TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION 

Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

May 14, 2013 

Reference Number: 2013-10-053 

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process 

and information determined to be restricted from public release has been redacted from this document. 

Redaction Legend: 

1 = Tax Return/Return Information

Phone Number | 202-622-6500 

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

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

INAPPROPRIATE CRITERIA WERE intervention was started soon after receipt, no 

USED TO IDENTIFY TAX-EXEMPT work was completed on the majority of these 

APPLICATIONS FOR REVIEW applications for 13 months. This was due to 

delays in receiving assistance from the Exempt 

Highlights Organizations function Headquarters office. 

For the 296 total political campaign intervention 

applications TIGTA reviewed as of 

December 17, 2012, 108 had been approved, Final Report issued on May 14, 2013 28 were withdrawn by the applicant, none had 

been denied, and 160 were open from 206 to Highlights of Reference Number: 2013-10-053 1,138 calendar days (some for more than to the Internal Revenue Service Acting three years and crossing two election cycles). Commissioner, Tax Exempt and Government 

Entities Division. More than 20 months after the initial case was 

identified, processing the cases began in IMPACT ON TAXPAYERS earnest. Many organizations received requests 

Early in Calendar Year 2010, the IRS began for additional information from the IRS that 

using inappropriate criteria to identify included unnecessary, burdensome questions 

organizations applying for tax-exempt status to (e.g., lists of past and future donors). The IRS 

review for indications of significant political later informed some organizations that they did 

campaign intervention. Although the IRS has not need to provide previously requested 

taken some action, it will need to do more so information. IRS officials stated that any donor 

that the public has reasonable assurance that information received in response to a request 

applications are processed without from its Determinations Unit was later destroyed. 

unreasonable delay in a fair and impartial WHAT TIGTA RECOMMENDED manner in the future. 

TIGTA recommended that the IRS finalize the WHY TIGTA DID THE AUDIT interim actions taken, better document the 

TIGTA initiated this audit based on concerns reasons why applications potentially involving 

expressed by members of Congress. The political campaign intervention are chosen for 

overall objective of this audit was to determine review, develop a process to track requests for 

whether allegations were founded that the IRS: assistance, finalize and publish guidance, 

1) targeted specific groups applying for develop and provide training to employees 

tax-exempt status, 2) delayed processing of before each election cycle, expeditiously resolve 

targeted groups’ applications, and 3) requested remaining political campaign intervention cases 

unnecessary information from targeted groups. (some of which have been in process for 

three years), and request that social welfare 

WHAT TIGTA FOUND activity guidance be developed by the 

Department of the Treasury. The IRS used inappropriate criteria that 

identified for review Tea Party and other In their response to the report, IRS officials 

organizations applying for tax-exempt status agreed with seven of our nine recommendations 

based upon their names or policy positions and proposed alternative corrective actions for 

instead of indications of potential political two of our recommendations. TIGTA does not 

campaign intervention. Ineffective management: agree that the alternative corrective actions will 

1) allowed inappropriate criteria to be developed accomplish the intent of the recommendations 

and stay in place for more than 18 months, and continues to believe that the IRS should 

2) resulted in substantial delays in processing better document the reasons why applications 

certain applications, and 3) allowed unnecessary potentially involving political campaign 

information requests to be issued. intervention are chosen for review and finalize 

and publish guidance. Although the processing of some applications 

with potential significant political campaign 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220

TREASURY INSPECTOR GENERAL 

FOR TAX ADMINISTRATION 

May 14, 2013 

MEMORANDUM FOR ACTING COMMISSIONER, TAX EXEMPT AND GOVERNMENT 

ENTITIES DIVISION 

FROM: Michael E. McKenney 

Acting Deputy Inspector General for Audit 

SUBJECT: Final Audit Report – Inappropriate Criteria Were Used to Identify 

Tax-Exempt Applications for Review (Audit # 201210022) 

This report presents the results of our review to determine whether allegations were founded that 

the Internal Revenue Service (IRS): 1) targeted specific groups applying for tax-exempt status, 

2) delayed processing of targeted groups’ applications for tax-exempt status, and 3) requested 

unnecessary information from targeted groups. This audit was initiated based on concerns 

expressed by members of Congress and reported in the media regarding the IRS’s treatment of 

organizations applying for tax-exempt status. This review is included in our Fiscal Year 2013 

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

Initiatives. 

We would like to clarify a few issues based on the IRS response to our report. The response 

states that our report views approvals as evidence that the Exempt Organizations function should 

not have looked closely at those applications. We disagree with this statement. Our objection 

was to the criteria used to identify these applications for review. We believe all applications 

should be reviewed prior to approval to determine whether tax-exempt status should be granted. 

The IRS’s response also states that issues discussed in the report have been resolved. We 

disagree with this statement as well. Nine recommendations were made to correct concerns we 

raised in the report, and corrective actions have not been fully implemented. Further, as our 

report notes, a substantial number of applications have been under review, some for more than 

three years and through two election cycles, and remain open. Until these cases are closed by the 

IRS and our recommendations are fully implemented, we do not consider the concerns in this 

report to be resolved. Management’s complete response to the draft report is included as 

Appendix VIII. 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

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

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

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

2
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Table of Contents 

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

Results of Review ............................................................................................... Page 5 

The Determinations Unit Used Inappropriate Criteria 

to Identify Potential Political Cases .............................................................. Page 5 

Recommendation 1: .................................................................. Page 10

Recommendations 2 and 3: ....................................................... Page 11

Potential Political Cases Experienced Significant 

Processing Delays ......................................................................................... Page 11 

Recommendations 4 and 5: .............................................. Page 16 

Recommendations 6 through 8: ......................................... Page 17 

The Determinations Unit Requested Unnecessary 

Information for Many Potential Political Cases ............................................ Page 18 

Recommendation 9: ........................................................ Page 21 

Appendices 

Appendix I – Detailed Objective, Scope, and Methodology ........................ Page 22 

Appendix II – Major Contributors to This Report ........................................ Page 25 

Appendix III – Report Distribution List ....................................................... Page 26 

Appendix IV – Outcome Measures ............................................................... Page 27 

Appendix V – High-Level Organizational Chart of Offices 

Referenced in This Report ............................................................................ Page 29 

Appendix VI – Timeline of Written Criteria for Identifying 

Potential Political Cases ................................................................................ Page 30 

Appendix VII – Comprehensive Timeline of Events ................................... Page 31 

Appendix VIII – Management’s Response to the Draft Report ................... Page 44 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Abbreviations 

BOLO Be On the Look Out 

EO Exempt Organizations 

I.R.C. Internal Revenue Code 

IRS Internal Revenue Service 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Background 

Organizations, such as charities, seeking Federal tax exemption are required to file an application 

with the Internal Revenue Service (IRS). Other organizations, such as social welfare 

organizations, may file an application but are not required to do so. The IRS’s Exempt 

Organizations (EO) function, Rulings and Agreements office, which is headquartered in 

Washington, D.C., is responsible for processing applications for tax exemption. Within the 

Rulings and Agreements office, the Determinations Unit in Cincinnati, Ohio, is responsible for 

reviewing applications as they are received to determine whether the organization qualifies for 

tax-exempt status. 

In Fiscal Year 2012,1 70 percent of all closed applications for tax-exempt status were approved 

during an initial review with little or no additional information from the organizations. If 

substantial additional information is needed, the application is placed in unassigned inventory 

until it can be assigned to a specialist in the Determinations Unit for further processing. The 

specialist develops a letter(s) requesting the additional information and issues it to the 

organization. Once the specialist receives all the necessary information to determine whether an 

organization should be afforded tax-exempt status, a final determination letter is issued to the 

organization either approving or denying the request for tax-exempt status. 

If the Determinations Unit needs technical assistance processing applications, it may call upon 

the Technical Unit in the Rulings and Agreements office in Washington, D.C.2 The IRS’s goal 

for processing all types of applications for tax-exempt status was 121 days in Fiscal Year 2012; 

however, some cases may take substantially longer. For example, the EO function states in its 

Fiscal Year 2013 Work Plan that applications requiring additional information are not assigned 

for review until an average of five months after they are received. 

Most organizations requesting tax-exempt status must submit either a Form 1023, Application 

for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, or 

Form 1024, Application for Recognition of Exemption Under Section 501(a), depending on the 

type of tax-exempt organization it desires to be. For example, a charitable organization would 

request exemption under Internal Revenue Code (I.R.C.) Section (§) 501(c)(3),3

 whereas a social 

welfare organization would request exemption under I.R.C. § 501(c)(4).4

 

1

 A 12-consecutive-month period ending on the last day of any month. The Federal Government’s fiscal year begins 

on October 1 and ends on September 30. 

2

 For a high-level organizational chart of offices referenced in this report, see Appendix V. 

3

 I.R.C. § 501(c)(3) (2012). 

4

 I.R.C. § 501(c)(4) (2012). 

Page 1
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

The I.R.C. section and subsection an organization is granted tax exemption under affects the 

activities it may undertake. For example, I.R.C. § 501(c)(3) charitable organizations are 

prohibited from directly or indirectly participating in or intervening in any political campaign on 

behalf of or in opposition to any candidate for public office (hereafter referred to as political 

campaign intervention).5 However, I.R.C. § 501(c)(4) social welfare organizations, 

I.R.C. § 501(c)(5)6 agricultural and labor organizations, and I.R.C. § 501(c)(6)7 business leagues 

may engage in limited political campaign intervention. Figure 1 highlights certain characteristics 

of common types of tax-exempt organizations. 

Figure 1: Characteristics of Certain 

Common Types of Tax-Exempt Organizations 

I.R.C. §§ 501(c)(4), 

Characteristic I.R.C. § 501(c)(3) (c)(5), and (c)(6) 

May receive tax deductible charitable 

contributions. Yes No 

May engage in political campaign 

intervention. No Limited (must not constitute 

primary activity of organization) 

Must publicly disclose the identity 

its donors. 

of No No 

May engage 

activity). 

in lobbying8

 (i.e., legislative Limited (must not 

be substantial) 

Yes (unlimited amount 

if in furtherance of 

tax-exempt purposes) 

May engage in general advocacy9 not 

related to legislation or the election of 

candidates. 

Yes (permitted as an 

educational activity) 

Yes (unlimited amount 

if in furtherance of 

tax-exempt purposes) 

Must apply with the IRS. Yes No 

Source: Draft Advocacy Guide Sheet and Internal Revenue Manual. 

 

5

 Political campaign intervention is the term used in Treasury Regulations §§ 1.501(c)(3)-1, 1.501(c)(4)-1, 

1.501(c)(5)-1, and 1.501(c)(6)-1. 

6

 I.R.C. § 501(c)(5) (2012). 

7

 I.R.C. § 501(c)(6) (2012). 

8

 An organization engages in lobbying, or legislative activities, when it attempts to influence specific legislation by 

directly contacting members of a legislative body (Federal, State, or local) or encouraging the public to contact those 

members regarding that legislation. An organization also engages in lobbying when it encourages the public to take 

a position on a referendum. Lobbying is distinguished from political campaign intervention because lobbying does 

not involve attempts to influence the election of candidates for public office. 

9

 An organization engages in general advocacy when it attempts to 1) influence public opinion on issues germane to 

the organization’s tax-exempt purposes, 2) influence nonlegislative governing bodies (e.g., the executive branch or 

regulatory agencies), or 3) encourage voter participation through “get out the vote” drives, voter guides, and 

candidate debates in a nonpartisan, neutral manner. General advocacy basically includes all types of advocacy other 

than political campaign intervention and lobbying. 

Page 2
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

During the 2012 election cycle, the activities of tax-exempt organizations received media 

coverage concerning the amount of money spent on influencing elections. According to the 

Center for Responsive Politics, tax-exempt groups, such as I.R.C. § 501(c)(4), I.R.C. § 501(c)(5), 

and I.R.C. § 501(c)(6) organizations, spent $133 million in Calendar Year 2010 on Federal 

candidate-oriented expenditures. In Calendar Year 2012, this figure increased to $315 million.10 

In addition, as shown in Figure 2, the number of applications for tax-exempt status has increased 

over the past four fiscal years.11

Figure 2: Number of Applications for 

I.R.C. §§ 501(c)(3)–(6) Tax-Exempt 

Status Received by the IRS 

Fiscal 

Year 

I.R.C. Subsection 

501(c)(3) 501(c)(4) 501(c)(5) 501(c)(6) 

2009 65,179 1,751 543 1,828 

2010 59,486 1,735 290 1,637 

2011 58,712 2,265 409 1,836 

2012 66,543 3,357 1,081 2,338 

Source: These data were provided by the EO function as 

background and were not validated for accuracy or reliability.

During the 2012 election cycle, some members of Congress raised concerns to the IRS about 

selective enforcement and the duty to treat similarly situated organizations consistently. In 

addition, several organizations applying for 

I.R.C. § 501(c)(4) tax-exempt status made allegations that 

the IRS 1) targeted specific groups applying for tax-exempt 

status, 2) delayed the processing of targeted groups’ 

applications for tax-exempt status, and 3) requested 

unnecessary information from targeted organizations. 

Lastly, several members of Congress requested that the IRS 

investigate whether existing social welfare organizations 

are improperly engaged in a substantial, or even 

predominant, amount of campaign activity. 

We initiated this audit based on concerns expressed by Congress and reported in the media 

regarding the IRS’s treatment of organizations applying for tax-exempt status. We focused our 

 

10 The Center for Responsive Politics obtained its information from the Federal Election Commission. We only 

included expenditures reported to the Federal Election Commission specifically for advocating the election or defeat 

of clearly identified Federal candidates. 

11 Some of this increase may be due to the reapplication of those organizations whose tax-exempt status was revoked 

as a result of not filing information returns for three consecutive years. 

Page 3

This audit focused on 

allegations that the IRS targeted 

specific groups applying for 

tax-exempt status, delayed the 

processing of targeted groups’ 

applications, and requested 

unnecessary information from 

targeted organizations.
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

efforts on reviewing the processing of applications for tax-exempt status and determining 

whether allegations made against the IRS were founded.12 Tax-exempt application case files 

were selected for review in June 2012 and were reviewed as provided by the EO function 

between July and November 2012. We did not review whether specific applications for 

tax-exempt status should be approved or denied. 

This review was performed at the EO function Headquarters office in Washington, D.C., and the 

Determinations Unit in Cincinnati, Ohio, during the period June 2012 through February 2013. 

We conducted this performance audit in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objective. We believe that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on our audit objective. Detailed information on our audit 

objective, scope, and methodology is presented in Appendix I. Major contributors to the report 

are listed in Appendix II. 

 

12 A future audit is being considered to assess how the EO function monitors I.R.C. §§ 501(c)(4)–(6) organizations 

to ensure that political campaign intervention does not constitute their primary activity.

Page 4
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Results of Review 

The Determinations Unit Used Inappropriate Criteria to Identify 

Potential Political Cases 

The Determinations Unit developed and used inappropriate criteria to identify applications from 

organizations with the words Tea Party in their names. These applications (hereafter referred to 

as potential political cases)13 were forwarded to a team of specialists14 for review. Subsequently, 

the Determinations Unit expanded the criteria to inappropriately include organizations with other 

specific names (Patriots and 9/12) or policy positions. While the criteria used by the 

Determinations Unit specified particular organization names, the team of specialists was also 

processing applications from groups with names other than those identified in the criteria. The 

inappropriate and changing criteria may have led to inconsistent treatment of organizations 

applying for tax-exempt status. For example, we identified some organizations’ applications 

with evidence of significant political campaign intervention that were not forwarded to the team 

of specialists for processing but should have been. We also identified applications that were 

forwarded to the team of specialists but did not have indications of significant political campaign 

intervention. All applications that were forwarded to the team of specialists experienced 

substantial delays in processing. Although the IRS has taken some action, it will need to do 

more so that the public has reasonable assurance that applications are processed without 

unreasonable delay in a fair and impartial manner in the future. 

Criteria for selecting applications inappropriately identified organizations based 

on their names and policy positions 

The Determinations Unit developed and began using criteria to identify potential political cases 

for review that inappropriately identified specific groups applying for tax-exempt status based on 

their names or policy positions instead of developing criteria based on tax-exempt laws and 

Treasury Regulations. 

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

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

*1***. According to media reports, some organizations were classified as I.R.C. § 501(c)(4) 

social welfare organizations but operated like political organizations. ********1********** 

 

13 Until July 2011, the Rulings and Agreements office referred to these cases as Tea Party cases. Afterwards, the 

EO function referred to these cases as advocacy cases. 

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

EO function referred to this team as the advocacy team. 

Page 5
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

*********************************1**************************************. Soon 

thereafter, according to the IRS, a Determinations Unit specialist was asked to search for 

applications with Tea Party, Patriots, or 9/12 in the organization’s name as well as other 

“political-sounding” names. EO function officials stated that, in May 2010, the Determinations 

Unit began developing a spreadsheet that would become known as the “Be On the Look Out” 

listing (hereafter referred to as the BOLO listing),15 which included the emerging issue of Tea 

Party applications. In June 2010, the Determinations Unit began training its specialists on issues 

to be aware of, including Tea Party cases. By July 2010, Determinations Unit management 

stated that it had requested its specialists to be on the lookout for Tea Party applications. 

In August 2010, the Determinations Unit distributed the first formal BOLO listing. The criteria 

in the BOLO listing were Tea Party organizations applying for I.R.C. § 501(c)(3) or 

I.R.C. § 501(c)(4) status. Based on our review of other BOLO listing criteria, the use of 

organization names on the BOLO listing is not unique to potential political cases.16 EO function 

officials stated that Determinations Unit specialists interpreted the general criteria in the 

BOLO listing and developed expanded criteria for identifying potential political cases.17 

Figure 3 shows that, by June 2011, the expanded criteria included additional names (Patriots and 

9/12 Project) as well as policy positions espoused by organizations in their applications. 

Figure 3: Criteria for Potential Political Cases (June 2011) 

“Tea Party,” “Patriots” or “9/12 Project” is referenced in the case file 

Issues include government spending, government debt or taxes 

Education of the public by advocacy/lobbying to “make America a better place to live” 

Statement in the case file criticize how the country is being run 

Source: EO function briefing dated June 2011. 

The mission of the IRS is to provide America’s taxpayers top quality service by helping them 

understand and meet their tax responsibilities and by applying the tax law with integrity and 

fairness to all. According to IRS Policy Statement 1-1, IRS employees accomplish this mission 

by being impartial and handling tax matters in a manner that will promote public confidence. 

However, the criteria developed by the Determinations Unit gives the appearance that the IRS is 

not impartial in conducting its mission. The criteria focused narrowly on the names and policy 

 

15 The BOLO listing includes a consolidated list of emerging issues the EO function identifies for dissemination to 

Determinations Unit specialists. 

16 We did not review the use of other named organizations on the BOLO listing to determine if their use was 

appropriate. 

17 During interviews with Determinations Unit specialists and managers, we could not specifically determine who 

had been involved in creating the criteria. EO function officials later clarified that the expanded criteria were a 

compilation of various Determinations Unit specialists’ responses on how they were identifying Tea Party cases. 

Page 6
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

positions of organizations instead of tax-exempt laws and Treasury Regulations. Criteria for 

selecting applications for the team of specialists should focus on the activities of the 

organizations and whether they fulfill the requirements of the law. Using the names or policy 

positions of organizations is not an appropriate basis for identifying applications for review by 

the team of specialists. 

We asked the Acting Commissioner, Tax Exempt and Government Entities Division; the 

Director, EO; and Determinations Unit personnel if the criteria were influenced by any 

individual or organization outside the IRS. All of these officials stated that the criteria were not 

influenced by any individual or organization outside the IRS. Instead, the Determinations Unit 

developed and implemented inappropriate criteria in part due to insufficient oversight provided 

by management. Specifically, only first-line management approved references to the Tea Party 

in the BOLO listing criteria before it was implemented. As a result, inappropriate criteria 

remained in place for more than 18 months. Determinations Unit employees also did not 

consider the public perception of using politically sensitive criteria when identifying these cases. 

Lastly, the criteria developed showed a lack of knowledge in the Determinations Unit of what 

activities are allowed by I.R.C. § 501(c)(3) and I.R.C. § 501(c)(4) organizations. 

Determinations Unit employees stated that they considered the Tea Party criterion as a shorthand 

term for all potential political cases. Whether the inappropriate criterion was shorthand for all 

potential political cases or not, developing and using criteria that focuses on organization names 

and policy positions instead of the activities permitted under the Treasury Regulations does not 

promote public confidence that tax-exempt laws are being adhered to impartially. In addition, 

the applications for those organizations that were identified for processing by the team of 

specialists experienced significant delays and requests for unnecessary information that is 

detailed later in this report. 

After being briefed on the expanded criteria in June 2011, the Director, EO, immediately 

directed that the criteria be changed. In July 2011, the criteria were changed to focus on the 

potential “political, lobbying, or [general] advocacy” activities of the organization. These 

criteria were an improvement over using organization names and policy positions. However, the 

team of specialists subsequently changed the criteria in January 2012 without executive approval 

because they believed the July 2011 criteria were too broad. The January 2012 criteria again 

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

Regulations. After three months, the Director, Rulings and Agreements, learned the criteria had 

been changed by the team of specialists and subsequently revised the criteria again in May 2012. 

(See Appendix VI for a complete timeline of criteria used to identify potential political cases). 

The May 2012 criteria more clearly focus on activities permitted under the Treasury Regulations. 

As a result of changes made to the criteria without management knowledge, the Director, 

Rulings and Agreements, issued a memorandum requiring all original entries and changes to 

criteria included on the BOLO listing be approved at the executive level prior to implementation. 

Page 7
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

The team of specialists processed applications by organizations with names 

other than Tea Party, Patriots, and 9/12 

To determine if organizations other than those specifically identified in the inappropriate criteria 

were processed by the team of specialists, we reviewed the names on all applications identified 

as potential political cases.18 Figure 4 shows that approximately one-third of the applications 

identified for processing by the team of specialists included Tea Party, Patriots, or 9/12 in their 

names, while the remainder did not. According to the Director, Rulings and Agreements, the 

fact that the team of specialists worked applications that did not involve the Tea Party, Patriots, 

or 9/12 groups demonstrated that the IRS was not politically biased in its identification of 

applications for processing by the team of specialists. 

Figure 4: Breakdown of Potential Political Cases by Organization Name 

72

11

13

202

Tea Party

9/12

Patriots

Other

Source: EO function Potential Political Case Tracking Sheet as of May 31, 2012.

While the team of specialists reviewed applications from a variety of organizations, we 

determined during our reviews of statistical samples of I.R.C. § 501(c)(4) tax-exempt 

applications that all cases with Tea Party, Patriots, or 9/12 in their names were forwarded to the 

team of specialists.19

 

18 We could not determine which potential political cases may have been identified based on an organization’s 

policy positions. 

19 We determined this through two statistical samples of 338 (7.5 percent) from a universe of 4,510 I.R.C. § 501(c)(4) 

tax-exempt applications filed during May 2010 through May 2012 that were not forwarded to the team of specialists. 

See Appendix I for details on our sampling methodology. 

Page 8
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Some applications with indications of significant political campaign intervention 

were not identified for review by the team of specialists 

In May 2012, the Director, Rulings and Agreements, approved the current criteria for identifying 

potential political cases. The criteria are “501(c)(3), 501(c)(4), 501(c)(5), and 501(c)(6) 

organizations with indicators of significant amounts of political campaign intervention....” To 

determine if all cases with indications of significant political campaign intervention were sent to 

the team of specialists, we reviewed two statistical samples of I.R.C. § 501(c)(4) applications. 

 Applications That the IRS Determined Required Minimal or No Additional 

Information for Processing – We reviewed a statistical sample of 94 I.R.C. § 501(c)(4) 

cases closed from May 201020 through May 2012 from a universe of 2,051 applications 

that the IRS determined required minimal or no additional information from the 

organizations (also referred to by the EO function as merit closures). We determined that 

two (2 percent) of 94 approved applications had indications of significant political 

campaign intervention and should have been forwarded to the team of specialists.21 

Based on our statistical sample, we project an estimated 44 merit closure applications 

were not appropriately identified as potential political cases during this time period.22

 Applications Identified by the IRS That Required Additional Information for 

Processing – We reviewed a statistical sample of 244 I.R.C. § 501(c)(4) cases closed 

from May 2010 through May 2012 or open as of May 31, 2012, from a universe of 

2,459 applications that the IRS determined required additional information from the 

organizations applying for tax-exempt status (also referred to by the EO function as full 

development applications) but were not forwarded to the team of specialists. For the 

applications that were available for our review, we found that 14 (6 percent)23 of 

237 applications24 included indications of significant political campaign intervention and 

should have been processed by the team of specialists.25 We project an estimated 141 full 

development applications were not appropriately identified as potential political cases 

during this time period.26

 

20 May 2010 was chosen because it is the first date that we were informed that the Determinations Unit was using 

criteria which identified specific organizations by name. 

21 Neither of the two cases involved a Tea Party, Patriots, or 9/12 organization. 

22 See Appendix IV. 

23 None of the 14 cases involved a Tea Party, Patriots, or 9/12 organization. 

24 We could not analyze seven sampled application case files because of incomplete documentation in the case files 

(six applications) or the case file could not be located (one application). See Appendix IV. 25 We determined that eight applications were appropriately forwarded to the team of specialists. Five of the 

eight application case files involved Tea Party, Patriots, or 9/12 organizations. 

26 See Appendix IV. 

Page 9
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

To determine if cases without indications of significant political campaign intervention were 

sent to the team of specialists, we reviewed all of the applications identified as potential 

political cases as of May 31, 2012. 

 Applications That the IRS Determined Should Be Processed by the Team of 

Specialists – We reviewed all 298 applications that had been identified as potential 

political cases as of May 31, 2012. In the majority of cases, we agreed that the 

applications submitted included indications of significant political campaign intervention. 

However, we did not identify any indications of significant political campaign 

intervention for 91 (31 percent) of the 296 applications27 that had complete 

documentation.28 

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

Although EO function officials provided explanations about why the applications should 

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

reason(s) the applications were selected. EO function officials also stated that 

applications may not literally include statements indicating significant political campaign 

intervention.29 According to EO function officials, organizations may not understand 

what constitutes political campaign intervention or may provide vague descriptions of 

certain activities that the EO function knows from past experience potentially involve 

political campaign intervention. In these cases, the EO function believes it is important 

to review the applications to ensure that political campaign intervention is not the 

organizations’ primary activity. To provide further assurance that Determinations Unit 

employees are handling tax matters in an impartial manner, it would be helpful to 

document specifically why applications are chosen for further review. 

Recommendations 

The Director, EO, should: 

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

Agreements, to approve all original entries and changes to criteria included on the BOLO listing 

prior to implementation be formalized in the appropriate Internal Revenue Manual. 

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

ensure that the procedures set forth in the memorandum requiring the Director, 

 

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

Appendix IV.

28 Seventeen (19 percent) of the 91 applications involved Tea Party, Patriots, or 9/12 organizations. 

29 It should also be noted that, in some cases, specialists obtained additional information after the application was 

received that indicated the organizations were involved in political campaign intervention which was not available in 

the initial application documentation we reviewed. 

Page 10
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Rulings and Agreements, to approve in advance all original entries and changes to the 

BOLO listing are made part of the Internal Revenue Manual. 

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

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

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

review the application further based on past experience). 

Management’s Response: The IRS proposed an alternative corrective action to 

our recommendation. The IRS stated it will review its screening procedures to 

determine whether, and to what extent, additional documentation can be implemented 

without having an adverse impact on the timeliness of case processing. 

Office of Audit Comment: We do not believe this alternative corrective action fully 

addresses the recommendation. Developing procedures to better document the reasons 

applications are chosen for further review would help ensure that applications are being 

handled in an impartial manner. In addition, as detailed in the next section of this report, 

the average time these applications have been open is 574 days as of December 17, 2012. 

We do not believe documenting a brief explanation about why applications are chosen for 

review would have an adverse impact on the timeliness of case processing. 

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

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

political campaign intervention activities. 

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

develop training on the topics described in Recommendations 3, 5, 6, and 9. Because 

election cycles are continuous, the IRS will develop a schedule which ensures that 

staff have the training as needed to handle potential political intervention matters.

Potential Political Cases Experienced Significant Processing Delays 

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

of specialists experienced substantial delays. As of December 17, 2012, many organizations had 

not received an approval or denial letter for more than two years after they submitted their 

applications. Some cases have been open during two election cycles (2010 and 2012). The 

IRS Strategic Plan 2009–2013 has several goals and objectives that involve timely interacting 

with taxpayers, including enforcement of the tax law in a timely manner while minimizing 

taxpayer burden. The EO function does not have specific timeliness goals for processing 

applications, such as potential political cases, that require significant follow-up with the 

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Inappropriate Criteria Were Used to 

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organizations.30 The time it takes to process an application depends upon the facts and 

circumstances of the case. 

Potential political cases took significantly longer than average to process due to ineffective 

management oversight. Once cases were initially identified for processing by the team of 

specialists, the Determinations Unit Program Manager requested assistance via e-mail from the 

Technical Unit to ensure consistency in processing the cases. However, EO function 

management did not ensure that there was a formal process in place for initiating, tracking, or 

monitoring requests for assistance. In addition, there were several changes in Rulings and 

Agreements management responsible for overseeing the fulfillment of requests for assistance 

from the Determinations Unit during this time period. This contributed to the lengthy delays in 

processing potential political cases. As a result, the Determinations Unit waited more than 

20 months (February 2010 to November 2011) to receive draft written guidance from the 

Technical Unit for processing potential political cases. 

As a result, the IRS delayed the issuance of letters to organizations approving their tax-exempt 

status. For I.R.C. § 501(c)(3) organizations, this means that potential donors and grantors could 

be reluctant to provide donations or grants.31 In addition, some organizations withdrew their 

applications and others may not have begun conducting planned charitable or social welfare 

work. The delays may have also prevented some organizations from receiving certain benefits of 

the tax-exempt status. For example, if organizations are approved for tax-exempt status, they 

may receive exemption from certain State taxes and reduced postal rates. For organizations that 

may eventually be denied tax-exempt status but have been operating while their applications are 

pending, the organizations will be required to retroactively file income tax returns and may be 

liable to pay income taxes for, in some cases, more than two years. 

To analyze the delays, we: 1) reviewed the events that led to delays in processing potential 

political cases, 2) compared the amount of time cases assigned to the team of specialists were 

open to applications that were not assigned to the team of specialists, and 3) determined if 

organizations were eligible to sue the IRS due to delays in processing certain applications. 

Potential political cases experienced long processing delays 

The team of specialists stopped working on potential political cases from October 2010 through 

November 2011, resulting in a 13-month delay, while they waited for assistance from the 

Technical Unit. Figure 5 illustrates significant events and delays concerning potential political 

cases. For a comprehensive timeline of events related to potential political cases, see 

Appendix VII. 

 

30 The EO function, however, had an overall goal to process merit and full development tax-exempt applications in 

121 days for Fiscal Year 2012. 

31 Of 298 cases reviewed, 89 were I.R.C. § 501(c)(3) organizations. 

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Inappropriate Criteria Were Used to 

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Figure 5: Timeline of Events and Delays Involving the Processing 

of Potential Political Cases (*****1******* Through May 2012) 

Source: Interviews of EO function employees and our review of EO function e-mails.

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

cases. ***************************************1***************************** 

**********1*******************************. In April 2010, the Determinations Unit 

Program Manager requested via e-mail a contact in the Technical Unit to provide assistance with 

processing the applications. A Technical Unit specialist was assigned this task and began 

working with the team of specialists. The team of specialists stopped processing cases in 

October 2010 without closing any of the 40 cases that were begun. However, the Determinations 

Unit Program Manager thought the cases were being processed. Later, we were informed by the 

Director, Rulings and Agreements, that there was a miscommunication about processing the 

cases. The Determinations Unit waited for assistance from the Technical Unit instead of 

Page 13

Date Events and Delays 

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

*******************1**********. 

April 2010 The team of specialists is formed with one specialist who is assigned potential 

political cases and begins working on them with the assistance of a Technical Unit 

employee. 

October 2010 The team of specialists stops processing potential political cases while waiting for 

assistance from the Technical Unit. 

July 2011 The EO function decides to develop written 

to process the potential political cases. 

guidance for the Determinations Unit 

November 2011 Draft written guidance is provided to the Determinations Unit. 

December 2011 Additional specialists are added to the team of specialists. 

January 2012 Specialists begin issuing additional information request letters to organizations 

applying for tax-exempt status, requesting that the information be provided in 

two to three weeks. These time periods are standard response times given for any 

information request and are included in the Internal Revenue Manual. 

February 2012 Concerns are raised in the media regarding requests for significant amounts of 

information from organizations applying for tax-exempt status. The Director, EO, 

stops specialists from issuing any more letters requesting information. Instead, 

letters allowing extensions of 60 days to respond to previous additional information 

letters were developed and issued in March and April 2012. These letters also noted 

that applicants should contact the IRS if they needed longer than 60 days to respond. 

May 2012 A workshop is given to Determinations Unit specialists assigned to potential 

political cases. Afterwards, a review of all the open cases is completed to 

recommend whether additional processing is necessary or whether the cases can 

be closed (as of December 17, 2012, 160 applications were still being processed). 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

continuing to process the cases. The Determinations Unit Program Manager requested status 

updates on the request for assistance several times via e-mail. Draft written guidance was not 

received from the Technical Unit until November 2011, 13 months after the Determinations Unit 

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

had not been finalized because the EO function decided to provide training instead.32

Many organizations waited much longer than 13 months for a decision, while others have yet to 

receive a decision from the IRS. For example, as of December 17, 2012, the IRS had been 

processing several potential political cases for more than 1,000 calendar days. Some of these 

organizations received requests for additional information in Calendar Year 2010 and then did 

not hear from the IRS again for more than a year while the Determinations Unit waited for 

assistance from the Technical Unit. For the 296 potential political cases we reviewed,33 as of 

December 17, 2012, 108 applications had been approved, 28 were withdrawn by the applicant, 

none had been denied, and 160 cases were open from 206 to 1,138 calendar days (some crossing 

two election cycles). 

In March 2012, the Deputy Commissioner, Services and Enforcement, asked the Senior 

Technical Advisor to the Acting Commissioner, Tax Exempt and Government Entities Division, 

to look into concerns raised by the media about delays in processing applications for tax-exempt 

status from Tea Party groups and the nature of the questions being asked related to the 

applications. In April 2012, the Senior Technical Advisor to the Acting Commissioner, Tax 

Exempt and Government Entities Division, along with a team of EO function Headquarters 

office employees, reviewed many of the potential political cases and determined that there 

appeared to be some confusion by Determinations Unit specialists and applicants on what 

activities are allowed by I.R.C. § 501(c)(4) organizations. We believe this could be due to the 

lack of specific guidance on how to determine the “primary activity” of an I.R.C. § 501(c)(4) 

organization. Treasury Regulations state that I.R.C. § 501(c)(4) organizations should have social 

welfare as their “primary activity”; however, the regulations do not define how to measure 

whether social welfare is an organization’s “primary activity.” 

As a result of this confusion, the EO function Headquarters employees provided a two-day 

workshop to the team of specialists in May 2012 to train them on what activities are allowable by 

I.R.C. § 501(c)(4) organizations, including lobbying and political campaign intervention. After 

this workshop, potential political cases were independently reviewed by two people to determine 

what, if any, additional work needed to be completed prior to making a decision to approve or 

deny the applications for tax-exempt status. This review continued on any newly identified 

potential political cases. Prior to the hands-on training and independent reviews, the team of 

specialists had only approved six (2 percent) of 298 applications. After the hands-on training 

 

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

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

delays. 

33 *************************************1******************************************. 

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Inappropriate Criteria Were Used to 

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and independent reviews began, the Determinations Unit approved an additional 102 applications 

by December 2012.34 In addition, it was decided that applications could be approved, but a 

referral for follow-up could be sent to another unit,35 which could review the activities of an 

organization at a later date to determine if they were consistent with the organization’s 

tax-exempt status. 

Potential political cases were open much longer than similar cases that were not 

identified for processing by the team of specialists 

For Fiscal Year 2012, the average time it took the Determinations Unit to complete processing 

applications requiring additional information from organizations applying for tax-exempt status 

(also referred to by the EO function as full development cases) was 238 calendar days according 

to IRS data. In comparison, the average time a potential political case was open as of 

December 17, 2012, was 574 calendar days (with 158 potential political cases being open longer 

than the average calendar days it took to close other full development cases).36 Figure 6 shows 

that more than 80 percent of the potential political cases have been open more than one year. 

Figure 6: Number of Calendar Days Potential Political Cases 

Were Open (as of December 17, 2012) 

Total 

Cases 

Number and Percentage37 of Potential 

Political Cases Open by Calendar Day Range 

0–120 

Calendar 

Days 

121–180 

Calendar 

Days 

181–270 

Calendar 

Days 

271–365 

Calendar 

Days 

More 

Than 365 

Calendar 

Days 

160 0 

(0%) 

0 

(0%) 

3 

(2%) 

28 

(18%) 

129 

(81%) 

Source: Our analysis of EO function documentation. 

 

34 Of the 102 applications, 29 (28 percent) involved Tea Party, Patriots, or 9/12 organizations. 35 The Review of Operations Unit completes compliance reviews on tax-exempt organizations to determine whether 

they are operating in accordance with their tax-exempt purposes and are current with their filing requirements. Unit 

personnel review information available on IRS systems, filed returns, applications for tax exemption, and the 

Internet to assess the organizations’ operations and make recommendations for further actions. 

36 See Appendix IV. 

37 Percentages may not equal 100 percent due to rounding. 

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Inappropriate Criteria Were Used to 

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Some charitable organizations were eligible to sue the IRS for declaratory 

judgment due to the delays in processing applications 

The Determinations Unit did not always timely approve or deny the applications for 

I.R.C. § 501(c)(3) tax-exempt status for potential political cases. However, the tax law provides 

organizations with the ability to sue the IRS to force a decision on their applications if the IRS 

does not approve or deny their applications within 270 calendar days.38

As of May 31, 2012,39 32 (36 percent) of 89 I.R.C. § 501(c)(3) potential political cases were open 

more than 270 calendar days, and the organizations had responded timely to all requests for 

additional information, as required. As of the end of our fieldwork, none of these organizations 

had sued the IRS, even though they had the legal right. In another 38 open cases, organizations 

were timely in their responses to additional information requests, but the 270-calendar-day 

threshold had not been reached as of May 31, 2012. These 38 organizations may have the right 

to sue the IRS in the future if determinations are not made within the 270-calendar-day period.

Recommendations 

The Director, EO, should: 

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

assistance from the Technical Unit and the Guidance Unit.40 The process should include actions 

to initiate, track, and monitor requests for assistance to ensure that requests are responded to 

timely. 

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

develop a formal process for the Determination Unit to request assistance and to 

monitor such requests.

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

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

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

application process. 

Management’s Response: The IRS proposed alternative corrective action to our 

recommendation. The IRS will develop training on the topics described in 

Recommendations 3, 5, 6, and 9. Because election cycles are continuous, the IRS 

 

38 Revenue Procedure 2012-09 provides further guidance on the implementation of this right. 

39 Tax-exempt application case files were selected for review in June 2012 based on a May 31, 2012, listing of 

applications being processed by the team of specialists. 

40 The Guidance Unit provides formal and informal guidance that explains how certain laws, such as regulations, 

revenue rulings, revenue procedures, notices, and announcements, may apply to exempt organizations. 

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Inappropriate Criteria Were Used to 

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noted that it will develop a schedule which ensures that staff have the training as 

needed to handle potential political intervention matters.

Office of Audit Comment: We do not believe that this alternative corrective action 

fully addresses our recommendation. We believe that specific guidance should be 

developed and made available to specialists processing potential political cases. Making 

this guidance available on the Internet for organizations could also address a concern 

raised in the IRS’s response that many applications appear to contain incomplete and 

inconsistent information. 

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

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

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

that may conduct activities in a future year which may cause them to lose their tax-exempt status. 

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

develop training on the topics described in Recommendations 3, 5, 6, and 9. Because 

election cycles are continuous, the IRS reported that it will develop a schedule which 

ensures that staff have the training as needed to handle potential political intervention 

matters.

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

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

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

that, while this is an ongoing project, it is closely overseeing the remaining open cases 

to ensure that it reaches determinations as expeditiously as possible.

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

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

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

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

Plan.41

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

share this recommendation with the IRS Chief Counsel and the Department of 

Treasury’s Office of Tax Policy. 

 

41 The Department of the Treasury issues a Priority Guidance Plan each year to identify and prioritize the tax issues 

that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published 

administrative guidance. 

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Inappropriate Criteria Were Used to 

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The Determinations Unit Requested Unnecessary Information for 

Many Potential Political Cases 

The Determinations Unit sent requests for information that we later (in whole or in part) 

determined to be unnecessary for 98 (58 percent) of 170 organizations that received additional 

information request letters.42 According to the Internal Revenue Manual, these requests should 

be thorough, complete, and relevant. However, the Determinations Unit requested irrelevant 

(unnecessary) information because of a lack of managerial review, at all levels, of questions 

before they were sent to organizations seeking tax-exempt status. We also believe that 

Determinations Unit specialists lacked knowledge of what activities are allowed by 

I.R.C. § 501(c)(3) and I.R.C. § 501(c)(4) tax-exempt organizations. This created burden on the 

organizations that were required to gather and forward information that was not needed by the 

Determinations Unit and led to delays in processing the applications. These delays could result 

in potential donors and grantors being reluctant to provide donations or grants to organizations 

applying for I.R.C. § 501(c)(3) tax-exempt status. In addition, some organizations may not have 

begun conducting planned charitable or social welfare work. 

After receiving draft guidance in November 2011, the team of specialists began sending requests 

for additional information in January 2012 to organizations that were applying for tax-exempt 

status. For some organizations, this was the second letter received from the IRS requesting 

additional information, the first of which had been received more than a year before this date. 

These letters requested that the information be provided in two or three weeks (as is customary in 

these letters) despite the fact that the IRS had done nothing with some of the applications for 

more than one year. After the letters were received, organizations seeking tax-exempt status, as 

well as members of Congress, expressed concerns about the type and extent of questions being 

asked. For example, the Determinations Unit requested donor information from 

27 organizations43 that it would be required to make public if the application was approved, even 

though this information could not be disclosed by the IRS when provided by organizations 

whose tax-exempt status had been approved. Figure 7 shows an example of requests sent to 

organizations applying for tax-exempt status regarding donors. 

 

42 See Appendix IV. 

43 Of the 27 organizations, 13 had Tea Party, Patriots, or 9/12 in their names. 

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Inappropriate Criteria Were Used to 

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Figure 7: Example of Requests for Information Regarding 

Past and Future Donors in Letters Sent in January/February 2012 

Provide the following information for the income you received and raised for the years from 

inception to the present. Also, provide the same information for the income you expect to 

receive and raise for 2012, 2013, and 2014. 

a. Donations, contributions, and grant income for each year, which includes the following 

information: 

1. The names of the donors, contributors, and grantors. If the donor, contributor, or 

grantor has run or will run for a public office, identify the office. If not, please 

confirm by answering this question “No.” 

2. The amounts of each of the donations, contributions, and grants and the dates you 

received them. 

3. How did you use these donations, contributions, and grants? Provide the details. 

If you did not receive or do not expect to receive any donation, contribution, and grant income, 

please confirm by answering “None received” and/or “None expected.” 

Source: Application case files. 

After media attention, the Director, EO, stopped issuance of additional information request 

letters and provided an extension of time to respond to previously issued letters. The Deputy 

Commissioner for Services and Enforcement then asked the Senior Technical Advisor to the 

Acting Commissioner, Tax Exempt and Government Entities Division, to find out how 

applications were being processed and make recommendations. The Senior Technical Advisor 

and a team of specialists visited the Determinations Unit in Cincinnati, Ohio, and began 

reviewing cases. As part of this effort, EO function Headquarters office employees reviewed the 

additional information request letters prepared by the team of specialists and identified 

seven questions that they deemed unnecessary. Subsequently, the EO function instituted the 

practice that all additional information request letters for potential political cases be reviewed by 

the EO function Headquarters office before they are sent to organizations seeking tax-exempt 

status. In addition, EO function officials informed us that they decided to destroy all donor lists 

that were sent in for potential political cases that the IRS determined it should not have 

requested. Figure 8 lists the seven questions identified as being unnecessary. 

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Inappropriate Criteria Were Used to 

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Figure 8: Seven Questions Identified As Unnecessary by the EO Function 

Number Question 

1 Requests the names of donors. 

2 Requests a list of all issues that are important to the organization and asks that 

the organization indicate its position regarding such issues. 

3 Requests 1) the roles and activities of the audience and participants other than 

members in the activity and 2) the type of conversations and discussions 

members and participants had during the activity. 

4 Asks whether the officer, director, etc., has run or will run for public office. 

5 Requests the political affiliation of the officer, director, speakers, candidates 

supported, etc., or otherwise refers to the relationship with identified 

political party–related organizations. 

6 Requests information regarding employment, other than for the organization, 

including hours worked. 

7 Requests information regarding activities of another organization – not just 

the relationship of the other organization to the applicant. 

Source: EO function review of additional information request letters.

We reviewed case file information for all 170 organizations that received additional information 

request letters and determined that 98 (58 percent) had received requests for information that was 

later deemed unnecessary by the EO function. Of the 98 organizations: 

 15 were informed that they did not need to respond to previous requests for information 

and, instead, received a revised request for information. 

 12 either received a letter or a telephone call stating that their application was approved 

and they no longer needed to respond to information requests they had received from the 

IRS. 

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Inappropriate Criteria Were Used to 

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Figure 9 shows excerpts from the approval letter developed for organizations that did not need to 

respond to a previous additional information request letter. 

Figure 9: Excerpts From a Template Approval Letter, Which Includes a Statement 

That Previously Requested Information Is No Longer Needed 

Dear Applicant: 

We are pleased to inform you that upon review of your application for taxexempt status we have determined that you are exempt from Federal income tax 

under section 501 (c) (4) of the Internal Revenue Code. Because this letter 

could help resolve any questions regarding your exempt status, you should 

keep it in your permanent records.

Please note that we have just completed another review of your request to be 

recognized as tax-exempt under section 501 (c) (4) of the Internal Revenue 

Codes. Based on that review, we concluded that we do not need the additional 

materials previously requested because your application and materials provide 

sufficient information. 

Source: IRS template approval letter. 

Recommendation 

Recommendation 9: The Director, EO, should develop training or workshops to be held 

before each election cycle including, but not limited to, how to word questions in additional 

information request letters and what additional information should be requested. 

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

develop training on the topics described in Recommendations 3, 5, 6, and 9. Because 

election cycles are continuous, the IRS reported that it will develop a schedule which 

ensures that staff have the training as needed to handle potential political intervention 

matters.

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Inappropriate Criteria Were Used to 

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Appendix I 

Detailed Objective, Scope, and Methodology 

The overall objective was to determine whether allegations were founded that the IRS: 

1) targeted specific groups applying for tax-exempt status, 2) delayed processing targeted 

groups’ applications for tax-exempt status, and 3) requested unnecessary information from 

targeted groups. To accomplish our objective, we: 

I. Assessed the actions taken by the EO function in response to the increase in applications 

for tax-exempt status from organizations potentially involved in political campaign 

intervention. 

A. Interviewed EO function management to identify steps taken and who authorized 

them. We also developed a timeline of events. 

B. Obtained a list of applications that were identified for processing by the team of 

specialists and determined the status of the identified cases (open, approved, denied, 

etc.) through May 31, 2012. We also received an updated list of identified cases 

through December 17, 2012, to determine the status of each initial case as of this date. 

C. Determined whether procedures and controls in place since May 2010 resulted in 

inconsistent treatment of applications potentially involving political campaign 

intervention. 

II. Determined whether changes to procedures and controls since May 2010 affected the 

timeliness of reviewing applications potentially involving political campaign 

intervention. 

A. Interviewed EO function personnel to determine whether there were any outside 

influences that affected the timeliness of reviewing potential political cases. 

B. Reviewed all 89 I.R.C. § 501(c)(3) potential political cases to determine whether they 

were processed within the 270-day standard required by law. 

III. Determined whether the actions taken by the EO function to identify applications for 

tax-exempt status of organizations potentially involved in political campaign intervention 

were consistent. 

A. Selected a statistical sample of 244 open and closed I.R.C. § 501(c)(4) application 

cases from a universe of 2,459 cases that the IRS determined needed significant 

additional information (full development) on the Employee Plans/Exempt 

Organizations Determination System from May 2010 through May 2012 to determine 

whether they should have been identified for processing by the team of specialists. 

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Inappropriate Criteria Were Used to 

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We selected our statistical sample using the following criteria: 90 percent confidence 

level, 50 percent error rate,1 and ± 5 percent precision rate. We used a random sample 

to ensure that each application case had an equal chance of being selected, which 

enabled us to obtain sufficient evidence to support our results. A contracted 

statistician reviewed our projections. 

1. Obtained the universe of 2,459 cases from the Employee Plans/Exempt 

Organizations Determination System and performed validity checks to ensure that 

the data were accurate. We found the data could be relied on for this review. 

2. Obtained a statistical sample of open and closed application cases. 

3. Determined whether application cases with potential political campaign 

intervention issues were identified for processing by the team of specialists. 

4. Interviewed EO function personnel to obtain their perspective on any application 

cases we identified that should have been identified for processing by the team of 

specialists but were not. 

B. Selected a statistical sample of 94 closed I.R.C. § 501(c)(4) application cases from a 

universe of 2,051 cases that the IRS determined did not need significant additional 

information (merit cases) on the Employee Plans/Exempt Organizations 

Determination System from May 2010 through May 2012 to determine whether they 

should have been identified for processing by the team of specialists. We selected 

our statistical sample using the following criteria: 90 percent confidence level, 

10 percent error rate,2

 and ± 5 percent precision rate. We used a random sample to 

ensure that each application case had an equal chance of being selected, which 

enabled us to obtain sufficient evidence to support our results. A contracted 

statistician reviewed our projections. 

1. Obtained the universe of 2,051 cases from the Employee Plans/Exempt 

Organizations Determination System and performed validity checks to ensure that 

the data were accurate. We found the data could be relied on for this review. 

2. Obtained a statistical sample of closed application cases. 

3. Determined whether application cases with potential political campaign 

intervention issues were not identified for processing by the team of specialists. 

 

1

 An expected error rate of 50 percent was chosen because we determined that cases needing significant additional 

information had criteria that included the names of specific groups. 2

 An expected error rate of 10 percent was chosen because procedures require that cases with political issues 

generally need significant additional information. 

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Inappropriate Criteria Were Used to 

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4. Interviewed EO function personnel to obtain their perspective on any applications 

we identified that should have been identified for processing by the team of 

specialists but were not. 

C. Obtained and reviewed all 298 application cases identified for processing by the team 

of specialists as of May 31, 2012, to determine whether they were correctly identified. 

1. Determined whether application cases were correctly identified for processing by 

the team of specialists. 

2. Interviewed EO function personnel to obtain their perspective on any cases we 

identified that should not have been identified for processing by the team of 

specialists. 

D. Computed the average cycle time of processing potential political cases and 

compared it to the average cycle time for processing similar cases that were not 

processed by the team of specialists. 

E. Determined the number of organizations that may have been adversely affected by 

inconsistent treatment. 

IV. Determined whether the EO function consistently had a reasonable basis for requesting 

information from organizations seeking tax-exempt status that were potentially involved 

in political campaign intervention. 

A. Reviewed all 170 potential political cases that were issued additional information 

request letters to determine whether the letters included questions deemed 

unnecessary by the EO function. 

B. Interviewed EO function personnel to obtain their perspective on additional 

information that was requested that may not have been necessary to help make a 

determination decision. 

C. Determined the number of taxpayers that may have been adversely affected. 

Internal controls methodology

Internal controls relate to management’s plans, methods, and procedures used to meet their 

mission, goals, and objectives. Internal controls include the processes and procedures for 

planning, organizing, directing, and controlling program operations. They include the systems 

for measuring, reporting, and monitoring program performance. We determined the following 

internal controls were relevant to our audit objective: EO function policies, procedures, and 

practices for identifying and processing applications for tax-exempt status with indications of 

political campaign intervention. We evaluated these controls by interviewing personnel, 

reviewing documentation, reviewing statistical samples of applications for tax-exempt status, and 

reviewing applications identified as involving potential political campaign intervention.

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Inappropriate Criteria Were Used to 

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Appendix II 

Major Contributors to This Report 

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

Organizations) 

Russell P. Martin, Acting Assistant Inspector General for Audit (Management Services and 

Exempt Organizations) 

Troy D. Paterson, Director 

Thomas F. Seidell, Audit Manager 

Cheryl J. Medina, Lead Auditor 

Julia Moore, Senior Auditor 

Michael A. McGovern, Auditor 

Evan A. Close, Audit Evaluator 

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Inappropriate Criteria Were Used to 

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Appendix III 

Report Distribution List 

Acting Commissioner C 

Office of the Commissioner – Attn: Chief of Staff C 

Chief Counsel CC 

Deputy Commissioner for Services and Enforcement SE 

National Taxpayer Advocate TA 

Acting Deputy Commissioner, Tax Exempt and Government Entities Division SE:T 

Director, Exempt Organizations, Tax Exempt and Government Entities Division SE:T:EO 

Director, Office of Legislative Affairs CL:LA 

Director, Office of Program Evaluation and Risk Analysis RAS:O 

Office of Internal Control OS:CFO:CPIC:IC 

Audit Liaison: Director, Communications and Liaison, Tax Exempt and Government Entities 

Division SE:T:CL 

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Appendix IV 

Outcome Measures 

This appendix presents detailed information on the measurable impact that our recommended 

corrective actions will have on tax administration. These benefits will be incorporated into our 

Semiannual Report to Congress. 

Type and Value of Outcome Measure: 

 Reliability of Information – Actual; nine application case files that were either incomplete or 

could not be located for us to review (see page 5). 

Methodology Used to Measure the Reported Benefit: 

During our review of applications for tax-exempt status that were not identified for the team of 

specialists, we were unable to review seven case files because the case file lacked complete 

documentation (six cases) or the case file could not be located (one case). In addition, during our 

review of all identified potential political cases through May 31, 2012, we were unable to 

analyze two case files because of incomplete documentation. 

Type and Value of Outcome Measure: 

 Reliability of Information – Potential; 44 organizations whose tax-exempt applications were 

not appropriately identified as having significant potential political campaign intervention 

(see page 5). 

Methodology Used to Measure the Reported Benefit: 

We selected a simple random sample of 94 I.R.C. § 501(c)(4) cases closed from May 2010 

through May 2012 from a universe of 2,051 applications that the IRS determined required 

minimal or no additional information from organizations applying for tax-exempt status. During 

our case reviews, we determined that two cases were not appropriately identified as having 

significant potential political campaign intervention. We projected, with 90 percent confidence, 

an actual error rate of between 0.38 percent and 6.55 percent1

 and that between eight and 

134 applications2 were not properly identified for processing by the team of specialists. 

 

1

 The point estimate error rate for the sample is 2.13 percent. The 90 percent confidence interval was calculated 

using the Exact Binomial Method. 

2

 The point estimate number of error applications is 44. The 90 percent confidence interval was calculated using the 

Exact Binomial Method. 

Page 27
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Type and Value of Outcome Measure: 

 Reliability of Information – Potential; 141 organizations whose tax-exempt applications were 

not appropriately identified as having significant potential political campaign intervention 

(see page 5). 

Methodology Used to Measure the Reported Benefit: 

We selected a simple random sample of 244 I.R.C. § 501(c)(4) cases closed from May 2010 

through May 2012 or open as of May 31, 2012, from a universe of 2,459 applications that the 

IRS determined required additional information from organizations applying for tax-exempt 

status.3

 During our case reviews, we determined that 14 cases were not appropriately identified 

as having significant potential political campaign intervention. We projected, with 90 percent 

confidence, an actual error rate of between 3.38 percent and 8.43 percent4

 and that between 

84 and 198 applications5

 were not properly identified for processing by the team of specialists. 

Type and Value of Outcome Measure: 

 Taxpayer Burden – Potential; 158 organizations that waited longer than average for the IRS 

to make a decision regarding their tax-exempt status (see page 11). 

Methodology Used to Measure the Reported Benefit: 

We obtained data from the EO function on the average number of days it took to determine 

whether an application for tax-exempt status was approved or denied. In Fiscal Year 2012, it 

took on average 238 days to close a case that needed additional information from the 

organization prior to approving or denying the application. As of December 17, 2012, there were 

158 potential political cases that were open more than 238 calendar days. 

Type and Value of Outcome Measure: 

 Taxpayer Burden – Potential; 98 organizations that received additional information request 

letters with questions that were later deemed unnecessary by the EO function (see page 18). 

Methodology Used to Measure the Reported Benefit: 

We reviewed 170 potential political cases that had received additional information request letters 

from the Determinations Unit. Using a list of seven questions/topics that the EO function 

categorized as unnecessary, we identified 98 potential political cases that included additional 

information request letters asking questions deemed unnecessary by the EO function. 

 

3

 We found that seven cases from the sample of 244 were not reviewable because of incomplete documentation. 

4

 The point estimate error rate for the sample is 5.91 percent with a precision of ± 2.52 percent. 5

 The point estimate number of error applications is 141 with a precision of ± 57 applications. 

Page 28
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Appendix V 

High-Level Organizational Chart 

of Offices Referenced in This Report 

The following is a high-level organizational chart of offices we discuss in this report, starting 

with the Deputy Commissioner for Services and Enforcement, who reports to the IRS 

Commissioner. 

Page 29

Acting Commissioner, Tax 

Exempt and Government 

Entities Division 

Washington, DC 

Deputy Commissioner for 

Services and Enforcement 

Washington, DC 

Senior Technical 

Advisor 

Washington, DC 

Director, EO 

Washington, DC 

Director, Rulings 

and Agreements 

Washington, DC 

Program 

Manager, 

Determinations 

Unit 

Cincinnati, OH

Technical 

Specialists 

Washington, DC 

Manager, 

Technical Unit 

Washington, DC 

Manager, 

Guidance Unit 

Washington, DC 

Determinations 

Specialists 

Cincinnati, OH

Guidance 

Specialists 

Washington, DC 

Senior Technical 

Advisor 

Washington, DC 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Appendix VI 

Timeline of Written Criteria for 

Identifying Potential Political Cases 

The following illustrates the changes to the written criteria provided to Determinations Unit 

employees for identifying applications for the team of specialists. 

Page 30

Date Criteria Developed or Actions Taken 

February 2010 ************************1****************************** 

************************1**************. 

March–April The Determinations Unit began searching for other requests for tax 

2010 exemption involving the Tea Party, Patriots, 9/12, and I.R.C. § 501(c)(4) 

applications involving political sounding names, e.g., “We the People” or 

“Take Back the Country.” 

July 2010 Determinations Unit management requested its specialists to be on the 

lookout for Tea Party applications. 

August 2010 First BOLO listing issued with criteria listed as “...various local 

organizations in the Tea Party movement...applying for exemption under 

501(c)(3) or 501(c)(4).” 

July 2011 Criteria changed to “Organizations involved with political, lobbying, or 

advocacy for exemption under 501(c)(3) or 501(c)(4)” based on the 

concerns the Director, EO, raised in June 2011. 

January 2012 Criteria changed to “Political action type organizations involved in 

limiting/expanding government, educating on the constitution and bill of 

rights, social economic reform/movement” based on Determinations Unit 

concerns that the July 2011 criteria was too generic. 

May 2012 Criteria changed to “501(c)(3), 501(c)(4), 501(c)(5), and 501(c)(6) 

organizations with indicators of significant amounts of political campaign 

intervention (raising questions as to exempt purpose and/or excess private 

benefit).” 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Appendix VII 

Comprehensive Timeline of Events 

The following chart illustrates a timeline of events from February 2010 through July 2012 

involving the identification and processing of potential political cases. It shows that there was 

confusion about how to process the applications, delays in the processing of the applications, and 

a lack of management oversight and guidance. The timeline was developed using documentation 

provided by the EO function as well as numerous interviews with EO function personnel. 

Page 31

Date Event Additional Details Source 

February 25, 

2010 

****************1************************ E-Mail 

Around 

March 1, 2010 

The Determinations Unit Group Manager asked a 

specialist to search for other Tea Party or similar 

organizations’ applications in order to determine the 

scope of the issue. The specialist continued to complete 

searches for additional cases until the precursor to the 

BOLO listing was issued in May 2010. 

Determinations Unit 

personnel indicated that 

they used the description 

Tea Party as a shorthand 

way of referring to the 

group of cases involving 

political campaign 

intervention rather than to 

target any particular group. 

The specialist used Tea 

Party, Patriots, and 9/12 as 

part of the criteria for these 

searches. 

Interview 

March 16–17, 

2010 

Ten Tea Party cases were identified. The Acting 

Manager, Technical Unit, requested two more cases be 

transferred to Washington, D.C. 

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

Not all of the ten cases had 

Tea Party in their names. 

E-Mail 

April 1–2, 2010 The new Acting Manager, Technical Unit, suggested the 

need for a Sensitive Case Report on the Tea Party cases. 

The Determinations Unit Program Manager agreed. 

 E-Mail 

April 5, 2010 ****************1*************************** E-Mail 

April 5, 2010 A Determinations Unit specialist developed a list of 

18 identified Tea Party cases during a search of 

applications. Three had already been approved as 

tax-exempt. 

While the heading of the 

document listing these 

18 cases referred to Tea 

Party cases, not all of the 

organizations listed had 

Tea Party in their names. 

E-Mail 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 32

Date Event Additional Details Source 

April 19, 2010 The first Sensitive Case Report was prepared by the 

Technical Unit. 

Sensitive Case Reports are 

shared with the Director, 

Rulings and Agreements, 

and a chart summarizing 

all Sensitive Case Reports 

is provided to the Director, 

EO. 

Documentation 

April 25–26, 

2010 

The Determinations Unit Program Manager requested 

Technical Unit contacts for the specialist assigned to 

work other Tea Party cases. Contacts were received. 

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

********************* 

 E-Mail 

May 17, 2010 The Determinations Unit specialist will send additional 

information request letters to the Technical Unit for 

review prior to issuance as part of the Technical Unit’s 

attempt to provide assistance to the Determinations Unit. 

 E-Mail 

May 26, 2010 ******************1**************************

************** 

 E-Mail 

May 27, 2010 The Technical Unit began reviewing additional 

information request letters prepared by the 

Determinations Unit. 

 Interview 

and E-Mail 

June 7, 2010 Determinations Unit began training its specialists on 

emerging issues to watch for, including an emerging 

issue referred to as Tea Party Cases. 

 Documentation 

June 14, 2010 *******************1************************* E-Mail 

June 30, 2010 ********************1************************ **********1*********** E-Mail 

July 2010 Determinations Unit management requested its 

specialists to be on the lookout for Tea Party 

applications. 

 E-Mail 

July 2, 2010 ***************1***************************** E-Mail 

July 27, 2010 Prior to the BOLO listing development, an e-mail was 

sent updating the description of applications involving 

potential political campaign intervention and providing a 

coordinator contact for the cases. The description was 

changed to read, “These cases involve various local 

organizations in the Tea Party movement [that] are 

applying for exemption under 501(c)(3) or 501(c)(4).” 

 Interview and 

Documentation 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 33

Date Event Additional Details Source 

August 12, 2010 The BOLO listing was developed by the Determinations 

Unit in order to replace the existing practice of sending 

separate e-mails to all Determinations Unit employees as 

to cases to watch for, potentially abusive cases, cases 

requiring processing by the team of specialists, and 

emerging issues. The description of applications 

involving potential political campaign intervention on 

the BOLO listing was the same description used in the 

July 27, 2010, e-mail. 

 Interview and 

Documentation 

August 2010 The responsibility for applications involving potential 

political campaign intervention was moved to a different 

team of specialists as part of a group realignment within 

the Determinations Unit. 

 Interview and 

Documentation 

October 2010 Applications involving potential political campaign 

intervention were transferred to another Determinations 

Unit specialist. The specialist did not work on the cases 

while waiting for guidance from the Technical Unit. 

Per the Director, Rulings 

and Agreements, there was 

a miscommunication about 

not working the cases 

while waiting for guidance. 

Interviews 

October 19, 

2010 

Technical Unit personnel forwarded a memorandum to 

their Acting Manager describing the work completed on 

the Tea Party cases by the Technical Unit. Included was 

a list of the cases the Technical Unit had assisted the 

Determinations Unit with. 

The list included 40 cases, 

18 of which did not have 

Tea Party in their names. 

E-Mail 

October 26, 

2010 

Determinations Unit personnel raised concerns to the 

Technical Unit with the approach being used to develop 

the Tea Party cases: Why does the Technical Unit need 

to review every additional information request letter 

when a template letter could be approved and used on all 

the cases? 

 E-Mail 

November 16, 

2010 

A new coordinator contact for potential political cases 

was announced. 

 Interview and 

Documentation 

November 16–17, 

2010 

A Determinations Unit Group Manager raised concern to 

the Determinations Unit Area Manager that they are still 

waiting for an additional information request letter 

template from the Technical Unit for the Tea Party cases. 

The coordinator had received calls from taxpayers 

checking on the status of their applications. 

 E-Mail 

November 17, 

2010 

The Determinations Unit Program Manager discussed 

Tea Party cases with the Technical Unit manager. 

Review of the cases by the Technical Unit found that not 

all of the cases had the same issues so a template letter 

had not been developed. 

 E-Mail 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Date Event Additional Details Source 

December 13, 

2010 

The Determinations Unit Program Manager asked the 

Technical Unit manager for a status on the Tea Party 

cases. The Technical Unit manager responded that they 

were going to discuss the cases with the Senior 

Technical Advisor to the Director, EO, shortly. 

 E-Mail 

January 28, 

2011 

The Determinations Unit Program Manager requested an 

update on the Tea Party cases from the Technical Unit 

Acting Manager. 

 E-Mail 

January 2011 A new person 

Manager role. 

took over the Technical Unit Acting Interview 

February 3, 

2011 

The Technical Unit Acting Manager provided an update 

to the Determinations Unit Program Manager on the 

cases being worked by the Technical Unit. Letters were 

being developed and would be reviewed shortly. 

 E-Mail 

March 2, 2011 A Determinations Unit Group Manager reminded the 

Determinations Unit Program Manager to follow up with 

the Technical Unit on the status of the Tea Party cases. 

 E-Mail 

. 

March 30, 2011 *******************1************************.1 E-Mail 

March 31, 2011 The Determinations Unit Program Manager stated that, 

while waiting for assistance from the Technical Unit, the 

Determinations Unit still needed to work Tea Party cases 

to the extent possible. 

This contradicts the 

October 2010 decision not 

to work cases until 

assistance is received from 

the Technical Unit and 

supports the statement of 

the Director, Rulings and 

Agreements, that there was 

a miscommunication about 

not working the cases 

while awaiting assistance. 

E-Mail 

April 13, 2011 *****************1***************************. E-Mail 

June 1–2, 2011 The Acting Director, Rulings and Agreements, requested 

criteria used to identify Tea Party cases from the 

Determinations Unit Program Manager. The 

Determinations Unit Program Manager requested criteria 

from a Determinations Unit Group Manager. 

 E-Mail 

 

1

 The Taxpayer Advocate Service is an independent organization within the IRS that provides assistance to 

taxpayers whose tax problems have not been resolved through normal IRS channels. Taxpayer Advocate Service 

employees must, at times, rely on assistance from employees assigned to other IRS functions. To request assistance, 

the Taxpayer Advocate Service issues an Operations Assistance Request specifying the actions needed to help 

resolve the taxpayer’s problem. 

Page 34
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 35

Date Event Additional Details Source 

June 2, 2011 A Determinations Unit Group Manager provided criteria 

for identifying potential Tea Party cases to the 

Determinations Unit Program Manager. Information 

was then forwarded to the Acting Director, Rulings and 

Agreements. 

These criteria are very 

different than the 

BOLO listing criteria 

available at the time. 

E-Mail 

June 6, 2011 **************************1******************

******************************* 

 E-Mail 

June 6, 2011 The Acting Director, Rulings and Agreements, 

commented that the criteria being used to identify Tea 

Party cases may have resulted in over-inclusion. 

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

** 

 E-Mail 

June 6, 2011 The Determinations Unit Program Manager mentioned 

that the Determinations Unit needed assistance from the 

Technical Unit to ensure consistency. 

 E-Mail 

June 29, 2011 A briefing was held with the Director, EO. The briefing 

paper noted that the Determinations Unit sent cases that 

met any of the criteria below to a designated team of 

specialists to be worked: 

 “Tea Party,” “Patriots,” or “9/12 Project” is 

referenced in the case file. 

 Issues include Government spending, Government 

debt, or taxes. 

 Education of the public via advocacy/lobbying to 

“make America a better place to live.” 

 Statements in the case file criticize how the country 

is being run. 

Over 100 applications were identified by this time. It 

was decided to develop a guide sheet for processing 

these cases. 

The briefing paper for the 

Director, EO, was prepared 

by Tax Law Specialists in 

the Technical Unit and the 

Guidance Unit and was 

reviewed by the Acting 

Manager, Technical Unit. 

A Guidance Unit specialist 

was the primary author of 

the briefing paper. 

During the briefing, the 

Director, EO, raised 

concerns over the language 

of the BOLO listing 

criteria. The Director, EO, 

instructed that the criteria 

be immediately revised. 

Documentation 

and E-Mail 

July 5, 2011 A conference call was held with the Technical Unit; the 

Director, EO; and the Determinations Unit Program 

Manager. They developed new criteria for identifying 

cases. The Determinations Unit Program Manager made 

changes to the BOLO listing. The criteria were changed 

to “organizations involved with political, lobbying, or 

advocacy for exemption under 501(c)(3) or 501(c)(4).” 

 E-Mail 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 36

Date Event Additional Details Source 

July 5, 2011 The EO function Headquarters office would be putting 

document together with recommended actions for 

identified cases. 

a E-Mail 

July 23, 2011 The Technical Unit was assigned a new person to 

coordinate with the Determinations Unit. 

 E-Mail 

July 24, 2011 Work commenced on the guide sheet when the Acting 

Manager, Technical Unit, asked tax law specialists to 

draft a list of things for Determinations Unit specialists 

to look for when working these cases. 

 E-Mail 

August 4, 2011 Rulings and Agreements office personnel held a meeting 

with Chief Counsel so that everyone would have the 

latest information on the issue. 

 E-Mail 

August 4, 2011 A Guidance Unit specialist asked if Counsel would 

review a check sheet prior to issuance to the 

Determinations Unit. The Acting Director, Rulings and 

Agreements, responded that Counsel would review it 

prior to issuance. 

 E-Mail 

August 10, 2011 *******************1*************************

********************** 

 Documentation 

September 15, 

2011 

The Determinations Unit Program Manager sent a list of 

all identified cases to the Acting Director, Rulings and 

Agreements, so that the Technical Unit could complete a 

limited “triage” of the cases using available information 

from the electronic case files. A Technical Unit 

specialist reviewed the list to determine if any cases 

could be closed on merit or closed with an adverse 

determination letter. This triage was considered a third 

screening. 

 E-Mail 

September 21, 

2011 

The draft guide sheet was sent for review and comment 

to various EO function Headquarters office employees. 

 E-Mail 

October 2011 A new person took 

and Agreements. 

over as the Acting Director, Rulings Interview 

October 24, 

2011 

A Technical Unit manager forwarded initial triage results 

to the Determinations Unit. 

 E-Mail 

October 25, 

2011 

Based on the categories and terminology used in the 

triage results spreadsheet, the Determinations Unit 

Program Manager was unclear what the Determinations 

Unit should do with the triage results – close cases, 

develop further, etc. – and requested the status on the 

guidance from the Technical Unit. 

 E-Mail 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 37

Date Event Additional Details Source 

October 26, 

2011 

A Technical Unit specialist provided further explanation 

of the triage results in an e-mail to the Determinations 

Unit Program Manager. 

 E-Mail 

October 30, 

2011 

The Determinations Unit Program Manager contacted 

the Acting Manager, Technical Unit, asking additional 

questions regarding the triage results and requesting a 

status update on the Technical Unit guidance. 

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

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

 E-Mail 

November 3, 

2011 

An updated draft version of the guide sheet 

EO function employees for comment. 

was sent to E-Mail 

November 6, 

2011 

The Acting Manager, Technical Unit, had a Technical 

Unit specialist provide more details on the triage results, 

and informed the Determinations Unit Program Manager 

that the guidance was being reviewed prior to issuance. 

 E-Mail 

November 6, 

2011 

The Acting Director, Rulings and Agreements, informed 

the Acting Manager, Technical Unit, and the 

Determinations Unit Program Manager that, based on 

feedback received, the guidance developed would not 

work in its present form – it was “too lawyerly” to be 

useful and needed the Determinations Unit input. 

 Interview 

and E-Mail 

November 15, 

2011 

The Determinations Unit Program Manager forwarded 

the Technical Unit specialist’s triage results to the Senior 

Technical Advisor to the Director, EO, per the Director’s 

request. 

 E-Mail 

November 22, 

2011 

The Acting Manager, Technical Unit, forwarded the 

clarified triage results to the Determinations Unit 

Program Manager. 

 E-Mail 

November 23–30, 

2011 

A new Determinations Unit coordinator was assigned 

oversight of the cases by a Determinations Unit Group 

Manager. The draft Technical Unit guidance was 

provided to the Group Manager. The coordinator began 

working cases after receiving the guidance in 

anticipation of a team being assembled to work the 

cases. 

 Interview 

and E-Mail 

November 2011 The Determinations Unit specialist assigned the cases 

began working them after receiving the draft Technical 

Unit guidance. 

 Interview 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 38

Date Event Additional Details Source 

December 7–9, 

2011 

A team of Determinations Unit specialists was created to 

review all the identified cases. An employee from 

Quality Assurance was also part of the team. The 

Technical Unit provided contacts for them. 

 E-Mail 

December 16, 

2011 

The first meeting was held by the team of specialists. Interview 

and E-Mail 

January 2012 The first batch of letters requesting additional 

information for applications containing incomplete or 

missing information was issued by Determinations Unit 

specialists based, in part, on their reading of the draft 

guidance issued by the Technical Unit. 

 Interview 

and E-Mail 

January 2012 A Determinations Unit specialist was tasked with 

performing a secondary screening of identified potential 

political cases to ensure that they involved political 

activities and not just general or lobbying advocacy. 

 Interviews 

January 25, 

2012 

The BOLO listing criteria were again updated. The 

criteria was revised as “political action type 

organizations involved in limiting/expanding 

Government, educating on the Constitution and Bill of 

Rights, social economic reform/movement.” The 

coordinator contact was changed as well. 

 Interview and 

Documentation 

February 27, 

2012 

A member of the team of specialists asked when to start 

issuing additional information request letters to 

applicants again. 

 E-Mail 

February 27, 

2012 

The Determinations Unit Program Manager questioned 

why the team of specialists was not issuing additional 

information request letters. The Determinations Unit 

Group Manager for the team of specialists had told the 

team coordinator to stop developing template questions, 

not to stop issuing additional information request letters. 

The miscommunication was corrected on 

February 29, 2012. 

 E-Mail 

February 29, 

2012 

The Director, EO, requested that the Acting Director, 

Rulings and Agreements, develop a letter to clearly 

inform applicants what was going to happen if they did 

not respond to the additional information request letters 

and giving them more time for their responses. 

 E-Mail 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 39

Date Event Additional Details Source 

February 29, 

2012 

The Director, EO, stopped any more additional 

information request letters from being issued on 

advocacy cases until new guidance was provided to the 

Determinations Unit. In addition, the Acting Director, 

Rulings and Agreements, discussed with the 

Determinations Unit Program Manager about having 

specialists print out website information and asking the 

organizations to verify the information instead of asking 

for applicants to print out the website information. 

 E-Mail 

February–March 

2012 

Numerous news articles began to be published with 

complaints from Tea Party organizations about the IRS’s 

unfair treatment. Congress also began to show interest 

in the IRS’s treatment of Tea Party organizations. 

 Documentation 

March 2012 A new person became Acting Group Manager of the 

team of specialists. 

 Interview 

March 1, 2012 A draft list of template questions was prepared by the 

team of specialists and forwarded to the Guidance Unit. 

Questions included asking 

for donor information. 

E-Mail 

March 5, 2012 The Acting Manager, Technical Unit, established 

procedures for reviewing the first favorable 

determination letter drafted by the Determinations Unit. 

 E-Mail 

March 6, 2012 ****************1****************************

*********************** 

 E-Mail 

March 8, 2012 The Deputy Commissioner for Services and 

Enforcement requested that, if a taxpayer called about 

having to provide donor information, the Determinations 

Unit would allow them to not send the donor names but 

would inform them that the IRS may need it later. 

 E-Mail 

March 8, 2012 The Acting Director, Rulings and Agreements, sent to 

the Determinations Unit Program Manager for comment 

a draft letter on giving applicants additional time to 

respond to the additional information request letters. 

The Determinations Unit Program Manager raised a 

concern of giving organizations that were not compliant 

with standard response timelines special treatment. 

 E-Mail 

March 15, 2012 The Determinations Unit received guidance on how to 

handle different scenarios based upon the status of their 

cases. Those I.R.C. § 501(c)(4) organizations that had 

not responded to an additional information request letter 

were issued another letter giving them an additional 

60 days to respond. Those letters were to be issued by 

March 16, 2012. This additional time letter was a 

one-time occurrence.

 Interview 

and E-Mail 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 40

Date Event Additional Details Source 

March 23, 2012, 

and March 27, 

2012 

The Senior Technical Advisor to the Acting 

Commissioner, Tax Exempt and Government Entities 

Division, and the Deputy Commissioner for Services and 

Enforcement discussed concerns with the media 

attention the Tea Party applications were receiving. The 

Deputy Commissioner for Services and Enforcement 

asked the Senior Technical Advisor to look into what 

was going on in the Determinations Unit and make 

recommendations. 

 Interview 

April 2012 The Acting Director, Rulings and Agreements, learned 

that the BOLO listing criteria had been changed on 

January 25, 2012, and informed the Director, EO. 

 Interview 

April 4, 2012 The Determinations Unit received the extension letter for 

issuance to I.R.C. § 501(c)(3) organizations that had not 

responded to a previous additional information request 

letter. 

 E-Mail 

April 17, 2012 Tax Exempt and Government Entities Division 

Headquarters office employees received the Technical 

Unit triage results and the draft guidance provided by the 

Technical Unit. Template questions developed by the 

team of specialists were also provided. 

 E-Mail 

April 23, 2012 Senior Technical Advisor to the Acting Tax Exempt and 

Government Entities Division Commissioner visited the 

Determinations Unit in Cincinnati, Ohio, with a group of 

EO function employees, and reviewed about half of the 

identified cases. 

 Interview 

April 24, 2012 The Acting Director, Rulings and Agreements, requested 

that the Senior Technical Advisor to the Director, EO, 

review all the additional information request letters 

issued and identify troubling questions, which 

organizations received them, and which members of the 

team of specialists asked them. 

 E-Mail 

April 25, 2012 The Senior Technical Advisor to the Director, EO, 

provided results of the additional information request 

letter review, including a list of troubling questions. 

The results included the 

names of donors as a 

troubling question. 

E-Mail 

April 25, 2012 Chief Counsel’s office provided additional comments on 

the draft guidance developed for the Determinations 

Unit. 

 E-Mail 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 41

Date Event Additional Details Source 

May 8, 2012 The Determinations Unit Program Manager was 

informed that EO function Headquarters office 

employees planned to visit Cincinnati, Ohio, to provide 

training on cases and perform a review of the cases to 

recommend what additional actions, if any, were needed 

to make a determination. 

 E-Mail 

May 9, 2012 The Director, Rulings and Agreements, asked about the 

process for updating the BOLO listing. 

 E-Mail 

May 14–15, 

2012 

Training was held in Cincinnati, Ohio, on how to process 

identified potential political cases. The Senior Technical 

Advisor to the Director, EO, took over coordination of 

the team of specialists from the Determinations Unit. 

 E-Mail 

May 16, 2012 A joint team of Determinations Unit specialists and 

EO function Headquarters office employees began 

reviewing all potential political cases began in 

Cincinnati, Ohio. Cases were divided into four groups 

with recommendations for how to proceed: favorable 

determination, favorable with limited development, 

significant development, and probably adverse. This 

took around three weeks to complete. A worksheet was 

used to document the reviews. 

 E-Mail 

May 17, 2012 The Director, Rulings and Agreements, issued a 

memorandum outlining new procedures for updating the 

BOLO listing. The BOLO listing criteria were updated 

again. New criteria reads: “501(c)(3), 501(c)(4), 

501(c)(5), and 501(c)(6) organizations with indicators of 

significant amounts of political campaign intervention 

(raising questions as to exempt purpose and/or excess 

private benefit).” 

Suggested additions and 

changes must be approved 

by a Determinations Unit 

coordinator, the 

Determinations Unit 

Program Manager, and the 

Director, Rulings and 

Agreements. 

Interview 

and E-Mail 

May 21, 2012 The EO function determined that the requested donor 

information could be destroyed or returned to the 

applicant if not used to make the final determination of 

tax-exempt status. It does not need to be kept in the 

administrative file. A letter would be issued to the 

organizations informing them that the donor information 

was destroyed. 

 Interview 

and E-Mail 

May 24, 2012 A telephone call script was developed to inform some 

organizations that had not responded to the additional 

information requests that it was not necessary to send the 

requested information and that their applications had 

been approved. Also, an additional paragraph was 

developed for the determination letter. 

 E-Mail 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 42

Date Event Additional Details Source 

May 2012 After the review of identified cases was completed, each 

Determinations Unit specialist working cases was 

assigned a Technical Unit employee to work with on the 

cases. The Technical Unit employee reviewed all 

additional information request letters prior to issuance. 

The Quality Assurance Unit began reviewing 

100 percent of the cases prior to closure. The Quality 

Assurance Unit review will shift from 100 percent 

review to a sample review once a comfort level with the 

results of the quality review was achieved. 

 Interview 

May 2012 A decision was made to refer cases to the Review of 

Operations Unit for follow-up if there were indications 

of political campaign intervention but not enough to 

prevent approval of tax-exempt status. 

 Interview 

and E-Mail 

June 4, 2012 A draft letter was developed to send to organizations that 

provided donor information. The letter would inform the 

organizations that the information was destroyed. 

 E-Mail 

June 7, 2012 The Director, Rulings and Agreements, provided 

guidance on how to process cases now that they had 

been reviewed and divided into categories. Any new 

cases received would go through the same review 

process prior to assignment. 

 E-Mail 

July 15, 2012 A new Acting Determinations Unit Group Manager was 

overseeing the team of specialists. 

 Interview 
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Appendix VIII 

Management’s Response to the Draft Report 

Page 43
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 44
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 45
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 46
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 47
Inappropriate Criteria Were Used to 

Identify Tax-Exempt Applications for Review 

Page 48