Report to the Honorable Bill Thomas, 

Chairman, Committee on Ways and 

Means, House of Representatives 

United States General Accounting Office 

GAO

July 2002 POLITICAL 

ORGANIZATIONS 

Data Disclosure and 

IRS’s Oversight of 

Organizations Should 

Be Improved 

GAO-02-444 
Page i GAO-02-444 Political Organizations 

Letter 1

Results in Brief 2 

Background 4 

Objectives, Scope, and Methodology 6 

IRS Disclosed Data Filed by Section 527 Organizations, but the 

Data Are Not Readily Accessible to Support Public Users 8 

IRS Provides Limited Oversight to Ensure that Section 527 

Organizations Meet Filing Requirements 14 

IRS Planning for New Responsibilities Not Adhering to Accepted 

Principles 22 

Conclusions 25 

Recommendations for Executive Action 26 

Agency Comments and Our Evaluation 27 

Appendix I Political Activity and Section 527 Organizations 29 

Appendix II IRS Forms Mentioned in Report 31 

Appendix III Data About Section 501(c)(3-6) Organizations 44 

Appendix IV IRS Section 527 Disclosure Web Site Accessibility 

Evaluation 49 

Appendix V Groups Interviewed for this Report 55 

Appendix VI Selected Provisions of P.L. 107-155, the Bipartisan 

Campaign Reform Act of 2002 56 

Public Disclosure of Data on the Internet 56 

Determining Responsibility for Disclosure and Oversight 56 

Contents 
Page ii GAO-02-444 Political Organizations 

Appendix VII Opportunities for Data Matching to Improve 

Oversight 58 

Appendix VIII Comments from the Internal Revenue Service 60 

Appendix IX GAO Contacts and Staff Acknowledgments 64 

GAO Contacts 64 

Staff Acknowledgments 64 

Tables 

Table 1: Items IRS Checks on Forms 8871, Electronic and Paper 16 

Table 2: Items IRS Checks on Forms 8872, Electronic and Paper 16 

Table 3: Allowable Political Activities of Section 501(c)(3-6) TaxExempt Organizations 30 

Table 4: Filing Requirements for Section 527 Organizations 31 

Table 5: Number of Section 501(c) Tax-Exempt Organizations, 

Fiscal Years 1995-2001 44 

Table 6: Disposition of Applications for Section 501(c)(3-6) Tax 

Exemption Status, Fiscal Years 1995-2001 44 

Table 7: Types of Returns of Tax-Exempt Organizations Audited, 

Fiscal Years 1995-2001 46 

Table 8: Recommended and Average Additional Tax from Audits of 

Tax-Exempt Organizations, Fiscal Years 1995-2001 47 

Table 9: Revocations of Section 501(c)(3-6) Tax-Exempt Status, 

Fiscal Years 1995-2001 48 

Figures 

Figure 1: Time Line of the Development of the Section 527 

Disclosure Web site 6 

Figure 2: Links to Section 527 Disclosure Web site and Welcome 

Page from Home Page 13 
Page iii GAO-02-444 Political Organizations 

Abbreviations 

EIN employer identification number 

FEC Federal Election Commission 

FECA Federal Election Campaign Act 

GPRA Government Performance and Results Act 

IRS Internal Revenue Service 

PAC Political Action Committee 

PDF portable document format 

SSN Social Security Number 
Page 1 GAO-02-444 Political Organizations 

July 17, 2002 

The Honorable Bill Thomas 

Chairman, Committee on Ways and Means 

House of Representatives 

Dear Mr. Chairman: 

Certain tax-exempt organizations seeking to influence political elections—

called Section 527 organizations—are estimated to annually spend 

hundreds of millions of dollars.1

 In federal elections, these organizations 

have been able to use unregulated “soft money”

2

 for indirect or “issue 

advocacy,” such as that conducted when an organization sponsors an 

advertisement that supports or opposes a candidate’s position on an issue.3

Although all states required these organizations to provide some type of 

data on their finances and activities to the public, no central source 

provided such data. In July 2000, Congress passed P.L. 106-230 to require 

Section 527 organizations to provide the Internal Revenue Service (IRS) 

with data on their purposes, officers, contributors, and expenses.4

Congress established tight time frames for reporting these data to IRS and 

the law, or implementing regulations, calls for IRS to then disclose these 

data to the public. 

You asked us to study three related issues associated with responsibilities 

IRS gained in P.L. 106-230. Given the requirements of P.L. 106-230, our 

objectives were to determine the extent to which IRS (1) discloses to the 

public in an accessible manner the data that Section 527 organizations file 

with IRS, (2) oversees Section 527 organizations’ compliance with the 

specified filing requirements, and (3) develops a strategic plan for carrying 

out its new responsibilities. To meet these objectives, we reviewed P.L. 

 1

No reliable estimate of this spending has been developed because of the lack of a readily 

available source to fully aggregate the expenditures. IRS officials said that they might have 

enough data during 2003 to compute this spending, at least to some degree. 

2

Unlike hard money, soft money is not spent directly for or against federal candidates. 

3

Appendix I describes the use of Section 527 organizations to conduct issue advocacy. 

4

Section 527 organizations also may be required to report to the Federal Election 

Commission (FEC), if they raise and spend hard money to be used directly for or against 

federal candidates. 

United States General Accounting Office 

Washington, DC 20548 
Page 2 GAO-02-444 Political Organizations 

106-230 and relevant Internal Revenue Code rulings on Section 527 

political organizations. We interviewed responsible IRS officials and 

obtained documentation about processes, plans, and initiatives for 

disclosure and oversight related to Section 527 organizations. We also 

interviewed officials at the Federal Election Commission (FEC), which 

publicly discloses data about federal election activities, to understand the 

similarities and differences in disclosure and oversight processes between 

FEC and IRS. On disclosure to the public, we tested IRS’s Section 527 

disclosure Web site and spoke with public users of the Web site who also 

represent public interest groups. Our scope and methodology are 

discussed in more detail in a separate section of this report. 

IRS has been publicly disclosing the data reported by Section 527 

organizations on a Web site it established for this purpose but our work 

found that this Section 527 Web site has shortcomings in making the 

disclosed data accessible to the public. Based on discussions with public 

users and our tests, the Web site is difficult to use, and most of the 

disclosed data are not electronically searchable and downloadable, which 

can inhibit timely analysis of the relationships between political 

organizations and the influence of soft money on federal campaigns. 

Although IRS intends to make some improvements to its disclosure Web 

site, such improvements are not a top priority because, in part, IRS 

officials believe that IRS has fulfilled its public disclosure responsibilities 

under P.L. 106-230. 

IRS has performed limited oversight of Section 527 organizations’

compliance with the law’s filing and reporting requirements and as a 

result, has provided little assurance that the data it disclosed on the 

Section 527 Web site are timely, complete and correct. IRS has made 

limited efforts to determine whether Section 527 organizations filed 

required forms or that the data reported on the forms are complete and 

correct. P.L. 106-230 created penalties for failing to meet filing 

requirements but IRS has not imposed any penalties because it has not 

performed the oversight to uncover noncompliance, even when IRS’s data 

on filed forms indicate that thousands of Section 527 organizations might 

not be filing forms as required since 2000. With this knowledge, IRS 

announced in May 2002 that it would not impose penalties through July 15, 

2002, in the belief that this penalty waiver would lead noncompliant 

organizations to file the required forms. IRS officials said that oversight 

has been limited because of competing demands for resources, a focus on 

educating Section 527 organizations and on publicly disclosing the data, 

and the workload burden on IRS from having little electronic data on 

Results in Brief 
Page 3 GAO-02-444 Political Organizations 

Section 527 organizations. IRS has recognized the need to improve its 

oversight and started a study in 2002 to gauge the extent that compliance 

issues might exist for Section 527 organizations. 

IRS has not developed a strategic plan to carry out its responsibilities for 

ensuring that the requirements of the law are met. That is, IRS has not 

defined the level of disclosure and oversight it intends to achieve for 

Section 527 organizations. Nor has IRS established a strategy, including 

the resources needed, to accomplish such disclosure and oversight levels, 

or established a set of measures to assess its progress. Developing such a 

plan would be consistent with the principles for strategic planning as 

articulated in the Government Performance and Results Act (GPRA)5 and 

IRS’s strategic planning process. 

We are making recommendations to IRS to develop results-oriented plans, 

including timeframes and resources needed to improve its disclosure Web 

site, to oversee compliance by Section 527 organizations in fulfilling their 

filing requirements, and to increase the amount of electronically available 

data on Section 527 organizations. 

We obtained written IRS comments on a draft of this report. (See app. 

VIII). IRS agreed with our recommendation to develop results-oriented 

plans to oversee whether Section 527 organizations fulfill their filing 

requirements but took no position on our recommendations to develop 

such plans to improve the disclosure Web site and the availability of 

electronic data. IRS officials told us that they need more time to develop 

positions on implementing these two recommendations. While IRS 

generally agreed with the need for a better Web site and more electronic 

data, IRS said that such actions face competing resource priorities. IRS 

also provided other comments that expanded on our discussion about the 

speed in which IRS created Section 527 filing and disclosure systems, the 

barriers to having more electronic Section 527 data, and IRS’s efforts to 

improve the filing compliance of Section 527 organizations as well as IRS’s 

oversight. Because these comments expanded on material in the report, 

we made no changes to our report based on these comments. The Agency 

Comments and Our Evaluation section of this report discusses IRS’s 

written comments. We also received oral comments from IRS officials and 

FEC officials on technical aspects of the report, which we used to make 

changes where appropriate. 

 5

P.L. 103-62 (1993). 
Page 4 GAO-02-444 Political Organizations 

In July 2000, P.L. 106-230 was enacted.6 It created a reporting and public 

disclosure process for Section 527 organizations that operate outside FEC 

jurisdiction7 and that engage in political activities at the local, state, or 

federal level.8

 Under P.L. 106-230, Section 527 organizations are to notify 

IRS of their formation and file periodic reports with IRS.9

 At IRS, the 

Exempt Organizations section of the Tax-Exempt and Government 

Entities (TE/GE) division is responsible for public disclosure of data on 

Section 527 organizations and oversight of them. 

IRS developed two forms to collect required data from Section 527 

organizations. IRS released Form 8871 within 12 days of the law’s passage 

and Form 8872 within 17 days. An entity forming as a Section 527 

organization must notify IRS within 24 hours by filing electronically10 and 

in writing, using Form 8871 (Political Organization Notice of Section 527 

Status). Section 527 organizations also must file either electronically or in 

writing with IRS periodic reports of contributions and expenditures—

using Form 8872 (Political Organization Report of Contributions and 

Expenditures). In an election year, these reports are required (1) monthly 

or quarterly, as selected by the filing organization; (2) not later than 12 

days before an election if filing on a quarterly basis;11 and (3) not later than 

 6

The constitutionality of P.L.106-230 is being challenged in National Federation of 

Republican Assemblies, et.al. v. United States of America, Civil Action No. 00-0759-RV-C 

(S.D. Ala. Filed Aug. 21, 2000). 

7

Section 527 organizations that seek to directly influence elections for federal office report 

their activities to the FEC, which is to oversee the use of hard money raised and spent for 

these activities. 

8

Other types of tax-exempt organizations may also conduct political activities, provided 

that the political activities are secondary to their tax-exempt activities (see app. I). 

9

P.L.106-230 created some exceptions to these requirements for filing with IRS such as for 

Section 527 organizations already reporting to FEC and those anticipating that their annual 

gross receipts would always be less than $25,000. 

10Creating electronic forms is a departure from IRS’s policy of not competing with private 

software developers. The short time frames and lack of interest from the private sector 

necessitated such action to meet the law’s requirements. 

11Under Section 527(j)(6), an “election” is for a federal office; a political party convention 

or caucus to nominate a candidate for federal office; or a primary election to select 

delegates to a national nominating convention or to express a preference for nomination to 

the office of President. “Election” does not include a purely state or local election. 

Background 
Page 5 GAO-02-444 Political Organizations 

30 days after a general election. Appendix II contains copies of these IRS 

forms.12

Form 8871 on the notification of Section 527 status is to include the 

• name, address, business address (if a different address), and e-mail 

address; 

• purpose of the organization; 

• names and addresses of officers, highly compensated employees, contact 

person, custodian of records, and members of Board of Directors; and 

• name and address of, and relationship to, any related organizations. 

The Form 8872 on the Section 527 contributions and expenditures is to 

include the 

• name and address of a contributor and amount of each contribution and, 

if the contributor is an individual, the occupation and name of the 

employer13 and 

• name and address of a recipient of an expenditure and amount of the 

expenditure and, if the recipient is an individual, the occupation and name 

of the employer.14

IRS is required—with no specified timeframe—to publicly disclose in its 

offices all data reported on Forms 8871. The law mandates that IRS 

disclose on the Internet within 5 business days of receipt of the Form 8871 

a list of organizations filing the form and data on the name, mailing 

address, and electronic mailing address of each organization as well as the 

custodian of records and contact person. For Form 8872 data, the law did 

not require any disclosure over the Internet, providing the Secretary of the 

Treasury with discretion on when and how to publicly disclose such data. 

 12Section 527 organizations also might be required to file Form 990 (Return of Organization 

Exempt From Income Tax) and Form1120-POL (U.S. Income Tax Return for Certain 

Political Organizations). Appendix II discusses the filing requirements for these forms and 

has copies of the forms to show the types of data to be reported. Also, we recently 

reported our concerns about Form 990 expense data reported by charities. See TaxExempt Organizations: Improvements Possible in Public, IRS, and State Oversight of 

Charities, GAO-02-526, Apr. 30, 2002 (www.gao.gov). 

13Disclosure is required if the aggregated contributions from a person in the calendar year 

is $200 or more. 

14Disclosure is required if the aggregated expenditures to a person in the calendar year is 

$500 or more. 
Page 6 GAO-02-444 Political Organizations 

Given such requirements, IRS created a Web site15 within about 10 weeks 

of the law’s passage to publicly disclose data on Forms 8871 and 8872. 

Figure 1 shows the timeframe for developing the Web site. 

Figure 1: Time Line of the Development of the Section 527 Disclosure Web site 

Source: GAO analysis of IRS data. 

Our objectives were to determine the extent to which IRS (1) discloses to 

the public in an accessible manner the data that Section 527 organizations 

file with IRS; (2) oversees Section 527 organizations’ compliance with the 

specified filing requirements; and (3) develops a strategic plan for carrying 

out its new responsibilities. In addition, you asked us to provide statistical 

data on IRS’s oversight of other tax-exempt organizations. 

For all three objectives, we reviewed P.L. 106-230 and relevant rulings on 

Section 527 organizations. We also reviewed P.L. 107-155, a related law on 

campaign finance reform that was passed during our work, and talked 

with FEC and IRS officials to determine its potential impacts on IRS 

disclosure and oversight. 

 15http://www.irs.gov/polorgs. 

Objectives, Scope, 

and Methodology 

July 1, 2000 

Congress passes 

P.L. 106-230

July 12, 2000 

IRS releases 

electronic and paper 

Form 8871 

for filing

July 17, 2000 

IRS releases 

paper Form 8872 

for filing

August 4, 2000 

IRS posts paper 

Form 8871 to 527 

disclosure Web site

September 12, 2000 

IRS posts paper 

Form 8872 to 527 

disclosure Web site

November 14, 2000 

IRS makes electronic 

Form 8872 available 

on Web site for filing
Page 7 GAO-02-444 Political Organizations 

Specifically, for our objective on disclosure, we interviewed IRS officials 

and reviewed documentation to understand how IRS implemented its 

disclosure responsibilities immediately after passage of P.L. 106-230, how 

implementation of these responsibilities changed over time, and what 

plans IRS had. We also sought to understand how IRS officials interpreted 

their disclosure responsibilities under the law and implemented their 

discretionary authorities provided in the law. We interviewed IRS officials 

on the timeliness of IRS’s public disclosure of the Section 527 forms; we 

did not verify their statements. To understand similarities and differences 

in the IRS’s and FEC’s implementation of their disclosure responsibilities, 

we interviewed responsible FEC officials and reviewed FEC 

documentation. 

To determine whether IRS discloses Section 527 data in a manner 

accessible to the public, we tested IRS’s Section 527 disclosure Web site 

for accessibility16 and user-friendliness. We developed the test instrument 

by reviewing the literature on Web site accessibility and consulting with 

GAO experts. We tested whether the disclosure Web site had (1) a 

structure and navigation system that was consistent, intuitive, and 

transparent; (2) information content that clearly described the site’s scope, 

content, services, and mission; (3) functionality that allowed links within 

the site to work well and the site to respond quickly; and (4) interactivity 

in which search and retrieval mechanisms on the site worked well for 

users. Our test used 12 GAO analysts who were not familiar with the 

Section 527 Web site. While the analysts do not represent all public users, 

they can serve as a proxy. Appendix IV contains a copy of our test 

instructions and results. We also interviewed 18 public users involved in 

campaign finance reform issues about the extent to which the Section 527 

Web site met their needs. We identified these individuals and groups using 

an Internet search and referrals from other public interest groups, 

congressional staff, and individuals who are knowledgeable about 

campaign finance. Since we did not know the universe of public users, we 

could not select a random sample. As a result, the views of those we 

interviewed do not represent all users. Appendix V lists the groups we 

interviewed. 

 16Accessibility refers to how easy or difficult the Web site is to use and the usefulness of the 

format of data on the Web site. Ease of use, or user-friendliness, includes how easily a user 

can navigate, interact with and understand data on the Web site. The usefulness of the 

format relates to the extent to which data on the Web site can be electronically searched 

and downloaded for independent analysis. 
Page 8 GAO-02-444 Political Organizations 

For our second objective on IRS oversight of Section 527 organizations, 

we interviewed responsible IRS officials and reviewed documentation on 

IRS’s processes, plans, and initiatives. This included interviewing officials 

at the Ogden Service Center, which receives, processes, and reviews 

Forms 8871 and 8872,17 and obtaining documentation on the procedures to 

be followed. We analyzed information we obtained on the number of 

forms that IRS received from Section 527 organizations and IRS’s actions 

to ensure that the forms were timely, complete, and correct. We did not 

verify the information provided by IRS. Finally, as with our work on 

disclosure, we interviewed responsible FEC officials and reviewed FEC 

documentation to understand similarities and differences in the IRS’s and 

FEC’s implementation of their oversight responsibilities. 

For our third objective on strategic planning, we also reviewed IRS’s 

Strategic Planning, Budgeting and Performance Management Process, and 

general planning principles, such as those in GPRA, to determine how 

such a planning process and principles could guide IRS’s planning on 

implementation of its responsibilities for P.L. 106-230. We also talked with 

IRS officials about any plans related to Section 527 forms or organizations. 

For the statistical data on IRS’s oversight of other tax-exempt 

organizations, we analyzed IRS data on the number of applications, audits, 

and revocations of tax-exempt status (see app. III). We relied on the 

publicly available data on the IRS Web site as well as data provided by IRS 

on its audits. We conducted our review from June 2001 to May 2002, in 

accordance with generally accepted government auditing standards. 

According to IRS officials, IRS has disclosed on its Section 527 Web site all 

data reported on Forms 8871 and 8872. However, this Web site falls short 

of disclosing data to the public in an accessible manner because the site is 

difficult to use and lacks electronically searchable and downloadable data. 

According to users we interviewed, these limitations hinder their efforts to 

understand how money flows among political organizations. IRS has 

begun to address some shortcomings of its disclosure Web site. However, 

the changes do not make the site easy to use or increase the amount of 

electronically searchable data. Furthermore, IRS has no plans to seek 

public users’ views on how to improve disclosure. Enhancing the Section 

 17Ogden Service Center also receives and processes all Forms 990 and Forms 1120-POL. 

IRS Disclosed Data 

Filed by Section 527 

Organizations, but the 

Data Are Not Readily 

Accessible to Support 

Public Users 
Page 9 GAO-02-444 Political Organizations 

527 disclosure Web site is not a top IRS priority in part because officials 

believe that IRS has fulfilled its public disclosure role as mandated by law. 

IRS officials said that IRS discloses on the Internet through its Section 527 

Web site all of the data reported on Forms 8871 and 8872 by Section 527 

organizations. Although IRS is required to disclose all such data to the 

public, it is not required to disclose any of the Form 8872 data on the 

Internet and is only required to disclose on the Internet a portion of the 

data on the Form 8871. IRS officials said that IRS chose to disclose both 

forms in their entirety on the Internet to facilitate public access and 

minimize the burden that would be created by redacting certain data from 

the forms before posting to the Internet. 

IRS officials discussed how quickly IRS posts the forms to the Section 527 

Web site. The law requires the Form 8871 data to be posted to the Internet 

and otherwise made available to the public within 5 business days of 

receipt. The law specifies no timeframe for disclosing the Form 8872 data. 

IRS officials said that IRS generally posts electronically filed Forms 8871 

and 8872 within 48 hours of receipt and paper Forms 8871 within 5 

business days. IRS officials said that they post paper Forms 8872 to the 

site within, on average, 3 to 4 business days of receipt. 

Accessibility of the data disclosed on the Section 527 disclosure Web site 

is impaired. The site is neither easy to use nor provides data on Section 

527 organizations in a format that can be readily searched. The disclosure 

Web site is difficult to navigate, interact with, and understand. In addition, 

much of the Section 527 data on the site is neither searchable nor 

downloadable. Representatives of public interest groups said these 

shortcomings in IRS’s disclosure Web site seriously hinder their ability to 

access and use IRS data to form a complete picture of campaign financing 

activities. 

Our tests generally indicate that it is difficult to find the Section 527 

disclosure Web site within IRS’s overall Web site,18 and to search and 

understand data in the site. For example, of 12 GAO analysts who tested 

the site, 10 found it somewhat or very difficult to find the data they sought, 

 18IRS’s Digital Daily Web site is a portal or entry to other Web sites, including the Section 

527 Web site. 

IRS Has Publicly Disclosed 

Data Filed by Section 527 

Organizations 

Accessibility of Data on 

the Web site Is Hindered 

Because Site Is Difficult to 

Use and Lacks 

Electronically Searchable 

Data 

Section 527 Disclosure Web 

site is Difficult to Use 
Page 10 GAO-02-444 Political Organizations 

and 11 found it somewhat or very difficult to understand the content.19 Our 

results generally echoed the shortcomings described by public interest 

groups although they also note that it is still early in IRS’s implementation 

of the law. These difficulties hinder the public’s capacity to effectively use 

the data disclosed on the Section 527 disclosure Web site. 

IRS officials acknowledged that users had difficulty finding the Section 

527 disclosure Web site in part, because the IRS home page initially had no 

link to the disclosure Web site, and it often took users at least seven links 

to locate the site. Most GAO analysts in our tests could not find the site 

without assistance. Noting the absence of a link on its home page, IRS 

officials distributed a one-page guide during public education talks that 

showed the web address for the Section 527 disclosure welcome page. 

IRS provides two options for searching the disclosed data, but both have 

shortcomings. The first option, called basic search, enables users to query 

names of filing organizations but does not indicate the number of records 

found, which prevents users from estimating the time it will take to view 

all records. In addition, its keyword search feature can only query the first 

part of an organization’s name and does not query data contained on each 

form. The second option, called advanced search, can query data by 

simultaneously searching up to six fields, but only for electronically filed 

forms. According to IRS officials, only 5 percent of the universe of Forms 

8872 has been filed electronically as of March 2002. Yet, the Web site does 

not inform users that the advanced search cannot query 95 percent of 

Forms 8872 filed, which may lead users to misinterpret search results. 

The Section 527 disclosure Web site also falls short in helping users 

interact with and understand the data disclosed. For example, IRS posts 

forms filed by organizations that are exempt from filing under P.L. 106-230, 

such as those who file reports with FEC, without indicating that such 

forms are unnecessary. In addition, users have had problems 

understanding technical terminology used in the site. For example, GAO 

analysts in our tests had difficulty deciphering whether “contributions”

refers to donation to or from a Section 527 organization. Some public 

interest groups we interviewed expressed frustration over interactions 

 19In addition, 10 of the 12 GAO staff rated the site as poor overall. However, many of the 

staff rated parts of the Web site more positively. When asked to perform four tasks, most of 

the staff found two of those tasks at least somewhat easy to do. Also, the staff tended to 

have a more positive view of how the site functioned in terms of speed and links. The 

results of our test are in appendix IV. 
Page 11 GAO-02-444 Political Organizations 

with the customer service tools, pointing to telephone calls and e-mailed 

questions that have gone unanswered; at least one group was told by an 

IRS operator that the unit was unable to answer its questions on Section 

527 organizations. 

Furthermore, IRS’s Web site does not post information to distinguish 

between forms, such as those initially filed versus those filed after being 

amended. In contrast, FEC officials said that they post written contacts 

with the organizations, such as when a form is amended. Nor does IRS 

indicate when it has contacted Section 527 organizations, such as when it 

asks for clarifications on filed data, as does FEC.20 Some public users told 

us that Forms 8871 and 8872 appear on the Section 527 disclosure Web site 

months after they were due without explanation. As a result, they cannot 

tell whether IRS was late in posting forms, these forms were filed late, or 

IRS re-posted the forms after making corrections. For example, of 50 new 

postings identified by one public interest group during 1 day in January 

2002, only 10 forms were being posted for the first time, and 40 forms 

appeared to be re-posted after corrections. 

Although not required by law, many of the forms filed by Section 527 

organizations are not available to the public in an electronically searchable 

and downloadable format. As of March 2002, only about 700 of the 14,500 

Forms 8872 received, or 5 percent, were filed electronically. Only the 

Web-based electronic forms are electronically searchable and 

downloadable, while filed paper forms appear in a non-searchable, 

photograph-like format.21 Unlike FEC, IRS can receive only its Web-based 

forms and not electronic forms generated by software packages used by 

the large Section 527 organizations to file with states and FEC. As a result, 

these organizations cannot electronically file Forms 8872 without 

reentering data from their system into IRS’s Web-based system. 

The usefulness of IRS’s Section 527 Web site is limited by this lack of 

electronically searchable data. Public interest groups told us that real 

disclosure requires the data to be in an electronically searchable format, 

 20According to IRS officials, IRS may publicly disclose IRS correspondence on Forms 8871 

and 8872 filings, if the correspondence has no “tax return information”. Section 6103 of the 

Internal Revenue Code prohibits the disclosure of tax return information to the public. 

21Unlike the electronic forms, paper forms are scanned into a portable document format 

(PDF), creating a photograph-like image. In short, PDF files cannot function as an 

electronic database. 

IRS Lacks Electronically 

Searchable Data 
Page 12 GAO-02-444 Political Organizations 

rather than a photograph-like format, to be useful and timely for their 

analyses of campaign financing and the relationships among organizations. 

They cannot readily integrate photograph-like images into their databases 

to identify the big donors in an election, the connections between 

organizations, or the flow of funds. These groups said that without prompt 

access to electronically searchable and downloadable data, they are 

unable to effectively follow the flow of funds in campaigns for public 

office and on specific legislative issues. 

Given the scarcity of electronically filed Forms 8872, users are left to 

manually review one paper form at a time. To create an electronic 

database, IRS or the public user would have to manually transcribe the 

data from paper forms, which many public interest groups have described 

as time-consuming and costly. At least one public interest group gave up 

trying to manually transcribe data from paper Forms 8872 due to the time 

and resources required. 

IRS officials believe IRS has fulfilled its disclosure responsibility under the 

law. Even so, IRS has begun to address some known shortcomings on its 

disclosure Web site. However, such efforts do not address key limitations 

in the site’s accessibility—how easy the site is to use and the amount of 

electronically searchable data in the site. 

IRS has made some enhancements to improve electronic filing, expand the 

search capacity, and better integrate the paper and electronic forms on the 

site. For example, in January 2002, IRS established a new link on the IRS 

home page that more directly leads users to data on Section 527 political 

organizations. However, neither this new link nor Web pages in 

subsequent links clearly direct users to the Section 527 disclosure Web 

site. The welcome page and the search page for the Web site lack clear 

titles indicating the user’s location. Furthermore, the new links bypass the 

welcome page, thus depriving users of the orientation to the search site. 

Figure 2 shows the link system from the IRS home page to the Section 527 

disclosure Web site. 

IRS’s Improvements to 

Disclosure Web site Do 

Not Address Key 

Limitations 
Page 13 GAO-02-444 Political Organizations 

Figure 2: Links to Section 527 Disclosure Web site and Welcome Page from Home Page 

Source: GAO analysis. 

Nor do the improvements increase the amount of electronically searchable 

data. For example, IRS is exploring ways to add data to the Web site, such 

as data from the annual Forms 990 on the income and expenditures of taxexempt organizations. According to IRS officials, IRS is considering 

posting portable document format (PDF) images (which can not be 

electronically searched) of the Forms 990 filed by Section 527 

organizations to the Section 527 Web site to provide the public a more 

complete picture. IRS has a separate effort to allow optional electronic 

filing of Forms 990 by 2004, which could increase the amount of 

electronically searchable data reported by Section 527 organizations. 

While IRS officials have expressed an interest in making the site easier to 

use and in increasing the electronically searchable data, they do not see 

these as top priorities. For example, officials working on the Section 527 

disclosure Web site have requested funds to make the site’s search 

features more user-friendly, including an expanded keyword search to 

 

The Digital Daily 

www.irs.gov

– Individuals

– Businesses

– Charities and 

 non-profits

– Government 

 entities

– Tax professionals

– Retirement plans

Tax Information 

for charities and 

non-profits

– Business league 

 organizations

– Charitable 

 organizations

– Employee 

 associations

– Fraternal societies

– Labor and 

 agricultural 

 organizations

– Political 

 organizations

– Social clubs

– Social welfare 

 organizations

– Veterans’ 

 organizations

– Other tax-exempt 

 organizations

 

Tax information for 

political organizations

– Exemption 

 requirements

– Taxable income

– Filing requirements

– Solicitation notice

– Notices and 

 reports 

 “Notices and 

 reports filed with 

 the IRS under 527”

(No title) 

eforms.irs.gov/ 

search_results.asp

Site for searching 

Forms 8871 and 

8872 submitted to 

IRS by Sec. 527 

organizations

 

 

(No title)

Welcome page 

for political 

organizations’ 

electronic filing 

and search site

User 

clicks 

on . . .
Page 14 GAO-02-444 Political Organizations 

allow for “wildcard operators”

22 and queries whereby a user could type in 

any word to find all filers whose names contain that word. However, such 

a request must compete for resources with other IRS priorities and IRS has 

not funded the request. 

Despite IRS’s emphasis on measuring its success in meeting the 

expectations of customers, IRS has not identified the actual and potential 

users of the disclosure Web site. Nor does IRS plan to survey whether 

users can effectively access the disclosed data on Section 527 

organizations or believe that the Web site can be enhanced to better meet 

their needs. Such outreach efforts would be consistent with the first goal 

in IRS’s current Strategic Plan that emphasizes meeting the expectations 

of its customers.23

IRS’s oversight of Section 527 organizations’ compliance with the law’s 

filing and reporting requirements has been very limited and has included 

checks on whether some of the reported data is correct and little proactive 

effort to determine whether all filings are timely and all organizations that 

should file have done so. Accordingly, IRS has provided little assurance to 

the public that data disclosed on the Section 527 Web site are timely, 

complete, and correct. In part, due to these limited oversight efforts, IRS 

has not imposed any penalties that P.L. 106-230 created for failing to meet 

the filing and reporting requirements. IRS officials say that the lack of 

available resources and other higher priorities, have affected the oversight 

they have given to Section 527 organizations. IRS has recognized the need 

to improve its oversight and started a study in 2002 to gauge the extent 

that compliance issues might exist for Section 527 organizations. 

Congress created a penalty structure, which IRS is to administer, for 

failures by Section 527 organizations to adhere to P.L. 106-230’s 

requirements. These penalties for not filing complete and correct Forms 

8871 and 8872 on time, and for not making the data available to the public 

are: 

 22A wildcard operator, such as an asterisk, allows the user to find related word matches. 

For example, a search for corp* would return all items with the word “corporation” and 

other words starting with “corp.”

23The first goal of the IRS strategic plan is to provide “Top-Quality service to each taxpayer 

in every interaction” by determining whether customers believe IRS is meeting their 

expectations. 

IRS Provides Limited 

Oversight to Ensure 

that Section 527 

Organizations Meet 

Filing Requirements 
Page 15 GAO-02-444 Political Organizations 

• For failure to file Form 8871: If a Section 527 organization does not 

notify IRS of its formation, including specified identifying information, it 

will not be treated as exempt and the highest corporate tax rate, currently 

35 percent, is to be applied to all exempt function income less any 

expenses generating the income. 

• For failure to file Form 8872: Upon failure to make the required 

disclosures at the time and in the prescribed manner, to include any of the 

required information, or to show the correct information, the highest 

corporate tax rate is to be applied to the amount of the contributions and 

expenditures that were not so disclosed. 

• For failure to allow inspection or furnish a copy of the Form 8871 

or 8872 to the public: A penalty of $20 may be assessed for each day that 

an organization fails to allow public inspection or provide a copy of the 

Form 8871 or Form 8872 upon request. For the Form 8872, the maximum 

penalty is $10,000, but the law does not specify a maximum penalty for 

Form 8871. 

IRS does not fully check whether all required data are included on the 

Forms 8871 and 8872 it receives and that the data are correct. Also, IRS 

performs limited checks on the timeliness of filings and does not perform 

checks to determine whether all Section 527 organizations that should file 

have done so. 

When Forms 8871 are filed, IRS employees are to review each form for 

completeness and correctness. Table 1 shows the specific items that are to 

be checked. IRS procedures call for employees to check three items 

against IRS records to determine whether the Form 8871 data are correct: 

valid name and employer identification number, whether an amended 

form has been filed, and the organization’s tax-exempt status. For 

remaining items that are to be checked, employees simply check whether 

the data has been provided. 

IRS Does Not Fully Check 

Section 527 Forms When 

Received to Ensure Data 

Quality 
Page 16 GAO-02-444 Political Organizations 

Table 1: Items IRS Checks on Forms 8871, Electronic and Paper 

Item 

Electronic 

form 

Paper 

form 

Valid name and employer identification number (EIN) X X 

Mailing address, business address, and e-mail address X 

Name of custodian of records and contact person X 

Form signed X 

Correspondence received with filed form (requires IRS 

response) 

 X 

Amended form filed X 

Organization’s tax-exempt status recorded X 

Name of, address of, and relationship to related entities 

List of all officers, directors, and highly compensated 

employees 

 

Source: IRS documents and officials. 

Table 2 shows the specific items that are to be checked for Forms 8872. 

For this form, employees are to check two items against IRS records: valid 

name and employer identification number and the organization’s taxexempt status. Other items that are checked are only reviewed to 

determine if something has been provided on the form. 

Table 2: Items IRS Checks on Forms 8872, Electronic and Paper 

Item 

Electronic 

form 

Paper 

form 

Reason for filing (e.g., initial, amended, or final report) X 

Valid name and EIN X X 

Date organization formed X X 

Type of report (e.g., monthly, quarterly, semiannual, or 

annual) 

X X 

Form signed X X 

Organization recorded at IRS as exempt X 

Correspondence received with filed form requires IRS 

response 

 X 

Date received is shown X 

Itemized contributionsa  

Itemized expendituresb 

a

Includes each contributor’s name, mailing address, and ZIP code; employer’s name and contributor’s 

occupation; aggregate contributions year-to-date; and amount of contributions. 

b

Includes each recipient’s name, mailing address, and ZIP code; name of recipient’s employer; 

recipient’s occupation; and amount of each expenditure. 

Source: IRS documents and officials. 
Page 17 GAO-02-444 Political Organizations 

As tables 1 and 2 show, IRS procedures do not require checks for the 

completeness of all data. For Form 8871, employees are not required to 

check whether data on related organizations and the names of officers, 

directors, and highly compensated employees have been provided. These 

data can help public users see relationships between Section 527 

organizations and others. For Form 8872, no check is required of the 

names of employers for contributors and recipients, or contribution and 

expenditure amounts. Such data can help users find contributions made by 

donors to Section 527 organizations and the related use of funds. 

Based on its checks, IRS will correct certain data, such as an EIN, on the 

forms or in its computers without contacting a filing organization 

according to IRS officials. For other discrepancies, such as forms that are 

clearly incomplete or lack a signature, IRS will correspond with a Section 

527 organization. IRS posts Forms 8871 and 8872 as received on its 

disclosure site while discrepancies are resolved and then re-posts 

corrected forms. 

In addition, IRS’s procedures do not include checks to determine whether 

it receives both electronic and paper versions of the Forms 8871 as 

P.L. 106-230 requires. Data on forms filed between July 2000, when the law 

became effective, and March 2002 suggest that many organizations are not 

meeting this requirement. As of March 2002, IRS had received 11,586 

electronic and 13,752 paper Forms 8871. An IRS official said IRS is aware 

of this discrepancy of nearly 2,000 more paper forms than electronic 

forms. 

Although the P.L. 106-230 penalties cover timeliness of filings, IRS does 

not check the timeliness of Forms 8871 and only checks timeliness for one 

aspect of Forms 8872. For Forms 8871, IRS officials said that they did not 

check whether Section 527 organizations filed within the required 24 

hours. For Forms 8872, IRS monitored the filing timeframes that govern 

the required pre- and post-election periods for federal general elections, 

but not other timeframes. 

Finally, IRS does not perform checks to determine whether Section 527 

organizations have filed all required Forms 8871 and 8872. Our analysis of 

IRS data indicates that some Section 527 organizations may not be meeting 

the filing requirements. Between July 2000 and March 2002, IRS data show 

that 12,756 organizations had filed Forms 8871 on paper (which all are 

required to do) but only 3,817 organizations had filed Forms 8872 (233 

electronically and 3,584 on paper). Thus, almost 9,000 more Section 527 

organizations have notified IRS of their formation than have reported any 
Page 18 GAO-02-444 Political Organizations 

contributions or expenditures. Some of this discrepancy may not be a 

problem because, for instance, some organizations do not have to file a 

Form 8871 or a Form 8872 in certain circumstances. However, as of May 

2002, IRS had not determined which organizations unnecessarily filed 

Forms 8871, filed Forms 8871 but were not required to file Forms 8872, or 

did not file required Forms 8872.24 IRS also has no process to check 

whether organizations have not filed required Forms 8871. 

IRS did not have a program to regularly audit (i.e., ask for documented 

support on data reported) or match Form 8871 and 8872 data with other 

data reported by Section 527 or other organizations to help ensure timely, 

complete, and correct data. Nor has IRS imposed penalties for filing 

problems with Forms 8871 and 8872. 

IRS did not have criteria for selecting forms filed by Section 527 

organizations for audit to check whether the filed forms were complete 

and correct. Nor did IRS track how often its audits of tax-exempt 

organizations for non-Section 527 issues nevertheless may have addressed 

Forms 8871 and 8872 issues. As a result, IRS could not identify any audits 

that began because of IRS concerns about the Forms 8871 and 8872. 

Between July 2000 and March 2002, IRS only audited these forms in two 

situations—as part of an investigation of an allegation submitted to IRS or 

an audit of other tax-exempt organizations during which a Section 527 

issue arose. For example, in fiscal year 2001 and the first week of fiscal 

year 2002, IRS received five allegations of noncompliance by Section 527 

organizations. IRS audited two allegations involving one Section 527 

organization; the audit had not been completed as of March 2002. IRS did 

not audit one allegation because preliminary investigation showed that it 

was unfounded and it has not acted on the remaining two. 

IRS has no program to match data on Forms 8871 and 8872 with data that 

IRS already receives from Section 527 and other tax-exempt organizations. 

Such matches could be used to help identify organizations that did not file 

required Forms 8871 and 8872 or to verify the completeness and 

correctness of data on filed Forms 8871 or 8872. 

 24Section 527 organizations that are (1) not required to file Forms 8871 include those with 

gross receipts under $25,000 or that have to report to FEC as political committees and 

(2) required to file Forms 8871 but are exempt from filing Forms 8872 include state or local 

committees of a political party or committee of a state or local candidate. 

IRS Does Not Use Tools to 

Ensure the Quality of 

Section 527 Data After 

Forms Are Filed 

IRS Audits Have Not Focused 

on Section 527 Forms 

IRS Did Not Match Existing 

Data for Section 527 Filing and 

Reporting Compliance 
Page 19 GAO-02-444 Political Organizations 

Data matching programs may be able to help IRS identify certain 

organizations that are tax-exempt under Section 501(c) of the Internal 

Revenue Code and that should file Forms 8871 because they spend 

significant amounts on political activities. These organizations are to 

annually file Forms 990 to list their activities, income, and expenses—

including those for political activities. By first analyzing Forms 990 to 

identify any organizations reporting significant expenditures for political 

activity, and then matching to a database of Forms 8871, IRS could 

determine whether these organizations had created a Section 527 

organization for their political activities and filed Forms 8871. If not, IRS 

would be able to follow up to determine whether a Section 527 

organization should have been created and a Form 8871 should have been 

filed. Similarly, Forms 990 are to include data reported by charitable 

organizations about relationships with other tax-exempt organizations, 

including Section 527 organizations. If IRS found a charitable organization 

that reported a relationship with a Section 527 organization, a match could 

identify whether such a Section 527 organization filed Forms 8871 and 

8872, and reported the relationship. 

However, IRS would face challenges in developing a full-scaled matching 

program that uses the Form 990 data. Matching organizations’ or 

individuals’ names is prone to error given possible variations in spelling 

and in the use of abbreviations for the same name. Thus, matching would 

be facilitated if IRS had unique identifying numbers associated with 

specific names. Right now, IRS receives such unique numbers from taxexempt organizations that file Forms 990, 8871, and 8872. IRS does not 

necessarily have such numbers for other third parties that might have a 

relationship with a Section 527 organization, such as their contributors 

and recipients of their funds. Appendix VII describes possible matches 

with existing data and options for overcoming challenges, such as 

ensuring valid matches if organizations or individuals have similar names. 

Without programs to identify potential nonfilers of the Forms 8871 and 

8872 and to identify incomplete or incorrect data on forms that are filed, 

IRS has little ability to identify potentially noncompliant organizations, 

audit them, and impose any relevant penalties. As a result, IRS has not 

imposed any penalties authorized by P.L. 106-230. According to IRS 

officials, these penalties could not be imposed automatically. They said 

that some staff involvement, such as through an audit, would be needed to 

justify any penalties. 

Even so, IRS has learned that some organizations might not be filing the 

Forms 8871 and 8872 as required and thus could be subject to the 

IRS Has Not Penalized Section 

527 Organizations 
Page 20 GAO-02-444 Political Organizations 

penalties. IRS recently announced that it would not assess taxes, interest, 

and penalties against Section 527 organizations that file or correct earlier 

filings, if the filings are made by July 15, 2002. On May 2, 2002, IRS issued a 

notice25 implementing this program for filings that were due after July 1, 

2000. As a result, missing forms can be filed and already filed forms could 

be amended without IRS taking adverse action against Section 527 

organizations. 

IRS officials believe that this program is likely to achieve the 

congressional goal of maximum disclosure to the public and that the 

deadline will ensure public disclosure before 2002 general elections. Data 

were not available as this report was being prepared to verify that the 

desired disclosures were being achieved. Because IRS has no systematic 

means for identifying organizations that do not file required Section 527 

forms, it is not clear how IRS can judge whether the program succeeds. 

IRS officials cited several factors for the current limited oversight of 

Section 527 organizations. One factor cited is that IRS has only had 

responsibility for disclosing data from Forms 8871 and 8872 since July 

2000. IRS officials said they first focused on educating Section 527 

organizations about their responsibilities under P.L. 106-230 and on 

publicly disclosing the data. An IRS official said she attended meetings—

such as FEC events—to speak about the law’s requirements, and is 

planning to continue outreach by publicizing the law’s requirements, and 

required forms to file. Also, IRS is preparing a publication to distribute on 

Section 527 organizations as part of its educational outreach. 

In addition, IRS officials said that their resources to address Section 527 

organizations’ compliance have to compete with many other tax-exempt 

priorities. Section 527 organizations account for about 1 percent of all 

exempt organizations.26 In 2001, IRS staffing for the exempt function 

totaled 811. These staff are to educate and guide, process forms, oversee 

activities, and enforce the law for over 1 million exempt organizations of 

all types, such as charities, in addition to Section 527 organizations. 

 25Notice 2002-34, 2002-21 I.R.B., accompanied by a News Release (IR2002-57) and Fact 

Sheet (FS2002-11). 

26By 2000, IRS master file listed 1.35 million tax-exempt organizations under Section 501(c). 

About 12,700 Section 527 organizations notified IRS of their existence since passage of P.L. 

106-230, as of March 2002. 

Various Factors Contribute 

to Limited Oversight of 

Section 527 Organizations 
Page 21 GAO-02-444 Political Organizations 

Finally, IRS officials said that checking for compliance with the filing 

requirements on paper Forms 8872 would be burdensome, in part, due to 

the lack of electronic data. IRS officials said that IRS transcribes about 20 

percent of the Forms 990 data into electronic format. Unlike for Forms 

990, filers can choose to file their Forms 8872 electronically and have done 

so for about 10 percent of the data on the Forms 8872 filed. To obtain 

more electronic data, IRS would have to transcribe more data from these 

forms or organizations would have to be required to file electronically. 

As for transcription, IRS officials said that transcribing the data into an 

electronic format would be challenging and conflicts with IRS’s goal to 

increase voluntary electronic filing. IRS transcribes data from other forms, 

such as the Form 1040 filed by individual taxpayers, into an electronic 

format, but such data are predominantly numeric. Most of the Forms 8872 

data is text, such as names and addresses. Transcribing these types of data 

generally results in a higher error rate and requires more costly 

verification than numeric data. Although not measured, the cost of 

transcribing textual data into an electronic format would be high, 

according to IRS officials. 

As for electronic filing, IRS is developing optional electronic filing of 

Forms 990 for all tax-exempt organizations, including Section 527 

organizations, which is slated to be available by January 2004. However, 

IRS cannot accept electronic Forms 8872 generated by commercial 

software. IRS officials said that completing Forms 8872 on the Web site 

burdens Section 527 organizations that use such software to manage 

contribution and expenditure data. To use the Web site, the organizations 

must manually re-enter the data; organizations that do not use such 

software would not face an increased burden because they would 

manually enter their Forms 8872 data regardless. IRS officials also said 

that some Section 527 organizations are reluctant to file electronically 

because IRS does not provide proof of filing through a date-time stamp or 

e-mail, as FEC does. Although IRS favors the capability to accept 

electronic Forms 8872 generated by the software, it has not identified its 

resource needs. Even with this capability, IRS may see a low electronic 

filing rate. FEC allowed organizations to electronically file, even with the 

software packages, but the majority did not file electronically until 

Congress mandated it. 
Page 22 GAO-02-444 Political Organizations 

To improve oversight, IRS recently convened a task group to study the 

consistency and correctness of data reported on Forms 8871 and 8872 by 

Section 527 organizations. The task force will study known areas of 

noncompliance by auditing random samples of filed forms, such as Forms 

8871 and 8872. The study will focus on whether the filed forms complied 

with the requirements and whether contributors and contributions are 

properly reported on Forms 8872. According to an IRS official, the study 

might look at those not filing the required forms with IRS, but not until IRS 

develops a reliable means to identify nonfilers. The study is expected to 

begin in summer 2002 and take 6 months or longer to finish. IRS expects 

the results of the study to provide insights on the amount and types of 

oversight needed. 

IRS has not developed a strategic plan to carry out its Section 527 

responsibilities. The principles for strategic planning are articulated in 

GPRA and IRS’s strategic planning process, which call for planning that 

(1) defines the results to be achieved over several years, (2) outlines the 

strategy and necessary resources to achieve the intended results, and 

(3) establishes measures that will be used to assess progress in achieving 

intended results. Although GPRA and IRS’s strategic planning process 

address planning at levels higher than specific programs, such as Section 

527 responsibilities, their principles are useful for managing at the 

program level. IRS has a plan for tax-exempt activities overall and has 

initiatives planned to address specific Section 527 issues, but IRS has not 

defined what type and amount of disclosure and oversight it intends to 

provide, how it would achieve such disclosure and oversight levels, and 

how it would measure progress. The importance of following accepted 

planning principles is heightened by the recent passage of campaign 

finance reform legislation. 

Planning principles in GPRA and incorporated into IRS’s Strategic 

Planning, Budgeting, and Performance Management process call for 

agencies to define the results they are attempting to achieve, generally 

over several years. This approach is intended to ensure that agencies have 

thought through how their activities and initiatives contribute to a 

meaningful result that was intended. Furthermore, GPRA and IRS’s 

strategic planning process call for managers to develop a strategy for 

achieving the results they have defined for their programs and to assess 

the types and amounts of resources they will need to carry out the 

strategy. Finally, GPRA’s and IRS’s processes call for managers to develop 

measures they will use to assess progress in achieving results. Although 

IRS Is Starting a Study to 

Improve Oversight of 

Section 527 Organizations 

IRS Planning for New 

Responsibilities Not 

Adhering to Accepted 

Principles 

IRS Plans Do Not Define 

Future Results To Be 

Achieved 
Page 23 GAO-02-444 Political Organizations 

GPRA applies at a department or agency level and IRS’s strategic planning 

process applies at the operating unit level, such as a division within IRS, 

the planning principles can be applied at a specific program level, such as 

planning for how IRS will execute its responsibilities related to Section 

527 organizations. 

Although planning is an ongoing management responsibility, the 

assumption of new duties, like those IRS has for Section 527 organizations, 

should trigger such planning. IRS’s Management Controls Accountability 

Program: MCAP Handbook for Managers (Feb. 23, 2001) notes that 

assumption of a new responsibility, organization, or program should cause 

a manager to review the management controls to administer the program. 

The handbook defines a significant control deficiency to include situations 

that “may deprive the public of needed services.” If a review identifies 

significant deficiencies, the guidance calls for a corrective action plan. A 

corrective action plan is to include all actions, listed chronologically and 

including those completed, needed to correct a deficiency. The plan is to 

be updated to reflect revised or actual completion dates. 

Neither IRS’s plan for tax-exempt activities nor the specific initiatives IRS 

is planning to improve its disclosure and oversight activities define what 

level of disclosure and oversight it hopes to achieve, how it will achieve 

those levels of performance, and how progress will be measured for 

Section 527 organizations. For example, this IRS plan focuses on activities, 

such as audits, for all types of tax-exempt organizations. The plan 

specifies, for instance, the number of employees to be assigned to each 

activity, the number of actions (e.g., audits) to be done, how long such 

actions take, the quality of work to be achieved and the satisfaction of taxexempt organizations and of IRS employees. 

Although the plan provides an understanding of what IRS intends to do 

with its staff and other resources, the plan provides little basis for 

understanding longer-range results IRS intends to achieve for Section 527 

organizations. It does not, for instance, indicate whether, how, and when 

IRS plans to provide electronically searchable Section 527 data. The plan 

also does not provide goals for improving the compliance levels of Section 

527 organizations. In short, the plan does not provide a vision for the level 

of service to provide to the public relative to Section 527 organizations or 

a clear strategy that identifies the results desired, the steps and resources 

to be used in achieving results, or measures to gauge success in meeting 

its Section 527 responsibilities. 
Page 24 GAO-02-444 Political Organizations 

IRS officials said that the exempt organization function operates with 

resource constraints that require difficult choices due to competing 

priorities. Following planning principles like those in GPRA and IRS’s own 

processes can enable IRS to provide decision makers within IRS, the 

executive branch, and Congress with a more informed basis for 

prioritizing and allocating resources for Section 527 responsibilities based 

on a clearer understanding of expected accomplishments if identified 

resources are provided. 

In the absence of an overall plan for the levels of disclosure and oversight 

of Section 527 organizations, IRS has begun to develop initiatives that 

could improve some aspects of the services it provides or that could 

develop data to use as a baseline in determining additional efforts it 

should undertake to, for instance, improve Section 527 organizations’

compliance. Although these initiatives may individually be useful, in the 

absence of an overall definition of what IRS intends to accomplish, it is 

difficult to determine how the initiatives move IRS forward or how they 

align with IRS’s goals. 

For example, IRS has begun an initiative to disclose Forms 990 data from 

Section 527 organizations on its 527 disclosure Web site but the data will 

be not be disclosed in an electronically searchable format, which public 

users said they need. IRS officials said that they would like to increase 

searchable and downloadable data on the Section 527 disclosure Web site. 

However, IRS has not developed a plan or estimated the resources needed 

to do so. When asked the cost of one option—keypunching data from 

paper Forms 8872—officials said that they did not estimate the costs 

because the option was not consistent with IRS’s desire to increase 

voluntary electronic filing by Section 527 organizations. These officials 

could not tell us when and how IRS would begin efforts or what resources 

IRS would need to increase voluntary electronic filing of Forms 8872. 

In addition, it is not clear how this initiative aligns with one of IRS’s 

agencywide strategic goals—to provide “top-quality service to each 

taxpayer in every interaction.” IRS’s goal states that “the ultimate measure 

of success in [this] first strategic goal is whether or not our customers 

believe we are meeting their expectations.” IRS cannot know how its 

public users would judge its initiative to disclose Form 990 information on 

its Web site because IRS has not identified public users and their needs 

and has no plans to do so. 
Page 25 GAO-02-444 Political Organizations 

The need for IRS to develop a strategic plan to address its Section 527 

responsibilities could be heightened by recent actions. For example, it is 

not clear how IRS’s initiative to suspend penalties for Section 527 

organizations that have not filed correct, complete, or timely forms will be 

coupled with other efforts to ensure that acceptable compliance levels are 

achieved and maintained. Even after the notice announcing the penalty 

suspension was publicly released in May 2002, IRS officials could not 

provide written plans for this initiative, including how it would deal with a 

possible increased workload of filed forms, would educate organizations 

about their filing requirements, or would monitor and enforce filing 

compliance after July 15, 2002, so that suspensions of penalties will not 

again be needed. 

Similarly, the Bipartisan Campaign Reform Act of 2002 (P.L. 107-155) 

could affect disclosure and oversight responsibilities for Section 527 

organizations, heightening the need for IRS planning to meet its 

responsibilities.27 The law could change how these organizations report to 

FEC or IRS, and how these agencies disclose reported data and oversee 

Section 527 organizations. With such changes, IRS would have a greater 

need to ensure that its oversight allows quick identification of nonfilers, 

late filers, and those no longer needing to file. Appendix VI describes areas 

of the law that could affect IRS. 

Effective public disclosure of data on the activities of Section 527 

organizations can enable the public to make more informed choices when 

voting. These organizations, however, may exist for brief periods 

preceding elections, or concentrate their activities during such brief 

periods. Congress created reporting and disclosure requirements for 

Section 527 organizations that can provide the public with timely data 

before elections. 

IRS developed a Web site to disclose reported data. However, the Web site 

has shortcomings that inhibit the public’s ability to access and understand 

the disclosed data in a timely manner. Among these shortcomings, the lack 

of electronically searchable and downloadable data challenges the public 

in quickly accessing data about Section 527 organizations. Although IRS’s 

 27This act affects the financing of political campaigns and includes provisions on the 

disclosure and oversight of campaign activities associated with “soft money” and indirect 

issue advocacy. 

Recent Actions Could 

Heighten Need for ResultsOriented Planning 

Conclusions 
Page 26 GAO-02-444 Political Organizations 

goal is to provide top-quality service to each taxpayer in every interaction, 

IRS has not identified public users of the Section 527 disclosure site and 

their needs. 

Enhanced Web site features would be of limited value unless Section 527 

organizations file timely, complete, and correct forms as required. 

Discrepancies between the number of Section 527 organizations that have 

reported their formation to IRS and reported subsequent activities suggest 

that many Section 527 organizations are not filing timely, as required. 

Furthermore, IRS’s oversight provides little assurance that Section 527 

organizations comply with the law. IRS was sufficiently concerned about 

possible noncompliance that it announced in May 2002 a waiver of 

penalties to encourage noncompliant Section 527 organizations to comply 

before July 15, 2002. 

Although IRS officials acknowledge that the Section 527 Web site and its 

oversight practices could be improved, they have not defined the levels of 

disclosure and oversight to be obtained over time, developed a strategy to 

achieve those results, and identified the resources to execute it. Such 

results-oriented planning would adhere to principles articulated in 

statutory guidance and IRS’s Strategic Planning, Budgeting, and 

Performance Management Process. Such a plan would also provide 

decision makers within the executive branch and Congress a more 

informed basis to determine the priority to give to IRS’s Section 527 

responsibilities as well as related amounts and types of resources. IRS 

officials face many challenges in attaining higher levels of disclosure and 

oversight that may limit what can be achieved over a given time. These 

issues should be taken into consideration in developing a results-oriented 

plan for IRS’s Section 527 responsibilities. 

To improve public disclosure of data filed by Section 527 organizations 

and IRS’s oversight of their compliance with P.L. 106-230, we recommend 

that the Commissioner of Internal Revenue develop results-oriented plans, 

including timeframes and resources needed, for 

• improving the usability of the disclosure Web site after consulting with 

the full range of users of the data; 

• overseeing whether Section 527 organizations fulfill their filing 

requirements; and 

• increasing the availability of electronic data on Section 527 organizations 

to improve the public accessibility of disclosed data as well as to support 

IRS’s oversight efforts. 

Recommendations for 

Executive Action 
Page 27 GAO-02-444 Political Organizations 

We obtained written comments from the IRS Commissioner on a draft of 

this report. (See app. VIII). IRS agreed with our recommendation on 

developing results-oriented plans to oversee whether Section 527 

organizations fulfill their filing requirements. IRS said that it will increase 

such oversight now that it has developed the filing system, educated the 

organizations, and provided a last chance to comply with the 

requirements. 

IRS’s written comments took no position on our recommendations to 

develop results-oriented plans to improve the disclosure Web site and to 

increase the availability of electronic data. IRS officials told us that they 

need more time to develop specific positions on the degree and method 

for implementing these recommendations. Even so, IRS generally agreed 

that improving the usability of its disclosure Web site and increasing the 

availability of electronic data would be useful to the public and helpful to 

IRS enforcement. However, IRS said that such actions face competing 

resource priorities in its budget allocation process. IRS’s agreement that 

improvement in these areas is needed is encouraging. We continue to 

believe that results-oriented plans to do so are the appropriate foundation 

to ensure that IRS has a well-thought out strategy and a supportable basis 

for determining how many and what type of resources will be needed. 

Such plans would provide decision makers a basis to make informed 

judgments about the priority to give to IRS’s Section 527 responsibilities 

and what level of budgetary support to allocate to them. 

IRS also provided comments to expand on points that we raised in our 

report. Because these comments emphasized or expanded on material in 

the report, we made no changes to our report based on these comments. 

In general, these comments expanded on our discussion about the speed 

in which IRS met the challenges of creating systems for filing and 

disclosing data about Section 527 organizations, the barriers to obtaining 

Section 527 data in an electronic format, and efforts to improve the filing 

compliance of Section 527 organizations as well as IRS’s oversight. For 

example, although our report describes what the law required and what 

IRS did in creating the Section 527 forms and Web site, IRS said that our 

report understated the steps necessary to implement the law and the 

difficult challenges IRS faced. IRS elaborated on its initial effort to 

implement the law and noted that disclosures on the Web site go beyond 

what the law required, which our report acknowledges by describing that 

IRS posts more information to the Web site than the law requires. 

In addition, IRS said that our report should make clear that unlike the 

statutory penalties for late filing of the Form 1120-POL and Form 990, no 

Agency Comments 

and Our Evaluation 
Page 28 GAO-02-444 Political Organizations 

late filing penalties exist for the Form 8871 or 8872. For example, IRS said 

that if an organization files a late or incomplete Form 8871, it does not 

incur a penalty but rather must recalculate its taxable income or have IRS 

do so. A similar provision applies for organizations that do not file Forms 

8872 in the time and manner required. IRS did not dispute that it has not 

recalculated any Section 527 organizations’ taxes under the provisions of 

P.L. 106-230 that authorize it do so. Although we agree that the “penalty”

for late or incomplete filing does not have the same characteristics as the 

penalties for late filing of Forms 1120-POL or 990, we believe we are 

correct in indicating that having to pay tax on what had previously been 

tax-exempt income is a penalty for noncompliance with the requirement to 

file timely, complete and correct Forms 8871 and 8872. P.L. 106-230 refers 

to the requirement that taxes be paid on previously tax-exempt income for 

failure to properly file Forms 8872 as a penalty, although it does not label 

the provision on failure to properly file Forms 8871 as a penalty. We 

describe the penalty structure in the report and made no changes based on 

IRS’s comments. 

We also received oral comments from IRS officials on technical aspects of 

the report. Similarly, FEC officials provided some technical comments. In 

both cases, we made changes on the basis of these comments where 

appropriate. 

As we agreed with your office, unless you publicly announce the contents 

of this report earlier, we will make no further distribution of this report 

until 30 days from the report date. At that time, we will send copies of this 

report to the Ranking Minority Member, House Committee on Ways and 

Means, Commissioner of Internal Revenue, Secretary of the Treasury, 

Chairman, Federal Election Commission, Director, Office of Management 

and Budget, and other interested parties. In addition, the report will be 

available at no charge on the GAO Web site at http://www.gao.gov. If you 

have questions, please call me on (202) 512-9110. Key contributors to this 

report are listed in appendix IX. 

Sincerely yours, 

Michael Brostek 

Director, Tax Issues 
Appendix I: Political Activity and Section 527 

Organizations 

Page 29 GAO-02-444 Political Organizations 

Section 527 of the tax code has allowed the formation of tax-exempt 

political organizations.1

 Such organizations that collect contributions and 

make expenditures to directly influence elections of candidates are to 

register and file reports with the Federal Election Commission (FEC) once 

they meet the Federal Election Campaign Act’s (FECA) definition of 

“political committee.” Political committees established by corporations 

and unions must register when they form while other political 

organizations must register when their contributions or expenditures 

exceed $1,000 in a calendar year. Once registered, the political 

organizations are to report their receipts and disbursements to FEC, which 

discloses the data to the public and oversees the organizations. 

In private letter rulings since 1996,2

 the Internal Revenue Service (IRS) has 

clarified the political activities allowable under Section 527. The letter 

rulings interpreted the law as allowing tax-exempt organizations to collect 

contributions and make expenditures to indirectly influence the election 

of candidates through issue advocacy. Such organizations have sponsored 

advertisements that support or oppose a candidate’s position on an issue 

without expressly advocating the election or defeat of that candidate. 

Tax-exempt organizations engaging only in these types of issue ads are 

generally not subject to FECA, and until July 2000, not required to report 

their activities to a federal agency or publicly disclose data under federal 

law. 

Public disclosure of data about Section 527 organizations involved in issue 

advocacy allows voters to see the contributions to and expenditures of 

these organizations. P.L. 106-230 created a federal source of public data at 

IRS on Section 527 organizations at local, state, and federal levels.3

 Even 

so, identifying all individuals or groups that seek to influence an issue can 

be difficult because of complex relationships. Section 527 organizations 

can make contributions to each other and between federal and state 

levels, creating a web of relationships among the organizations. 

 1

Under Section 527, a political organization is defined as an organization operated primarily 

for the purpose of accepting contributions or making expenditures, to influence the 

selections, nominations, elections, or appointments for federal, state, or local public 

offices, offices in a political organization, or Presidential or Vice-Presidential electors. 

2

PLR 9652026 (Oct. 1, 1996), PLR 9725036 (Mar. 24, 1997) and PLR 199925051 (Mar. 29, 

1999) clarified the law. 

3

Section 527 organizations that report to IRS must still fulfill any reporting obligations to 

the states. 

Appendix I: Political Activity and Section 527 

Organizations 
Appendix I: Political Activity and Section 527 

Organizations 

Page 30 GAO-02-444 Political Organizations 

Other types of tax-exempt organizations may conduct political activities if 

the political activities are secondary to their tax-exempt activities. Table 3 

shows four types of tax-exempt organizations that may engage in political 

activities and the allowable activities. 

Table 3: Allowable Political Activities of Section 501(c)(3-6) Tax-Exempt 

Organizations 

Type of tax-exemption Type of organization 

Allowable political 

activities 

501(c)(3) Charity Educational advocacya and 

limited legislative advocacyb 

501(c)(4) Social welfare Educational and legislative 

advocacy and limited 

electioneeringc 

501(c)(5) Labor, agricultural, or 

horticultural 

Same 

501(c)(6) Business league Same 

a

Educational advocacy is aimed at educating the public about an issue. 

b

Legislative advocacy is aimed at influencing the public to support or oppose specific legislation.

c

Electioneering is aimed at influencing a political campaign such as influencing voters to vote for or 

against a particular candidate. 

Source: IRS officials and GAO analysis. 

With the exception of charities, tax-exempt organizations can choose 

among three ways to manage the funds for political activities: (1) keep 

such activities within the organizational budget if that activity is secondary 

to its exempt purpose, (2) create a separate bank account called a 

separate segregated fund (SSF) within its organization, or (3) establish a 

distinct but related Section 527 organization. Charities may not create a 

related Section 527 organization. 

In a 1996 letter ruling, IRS said that it considered a SSF to be a tax-exempt 

Section 527 organization. According to IRS officials, Section 527(f) 

encouraged Section 501(c)(4-6) organizations to create SSFs or Section 

527 organizations instead of keeping their political activities within the 

organization and paying tax on the money flowing through for political 

activities. IRS officials said that P.L. 106-230 created an incentive to push 

the political activities back within the Section 501(c)(4-6) organizations to 

avoid the disclosure requirements of P.L. 106-230. 
Appendix II: IRS Forms Mentioned in Report 

Page 31 GAO-02-444 Political Organizations 

According to IRS, political organizations that have tax-exempt status under Section 

527 of the Internal Revenue Code must file some or all of the four forms listed in 

Table 4. The requirements for filing these forms apply to political organizations that 

are exempt from federal income tax provisions, and receive or expect to receive 

$25,000 or more in gross receipts in any taxable year. 

Table 4: Filing Requirements for Section 527 Organizations 

If a Section 527 organization is That organization is to file 

Federal candidate committee, political party 

committee, or PAC required to report to FEC 

Form 1120-POL and Form 990 or Form 990-EZ 

State or local candidate committee or state or local 

committee of a political party 

Form 8871, Form 1120-POL, and Form 990 or 

Form 990-EZ 

Any other political organization, including state or 

local PACs and federal political organizations that 

are not required to report to FEC 

Form 8871, Form 8872, Form 1120-POL, and 

Form 990 or Form 990-EZ 

Note: A political organization that does not seek tax-exempt status or a tax-exempt political organization that does 

not have gross receipts of at least $25,000 but receives more than $100 in taxable income in any taxable year is still 

to file a Form 1120-POL. 

Source: IRS Fact Sheet 2002-11, May 2002. 

The following pages show the forms used by Section 527 organizations. 

Appendix II: IRS Forms Mentioned in Report 
Appendix II: IRS Forms Mentioned in Report 

Page 32 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 33 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 34 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 35 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 36 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 37 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 38 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 39 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 40 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 41 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 42 GAO-02-444 Political Organizations 
Appendix II: IRS Forms Mentioned in Report 

Page 43 GAO-02-444 Political Organizations 
Appendix III: Data About Section 501(c)(3-6) 

Organizations 

Page 44 GAO-02-444 Political Organizations 

Table 5: Number of Section 501(c) Tax-Exempt Organizations, Fiscal Years 1995-2001 

Type of tax-exempt entitya FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 

501(c)3 626,226 654,186 692,524 733,790 773,934 819,008 865,096 

501(c)4 139,451 139,512 141,776 139,533 138,927 137,037 136,882 

501(c)5 66,662 64,955 64,902 64,804 63,716 63,456 62,944 

501(c)6 75,695 77,274 78,406 79,864 81,493 82,246 82,706 

All other 501(c)b 256,755 252,583 252,686 253,751 354,577 252,656 251,930 

a

Because IRS has not identified how many Section 501(c) organizations have ceased activity, the 

number of organizations that are currently active is likely to be overstated. The Treasury Inspector 

General for Tax Administration has recommended that IRS take steps to improve such data. 

b

“Other” refers to Section 501(c)(1-27) except 3, 4, 5, and 6. 

Source: IRS Annual Data Books, 1995-2002. 

Table 6: Disposition of Applications for Section 501(c)(3-6) Tax Exemption Status, Fiscal Years 1995-2001 

 Type of Section 501(c) organization 

Disposition by fiscal year 501(c)(3) 501(c)(4) 501(c)(5) 501(c)(6)

All other 501(c) 

organizationsa

 Total 

FY1995 

Approved 42,324 1,717 341 2,003 2,175 48,560 

% Approvedb 75.0% 75.2% 78.9% 80.4% 70.0% 75.0% 

Denied 377 27 4 35 27 470 

Approved/Deny Ratioc 112.3 63.6 85.3 57.2 80.6 103.3 

Otherd 13,707 538 87 454 907 15,693 

Total 56,408 2,282 432 2,492 3,109 64,723 

FY1996 

Approved 40,978 1,648 313 1,909 1,913 46,761 

% Approvedb 71.2% 72.2% 78.4% 80.1% 65.9% 71.4% 

Denied 342 32 0 25 20 419 

Approved/Deny Ratioc 119.8 51.5 313.0 76.4 95.7 111.6 

Otherd 16,217 602 86 450 968 18,323 

Total 57,537 2,282 399 2,384 2,901 65,503 

FY1997 

Approved 47,015 1,535 336 1,803 2,068 52,757 

% Approvedb 72.3% 67.3% 76.9% 78.1% 64.1% 72.0% 

Denied 226 21 3 23 26 299 

Approved/Deny Ratioc 208.0 73.1 112.0 78.4 79.5 176.4 

Otherd 17,761 726 98 483 1,133 20,201 

Total 65,002 2,282 437 2,309 3,227 73,257 

FY1998 

Approved 51,329 1,696 265 1,694 1,977 56,961 

% Approvedb 74.6% 70.3% 74.2% 80.0% 65.0% 74.2% 

Denied 382 15 2 14 13 426 

Appendix III: Data About Section 501(c)(3-6) 

Organizations 
Appendix III: Data About Section 501(c)(3-6) 

Organizations 

Page 45 GAO-02-444 Political Organizations 

 Type of Section 501(c) organization 

Disposition by fiscal year 501(c)(3) 501(c)(4) 501(c)(5) 501(c)(6)

All other 501(c) 

organizationsa

 Total 

Approved/Deny Ratioc 134.4 113.1 132.5 121.0 152.1 133.7 

Otherd 17,085 700 90 409 1,052 19,336 

Total 68,796 2,411 357 2,117 3,042 76,723 

FY1999 

Approved 52,773 1,500 333 1,635 1,897 58,138 

% Approvedb 81.1% 73.4% 81.2% 84.8% 69.7% 80.6% 

Denied 447 4 0 10 9 470 

Approved/Deny Ratioc 118.1 375.0 333.0 163.5 210.8 123.7 

Otherd 11,838 539 77 284 815 13,553 

Total 65,058 2,043 410 1,929 2,721 72,161 

FY2000 

Approved 61,005 1,681 468 1,718 2,362 67,234 

%Approvedb 81.8% 72.7% 84.5% 84.5% 73.3% 81.3% 

Denied 456 9 0 8 9 482 

Approved/Deny Ratioc 133.8 186.8 468.0 214.8 262.4 139.5 

Otherd 13,073 622 86 307 850 14,938 

Total 74,534 2,312 554 2,033 3,221 82,654 

FY2001 

Approved 59,909 1,471 295 1,473 2,225 65,373 

% Approvedb 80.6% 72.1% 81.7% 82.1% 73.5% 80.1% 

Denied 629 2 2 8 5 646 

Approved/Deny Ratioc 95.2 735.5 147.5 184.1 445.0 101.2 

Otherd 13,823 566 64 314 171 14,938 

Total 74,361 2,039 361 1,795 3,026 81,582 

Note: Section 508 of the Internal Revenue Code requires most Section 501(c)(3) organizations to 

apply for recognition of tax-exempt status. There is no comparable provision in the Internal Revenue 

Code that requires Section 501(c)(4-6) organizations to apply for this recognition. 

a

Applications for Section 501(c)(1-27) except 3, 4, 5, and 6. Sections 501(c)(26) and (27) included for 

FY 1998 and FY 1999. 

b

Percent of approvals assumes no carry-over of applications from previous year(s) and includes 

Other. 

c

Approved/Deny Ratio = For every 1 denial, there were X approvals. 

d

Application withdrawn and failure to furnish required information, refusals to rule, information 

forwarded to other than national office, correction, disposal, and others. 
Appendix III: Data About Section 501(c)(3-6) 

Organizations 

Page 46 GAO-02-444 Political Organizations 

Table 7: Types of Returns of Tax-Exempt Organizations Audited, Fiscal Years 1995-2001 

 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 

Total number of returns for tax-exempt 

organizations filed in previous calendar yeara

 523,191 563,710 577,926 644,496 641,383 836,550 872,210 

Audit Rate (overall)b 2.0% 2.0% 1.9% 1.6% 1.3% 0.8% 0.6% 

Tax-exempt organizations and related 

taxable returns audited 10,497 11,020 10,700 10,353 8,611 7,435 5,342 

Tax-exempt returns audited 

Forms 990 and 990-EZc 3,852 4,067 4,168 4,145 4,170 3,630 2,494 

Forms 990PF, 5227, and 1041A 318 312 503 350 209 148 132 

Form 990-Cd 51 114 78 88 34 18 9 

Form 1120-POLe 62 56 30 107 75 52 7 

Forms 8038, 8038G, 8038GC, 8038T, and 

8028f na 68 100 126 92 186 295 

Total 4,283 4,617 4,879 4,816 4,580 4,034 2,937 

Related taxable returns audited 

Forms 940, 941, 942, and 943g` 3,670 4,157 3,534 2,845 2,048 1409 1,170 

Form 990-Th 2,139 1,747 1,702 1,717 1,198 1217 825 

Form 4720i 143 98 51 50 87 121 41 

Forms 1040 and 1120 adjustedj 262 401 534 925 698 172 219 

Total 6,214 6,403 5,821 5,537 4,031 2,919 2,255 

Notes: (1) Excludes Employee Plans. (2) Detail may not add due to rounding. (3) na=not available. 

a

For 1995, returns filed include Forms 990, 990-EZ, 990PF, 990-C, 5227, 1041-A, 1065. 

b

In general, audits are associated with returns filed in the previous calendar year; however, this 

relationship is only approximate. 

c

Tax-exempt organization returns (Forms 990 and the 990-EZ “short” form), other than private 

foundations or farmers’ cooperatives. 

d

Form 990-C is filed by farmers’ cooperatives. 

e

Form 1120-POL is filed by certain political organizations. 

f

Tax-exempt private activity bond issues (Form 8038), government-purpose tax-exempt bond issues 

(Form 8038G), small tax-exempt governmental bond issues (Form 8038GC), arbitrage rebates (Form 

8038T), and carryover election of unused private-activity bond volume cap (Form 8328), respectively. 

g

Employer’s unemployment tax (Form 940); employer returns for income and social security tax 

withheld and advance earned income credit payments, for other than household or agricultural 

employees (Form 941); household employee tax (Form 942); and agricultural employees tax (Form 

943), respectively. 

h

Form 990-T is the tax-exempt organization business income tax return. 

i

Form 4720 reports the excise tax on certain charities. 

j

Tax on related individual (Form 1040 series) or corporation (Form 1120 series) income tax returns, 

adjusted as a result of audits of tax-exempt organization return. 

Source: IRS Annual Data Books, 1995-2002. 
Appendix III: Data About Section 501(c)(3-6) 

Organizations 

Page 47 GAO-02-444 Political Organizations 

Table 8: Recommended and Average Additional Tax from Audits of Tax-Exempt Organizations, Fiscal Years 1995-2001 

 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 

Number of returns auditeda 

Coordinated Examination 

Program (CEP)b

 655 722 846 725 450 574 511 

Non-CEP 9,842 10,298 9,854 9,628 8,161 6,861 4,831 

Total 10,497 11,020 10,700 10,353 8,611 7,435 5,342 

Recommended additional tax after audit (dollars)

CEP 40,038,000 42,236,000 30,225,000 30,701,000 73,923,000 26,210,000 28,354,000 

Non-CEP 86,521,000 88,242,000 59,252,000 51,543,000 23,702,000 312,321,000 10,109,000 

Total 126,559,000 130,478,000 89,477,000 82,244,000 97,625,000 338,531,000 38,463,000 

Average recommended additional tax per return (dollars) 

CEP 61,127 58,499 35,727 42,346 164,273 45,662 55,487 

Non-CEP 8,791 8,569 6,013 5,353 2,904 45,521 2,093 

Weighted Average 12,057 11,840 8,362 7,944 11,337 45,532 7,200 

Notes: (1) Detail may not add to totals because of rounding. (2) Includes Audits of Related Taxable 

Returns and excludes Employee Plans. 

a

In general, audits are associated with returns filed in the previous calendar year; however, this 

relationship is only approximate. 

b

CEP (Coordinated Examination Program) covers “a taxpayer, and its effectively controlled 

organizations, that warrants application of ‘team examination’ procedures.”

Source: IRS Data Books 1995-2002, and GAO analysis. 
Appendix III: Data About Section 501(c)(3-6) 

Organizations 

Page 48 GAO-02-444 Political Organizations 

Table 9: Revocations of Section 501(c)(3-6) Tax-Exempt Status, Fiscal Years 

1995-2001 

Year 

Section 

501(c)(3) 

Section 

501(c)(4)

Section 

501(c)(5) 

Section 

501(c)(6) Total 

1995 18 6 0 3 27 

1996 16 11 0 5 32 

1997 12 9 1 6 28 

1998 24 7 2 3 36 

1999 8 9 1 3 21 

2000 27 1 2 1 31 

2001 9 2 1 1 13 

Total 114 45 7 22 188 

Source: IRS’s Audit Information Management System (AIMS) database, fiscal years 1995-2001. 
Appendix IV: IRS Section 527 Disclosure Web Site 

Accessibility Evaluation 

Page 49 GAO-02-444 Political Organizations 

Appendix IV: IRS Section 527 Disclosure Web 

Site Accessibility Evaluation 
Appendix IV: IRS Section 527 Disclosure Web Site 

Accessibility Evaluation 

Page 50 GAO-02-444 Political Organizations 
Appendix IV: IRS Section 527 Disclosure Web Site 

Accessibility Evaluation 

Page 51 GAO-02-444 Political Organizations 
Appendix IV: IRS Section 527 Disclosure Web Site 

Accessibility Evaluation 

Page 52 GAO-02-444 Political Organizations 
Appendix IV: IRS Section 527 Disclosure Web Site 

Accessibility Evaluation 

Page 53 GAO-02-444 Political Organizations 
Appendix IV: IRS Section 527 Disclosure Web Site 

Accessibility Evaluation 

Page 54 GAO-02-444 Political Organizations 
Appendix V: Groups Interviewed for this 

Report 

Page 55 GAO-02-444 Political Organizations 

To obtain the perspectives of public users, we spoke with representatives 

involved in campaign finance reform issues about their experiences, 

including public interest groups and those who represent them, with IRS’s 

Section 527 disclosure web site and the extent to which it met their needs. 

We also discussed these public users’ work on issues related to campaign 

finance reform, Section 527 organizations, and the IRS. We did not identify 

and survey all public users; thus, the opinions of the public interest groups 

we interviewed may not reflect the views of all users of the Section 527 

disclosure web site. We spoke with several individuals active in this area 

and from those organizations listed below. 

Americans for Tax Reform 

Campaign Finance Institute & Campaign Finance Institute’s Task Force on 

 Disclosure 

Campaign for America/ PoliticalMoneyLine.org 

Caplin & Drysdale, Chartered 

Center for Governmental Studies 

Center for Public Integrity 

Center for Responsive Politics 

Citizens Against Government Waste 

Common Cause 

Followthemoney.org / National Institute on Money and State Politics 

GuideStar 

National Taxpayers Union 

Project on Government Oversight 

Public Campaign 

Public Citizen 

The Reform Institute 

University of Miami Law School 

Urban Institute 

Appendix V: Groups Interviewed for this 

Report 
Appendix VI: Selected Provisions of P.L. 107-

155, the Bipartisan Campaign Reform Act of 

2002 

Page 56 GAO-02-444 Political Organizations 

Provisions in the Bipartisan Campaign Reform Act of 2002, P.L. 107-155, 

can affect whether Section 527 organizations report to IRS or FEC, and 

how these agencies disclose the reported data and oversee Section 527 

organizations. IRS and FEC are reviewing the law to determine how to 

implement it, but as of March 2002, officials at those agencies could not 

say what changes will be required. The impact of the law will be 

influenced by the regulations that FEC develops, and according to FEC 

counsel, will only be known over several years. Our review of P.L. 107-155 

indicates that several provisions might affect IRS’s disclosure and 

oversight responsibilities, as discussed below. 

The legislation requires FEC to maintain a central site on the Internet for 

all publicly available election-related reports and information. The 

provision draws a distinction between the “election-related reports” that 

FEC is to disclose under FECA and “election-related information” that IRS 

is to disclose under P.L. 106-230. FEC officials said their preliminary 

reading indicates that this provision requires FEC to coordinate disclosure 

efforts with any federal agency disclosing election-related information, 

including IRS. The extent of this coordination has yet to be determined. 

Coordination could be as limited as providing links on each other’s web 

sites that direct users to both sites, or as comprehensive as a fully 

integrated web site of FEC and IRS disclosed data for all Section 527-

related election reports and information. 

A central Internet disclosure site presents challenges because FEC and 

IRS do not have compatible Web sites. For example, Section 527 

organizations that report to FEC on contributions received over $50,000 

and expenditures made, generally are required to electronically file while 

those that report to IRS are not and usually file paper forms. As a result, 

data on FEC’s web site are largely electronically searchable whereas data 

on IRS’s web site are largely not electronically searchable. 

Under P.L. 107-155, determining the level of IRS and FEC disclosure or 

oversight of a Section 527 organization depends on the activities of the 

organization. These include the timing, operations, and parties involved in 

the activities. According to FEC officials, this raises the possibility that 

Section 527 organizations will report some activities to IRS and others to 

FEC, even during the same time in an election cycle. The overlapping 

agency responsibilities for Section 527 organizations raises questions 

about the degree and type of coordination that will be needed for future 

Section 527 disclosure and oversight efforts by IRS and FEC. 

Appendix VI: Selected Provisions of P.L. 107-

155, the Bipartisan Campaign Reform Act of 

2002 

Public Disclosure of 

Data on the Internet 

Determining 

Responsibility for 

Disclosure and 

Oversight 
Appendix VI: Selected Provisions of P.L. 107-

155, the Bipartisan Campaign Reform Act of 

2002 

Page 57 GAO-02-444 Political Organizations 

For example, Section 501(c)(5) unions will be prohibited from spending 

their treasury funds for newly defined electioneering communications. 

FEC will need to oversee union activities to enforce this prohibition while 

IRS will continue to have responsibility for overseeing whether Section 

501(c)(5) unions engage in political activities that exceed those 

permissible for tax-exempt organizations. Similarly, if a Section 527 

organization runs a “promote or attack” advertisement as defined by P.L. 

107-155, disclosure and oversight responsibility depends on whether the 

organization coordinated with a candidate’s committee. Thus, both 

agencies will need to know whether the advertisements run by Section 527 

organizations include such advertisements. 
Appendix VII: Opportunities for Data 

Matching to Improve Oversight 

Page 58 GAO-02-444 Political Organizations 

IRS does not use existing data, such as from the Form 990, that it receives 

from Section 527 and other tax-exempt organizations to identify Section 

527 organizations that might not be filing required Forms 8871 and 8872, or 

Section 501(c)(4-6) organizations that should have established a separate 

segregated fund for their political activities and filed Forms 8871 and 8872. 

Some options exist for starting to match these data to identify 

noncompliance such as unfiled Forms 8871 and 8872. 

IRS could use the Form 990 data to calculate the ratio of a Section 501(c) 

organization’s political activity expenditures to its total expenses.1

 This 

would give IRS information on the amount of reported political activity. 

High amounts of political activity might merit follow up to determine 

whether the organization should have notified IRS of its activities under 

Section 527. 

IRS could use the Form 990 data to check the completeness and 

correctness of reporting on relationship between Section 527 and 

charitable organizations. These relationships are to be reported on the 

Form 990 and Form 8871. These matches could identify Section 527 

organizations that may have filed incomplete or incorrect data. In addition, 

such matches could help to identify Section 527 organizations that did not 

file the required Forms 8871 or 8872. 

A barrier to matching data across forms is the uncertainty that would exist 

about whether IRS is matching the right names for people and 

organizations listed on the forms. The Form 8871 and Form 990 require 

organizations to list the names of related organizations. If a tax-exempt 

organization were to list a Section 527 organization as the “Clean Water 

Initiative” but that organization identifies itself by a different name such as 

the “Clean Water PAC,” IRS could not match the names electronically to 

determine whether these organizations are in fact the same. Also, similar 

problems arise with common names of individuals such as “John Smith” in 

assuring that IRS is matching or, public users are analyzing, the same 

person versus someone else with the same name. Without the capability to 

match names with the right organizations or people across forms, IRS 

could not determine whether organizations have met the legal requirement 

to file complete and correct data. 

 1

For the tax year 2001 Form 990, this would be line 81a divided by line 17. 

Appendix VII: Opportunities for Data 

Matching to Improve Oversight 
Appendix VII: Opportunities for Data 

Matching to Improve Oversight 

Page 59 GAO-02-444 Political Organizations 

One option that would allow IRS to match individual and organization’s 

names would require IRS to collect social security numbers and employer 

identification numbers (EINs) for each individual or organization listed on 

the forms filed by Section 527 and 501(c)(3-6) organizations. This option is 

not without complications. According to IRS officials, IRS cannot protect 

sensitive privacy information since IRS discloses Forms 8871 and 8872 in 

their entirety. In addition, current law would compel filing organizations to 

disclose such sensitive data whenever requested to provide copies of 

forms filed with IRS. Furthermore, IRS officials said that unless the data 

on the Forms 8871 and 8872 is filed electronically, IRS would face an 

administrative burden to redact these data in time to meet its disclosure 

requirements. 

Another option that would allow IRS to match individual and 

organization’s names entails establishing a system similar to one used by 

FEC. FEC standardizes names of political committees and candidates who 

file with them by manually assigning unique identification numbers. In 

addition, if a political committee or candidate appears as a contributor or 

recipient on the filings of another entity, FEC standardizes the names. For 

example, when a PAC reports a contribution from “Smith for Congress,”

the FEC generates a list from its database of all organizations identified as 

“Smith for Congress.” By manually comparing the submission with the 

names and addresses of all “Smith for Congress” organizations, FEC can 

determine whether that contributor is already in its database with a unique 

identification number. 
Appendix VIII: Comments from the Internal Revenue Service 

Page 60 GAO-02-444 Political Organizations 

Appendix VIII: Comments from the Internal 

Revenue Service 
Appendix VIII: Comments from the Internal Revenue Service 

Page 61 GAO-02-444 Political Organizations 
Appendix VIII: Comments from the Internal Revenue Service 

Page 62 GAO-02-444 Political Organizations 
Appendix VIII: Comments from the Internal Revenue Service 

Page 63 GAO-02-444 Political Organizations 
Appendix IX: GAO Contacts and Staff 

Acknowledgments 

Page 64 GAO-02-444 Political Organizations 

Tom Short, (202) 512-9074 

Kerry Gail Dunn, (415) 904-2234 

In addition to those named above, Rodd Hobbs, Shirley Jones, Anne 

Laffoon, Kristeen McLain, Dan Mesler, Cheryl Peterson, and Tama 

Weinberg made key contributions to this report. 

Appendix IX: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts 

Staff 

Acknowledgments 

(440066) 
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