumstances method to make a determination 

of tax-exempt status. Because the Department of the Treasury is in the process of drafting 

guidance, we are not making additional recommendations at this time. 

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Appendix I 

Detailed Objective, Scope, and Methodology 

The overall objective of this review was to assess the IRS’s actions in response to TIGTA’s prior 

recommendations1

 to improve the identification and processing of applications for tax-exempt 

status involving political campaign intervention.2

 To achieve this objective, we: 

I. Assessed corrective actions taken by the EO function in direct response to our 

prior Recommendation 1. 

A. Reviewed documentation obtained, including all documents related to the Emerging 

Issues Committee (including any results to date), to obtain reasonable assurance that 

only activities, not names or policies, were considered in reviewing Emerging Issues 

Committee referrals. 

B. Verified that the addition of any emerging issues was approved by the appropriate 

level of IRS management. 

C. Selected and interviewed a statistically valid sample of 85 Determinations Unit and 

Quality Assurance first-line managers and employees responsible for processing 

applications for tax-exempt status from the population of 176 employees to determine 

if BOLO listings or similar listings were still in use and if they knew the criteria that 

should be considered when processing cases. A statistical sample was used to allow 

the results to be projected to the overall population. We relied on TIGTA’s contract 

statistician to verify our sampling methods. We calculated our sample size using a 

90 percent confidence interval, 5 percent precision, and 10 percent estimated error 

rate as adjusted by the contract statistician. Therefore, we are 90 percent confident 

that “at most” 2.67 percent of employees were still using BOLO listings or other 

similar listings to identify cases or issues for further review. In addition, we are 

90 percent confident that “at most” 6.15 percent of employees do not know what 

information to consider when determining if there was potential political campaign 

intervention. The precision is based on a one-sided 90 percent confidence interval. 

II. Assessed the corrective actions taken by the EO function in direct response to our 

prior Recommendation 2. 

A. Obtained and reviewed relevant documentation containing new procedures and 

guidance. 

 

1

 TIGTA, Ref. No. 2013-10-053, Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review 

(May 2013). 

2

 For the definition of “political campaign intervention” and other terms, see Appendix V. 

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B. Determined if new procedures address the intent of the prior recommendation. 

C. Obtained and reviewed 12 applications that were worked by the Technical Unit after 

the optional expedited process was extended to all organizations applying for 

tax-exempt status under I.R.C. § 501(c)(4) in December 2013. We reviewed the 

associated case files to determine if there were indications of potential political 

campaign intervention documented in the case file before the case was transferred to 

the Technical Unit for review. 

III. Assessed the corrective actions taken by the EO function in direct response to our 

prior Recommendations 3, 6, and 9, which all related to training. 

A. Obtained documentation such as e-mails, memorandums, procedures, and guidance 

related to the corrective actions taken during the implementation of the 

recommendations. 

B. Obtained the training module developed by the EO function and determined if it 

appropriately addressed our prior recommendations. 

C. Determined if all applicable personnel were trained. 

D. Determined if the EO function had a plan in place to effectively evaluate the 

adequacy of the training and assessed the EO function’s efforts in evaluating the 

adequacy of the training. 

E. Assessed when and how often this training or workshop would be offered to 

employees. 

IV. Assessed the corrective actions taken by the EO function in direct response to our 

prior Recommendation 4. 

A. Obtained and reviewed relevant documentation such as e-mails, memorandums, 

procedures, and guidance related to the corrective actions to determine if the new 

procedures are complete and logical. 

B. Obtained and reconciled summary information to tracking sheets and actual requests 

to determine if requests were accounted for and addressed timely. 

C. Selected and interviewed a statistically valid sample of 85 Determinations Unit and 

Quality Assurance first-line managers and employees responsible for processing 

applications for tax-exempt status from the population of 176 employees, and 

31 Technical Unit first-line managers and employees from a population of 

35 employees3

 to determine if any requests were not being tracked. A statistical 

sample was used to allow the results to be projected to the overall population. We 

 

3

 Four employees were not interviewed because they had either retired, transferred to another part of the IRS, were 

on extended medical leave, or were under emotional stress. 

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relied on TIGTA’s contract statistician to verify our sampling methods. We 

calculated our sample size using a 90 percent confidence interval, 5 percent precision, 

and 10 percent estimated error rate as adjusted by the contract statistician. Therefore, 

we are 90 percent confident that “at most” 2.67 percent of employees could identify 

technical assistance requests that were not being controlled. The precision is based 

on a one-sided 90 percent confidence interval. 

V. Assessed the corrective actions taken by the EO function in direct response to our 

prior Recommendation 5. 

A. Obtained documentation such as e-mails, memorandums, procedures, and guidance 

related to the corrective actions taken during the implementation of the 

recommendation. 

B. Assessed whether the guidance provided to specialists adequately addressed the 

recommendation and had been posted to the Internet. 

VI. Assessed the corrective actions taken by the EO function in direct response to our 

prior Recommendation 7. 

A. Obtained and reviewed documentation such as e-mails, memorandums, procedures, 

and guidance related to the corrective actions taken during the implementation of the 

recommendation to determine if the IRS adequately addressed the recommendation. 

B. Determined whether appropriate oversight was given to all relevant cases. 

1. Requested copies of case files to determine the current status of the cases. 

2. Reviewed open cases to determine if there were any delays in completing the 

cases. 

VII. Assessed the corrective actions taken by the EO function in direct response to our 

prior Recommendation 8. 

A. Obtained documentation such as e-mails, memorandums, procedures, and guidance 

and determined if the corrective action was completed. 

B. Reviewed the Department of the Treasury 2013–2014 Priority Guidance Plan and 

Department of the Treasury 2014–2015 Priority Guidance Plan to determine if 

guidance was being considered regarding how to measure whether social welfare is 

an organization’s primary activity. 

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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 audit objective: memorandums, procedures, and 

guidance issued in response to our prior report and training provided to Determinations Unit 

specialists. We evaluated these controls by interviewing IRS officials and reviewing applicable 

documentation.

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Appendix II 

Major Contributors to This Report 

Gregory D. Kutz, Assistant Inspector General for Audit (Management Services and Exempt 

Organizations) 

Troy D. Paterson, Director 

Thomas F. Seidell, Audit Manager 

Margaret A. Anketell, Lead Auditor 

Theresa M. Berube, Senior Auditor 

Cheryl J. Medina, Senior Auditor 

Julia Moore, Senior Auditor 

Donald J. Martineau, Auditor 

Michael A. McGovern, Auditor 

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Appendix III 

Report Distribution List 

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:C&L 

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Appendix IV 

Letter 5228 

Letter 5228 is sent to organizations applying for tax-exempt status under I.R.C. Section 501(c)(4) 

whose applications suggest they may be involved in political campaign intervention or in 

providing private benefit to a political party. 

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Appendix V 

Glossary of Terms 

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Term Definition 

Be On the Look 

Out 

BOLO listings included a consolidated list of emerging issues the 

EO function identified for dissemination to Determinations Unit specialists. 

Bright Line A bright-line test is a clear division between what is acceptable and what is 

not from a legal, accounting, or regulatory perspective. 

General An organization engages in general advocacy when it attempts to: 

Advocacy 1) influence public opinion on issues germane to the organization’s 

tax-exempt purposes, 2) influence nonlegislative governing bodies, e.g., the 

executive branch or regulatory agencies, or 3) encourage voter participation 

through “get out the vote” drives, voter guides, and candidate debates in a 

nonpartisan, neutral manner. General advocacy basically includes all types 

of advocacy other than political campaign intervention and lobbying. 

Optional 

Expedited 

Process 

The IRS designed an optional expedited process in which Determinations 

Unit specialists send a letter to organizations whose I.R.C. § 501(c)(4) 

applications indicate potential political campaign intervention. The letter 

allows the applicant to represent, under penalty of perjury, that it will spend 

40 percent or less of both expenditures and time on non–social welfare 

activities, e.g., political campaign intervention. If an organization makes 

this representation, the application for tax-exempt status will be approved. 

Political Political campaign intervention is the term used in Treasury Regulations. 

Campaign For example, I.R.C. § 501(c)(3) charitable organizations are prohibited from 

Intervention directly or indirectly participating in or intervening in any political 

campaign on behalf of or in opposition to any candidate for public office. 

Priority Guidance The Department of the Treasury issues a Priority Guidance Plan each year 

Plan to identify and prioritize the tax issues that should be addressed through 

regulations, revenue rulings, revenue procedures, notices, and other 

published administrative guidance. 
Status of Actions Taken to Improve 

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Term Definition 

Safe Harbor The safe harbor option will provide certain groups an approved 

determination letter granting them I.R.C. § 510(c)(4) status within two 

weeks if they certify they devote 60 percent or more of both their spending 

and time on activities that promote social welfare as defined by 

I.R.C. § 501(c)(4). At the same time, they must certify that political 

campaign intervention involves less than 40 percent of both their spending 

and time. These thresholds apply for past, current, and future years of 

operations. 

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Appendix VI 

Management’s Response to the Draft Report 

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