Tax Compliance: Thousands of Organizations Exempt from Federal Income Tax Owe Nearly $1 Billion in Payroll and Other Taxes
Released: 2007-07-24T00:00:00

Letter

Background

Section 501(c) of the I.R.C. grants an exemption from federal income taxes to organizations that meet certain requirements. Exempt organization data provided by IRS indicated that nearly 1.8 million organizations in various classifications are currently recognized as being tax exempt. Charitable organizations (I.R.C. § 501(c)3) constitute the largest classification, accounting for over 60 percent of all exempt organizations as of September 30, 2006. Other classifications of exempt organization include civic and business leagues, labor organizations, recreational clubs, domestic fraternal societies, and credit unions. Differences between the various classifications include whether donations to the exempt organization are tax deductible and whether the exempt organization has to submit an application to IRS for specific recognition of its tax exempt status. Specifically, donations to certain exempt organizations, such as charitable and religious organizations, certain veteran’s organizations, and certain cemetery companies, are deductible on the donor’s individual tax return. Donations to other organizations not specifically recognized as such are not deductible. Organizations that are qualified to receive deductible donations, with the exception of churches, are required to apply to IRS and receive a formal determination of their exempt status. Generally, each exempt organization is required to file an annual informational return that provides IRS with information about the organization and its operations, officers and directors, and whether it is required to obtain specific IRS recognition of its exempt status. An exempt organization’s annual information return (Form 990) also provides the public with the primary or sole source of information about the organization.

The determination of exempt status and monitoring of exempt organizations is the responsibility of the Tax Exempt and Government Entities Division (TE/GE) of IRS. The division’s responsibilities include accepting applications for and determining whether organizations qualify as exempt under the I.R.C., monitoring exempt organizations for continued compliance with the I.R.C., and when appropriate, revoking the exempt status of an organization that no longer meets requirements for exemption.

Like all other employers, exempt organizations with employees are required to pay payroll taxes that they withhold from employees’ wages “in trust” for the federal government, as well as other applicable federal taxes. Payroll taxes withheld from employees consist of income taxes; Old Age, Survivors, and Disability Insurance (OASDI), commonly referred to as Social Security; and Medicare. OASDI is taxed at 6.2 percent on the first $94,200 of an employee’s salary, and Medicare is taxed at 1.45 percent with no income cap. The employer is also taxed, at the same rate, for OASDI and Medicare on employee wages. To the extent that payroll taxes are withheld and not forwarded to IRS, individuals within the business (e.g., exempt organization officials) may be held personally liable for the withheld amounts not forwarded, and they can be assessed a civil monetary penalty known as a trust fund recovery penalty (TFRP). Willful failure to remit payroll taxes is a felony under U.S. law punishable by a fine, imprisonment, or both, and the failure to properly segregate payroll taxes can be a criminal misdemeanor offense.

Within TE/GE, the Exempt Organization (EO) Examinations Office is charged with promoting compliance with the I.R.C. The EO Examinations Office’s activities include analyzing the operational and financial activities of exempt organizations and developing other processes to identify areas of noncompliance, developing corrective strategies, and assisting other exempt organization functions in implementing these strategies. In the process of performing the analysis, the EO Examinations Office may assess exempt organizations’ payroll or other taxes. If the EO Examinations Office assesses taxes and the taxpayer does not make payment, the matter is referred to IRS’s Small Business / Self-Employed (SB/SE) Collections Office. SB/SE Collections Office becomes responsible for collecting the delinquent debt and may use means such as federal tax liens, levies, and seizures, and may assess a TFRP against an organization’s officials.

Federal Grants

A federal grant is an award of financial assistance from a federal agency to an organization to carry out an agreed-upon public purpose. As such, federal grants are not used for the direct acquisition of goods or services for the federal government. Based on our analysis of fiscal year 2004 and 2005 data from FAADS, federal agencies collectively awarded grants of approximately $300 billion annually. Further analysis of the FAADS data indicates that approximately 80 percent of all federal grants are pass- through grants, that is, they are federal grants provided to the state and local governments, which, in turn, disburse the grants to the ultimate recipients. Consequently, only about 20 percent of grants are provided directly from the federal government to the organization that ultimately spends the money.

Grant applicants that apply directly to the federal government are required to complete Standard Form (SF) 424. The SF 424 requires grant applicants to certify whether they are delinquent on any federal debt, including federal tax debt.

Exempt Organizations Had Nearly $1 Billion in Unpaid Federal Taxes

As of September 2006, nearly 55,000 exempt organizations had nearly $1 billion in unpaid payroll and other federal taxes. The amount of taxes owed by exempt organizations ranged from $101 to $16 million, and the number of delinquent tax periods ranged from a single period to more than 80 tax periods. However, the dollar amount of federal taxes owed by exempt organizations is understated because some organizations underreport their tax liability or fail to file returns altogether. Further, we excluded certain classifications of exempt organizations, tax debts for current periods, and disputed tax debts.

Characteristics of Unpaid Taxes Owed by Exempt Organizations

As shown in figure 1, about 71 percent of the nearly $1 billion in unpaid federal taxes comprised payroll taxes and related penalties and interest. About 19 percent, or over $180 million, related to annual reporting penalties. IRS imposes reporting penalties on entities that fail to file annual returns at all or in a timely manner or that file inaccurate returns.

The remaining 10 percent of the nearly $1 billion in delinquent taxes consisted of unrelated business income, excise, and other types of taxes.

A significant amount of the unpaid federal taxes by exempt organizations has been outstanding for several years. As reflected in figure 2, while the majority of the nearly $1 billion in unpaid federal taxes was from tax periods 2001 through 2005, over a quarter of the unpaid taxes are for tax periods prior to 2001.

Our previous work has shown that as unpaid taxes age, the likelihood of collecting all or a portion of the amount owed decreases. This is, in part, because of the continued accrual of interest and penalties on the outstanding tax debt. Similarly, tax problems such as the tax gap are aggravated over time if not addressed early on.

Our analysis of IRS data found that nearly 1,500 of the almost 55,000 delinquent exempt organizations owed in total over $600 million of the nearly $1 billion in unpaid federal taxes of exempt organizations we identified. All of these nearly 1,500 exempt organizations owed over $100,000 each, with some owing more than $10 million. Another 8,400 owed from $10,000 to $100,000 each. Although the largest group—nearly 45,000—owed less than $10,000 in delinquent taxes, the majority of the debt in this group of exempt organizations is related to payroll taxes withheld from employees and not remitted to the federal government and annual reporting penalties. Further, many exempt organizations in this group repeatedly failed to remit taxes in multiple tax periods.

Amount of Unpaid Federal Taxes Is Understated for Exempt Organizations

Although the nearly $1 billion in unpaid federal taxes we identified that were owed by exempt organizations as of September 30, 2006, is a significant amount, it understates the full extent of unpaid taxes. This amount does not include amounts due IRS from exempt organizations that did not file payroll taxes (nonfilers) or underreported payroll tax liability (underreporters). Also, we did not include exempt organization tax debt from 2006 tax periods, tax debt for entities owing $100 or less, or tax debt for certain entities listed in IRS’s database of exempt organizations.

Limiting our ability to more fully estimate the extent of exempt organizations with unpaid federal taxes is the fact that IRS’s tax database reflects only the amount of unpaid taxes reported by the exempt organization on a tax return or assessed by IRS through various enforcement programs. IRS’s tax database does not reflect amounts owed by exempt organizations that have not filed tax returns and for which IRS has not assessed tax amounts due. Additionally, our analysis did not account for exempt organizations that underreported payroll taxes and had not been identified by IRS. As reported previously and as indicated in our case study investigations, some exempt organizations underreported payroll taxes or failed to file returns. IRS estimates that underreporting accounts for more than 80 percent of the gross tax gap.

We also took a number of steps in determining the amount of tax debt owed by exempt organizations to avoid overestimation. For example, some recently assessed tax debts that appear as unpaid taxes through a matching of IRS unpaid tax and exempt organization records may involve matters that are routinely resolved between the exempt organization and IRS, with the taxes paid, abated, or both within a short period. We eliminated these types of debt by including only unpaid federal taxes for tax periods prior to calendar year 2006. Further, we did not include exempt organizations with tax debt of $100 or less because these small debts likely do not represent abusive behavior. We also eliminated all tax debt IRS identified as not agreed to by the exempt organization.

Further, the amount of exempt organization tax debt excludes amounts owed by exempt organizations for which the statutory collection period expired. Generally, there is a 10-year statutory collection period beyond which IRS is prohibited from attempting to collect tax debt. Consequently, if exempt organizations owe federal taxes beyond the 10- year statutory collection period, the older tax debt may have been removed from IRS’s records. We were unable to determine the amount of tax debt that had been removed.

Selected Exempt Organizations Were Involved in Abusive and Potentially Criminal Activity Related to the Federal Tax System

For all 25 cases involving exempt organizations with delinquent tax debts that we audited and investigated, we found abusive activity, potentially criminal activity, or both related to the federal tax system. These cases reiterate the need for IRS to improve its enforcement of tax laws as previously noted by GAO. The amount of unpaid taxes associated with these cases ranged from over $300,000 to nearly $30 million. All 25 exempt organizations had unpaid payroll taxes, some dating as far back as the late 1980s. In one instance, an exempt organization had not remitted payroll taxes to IRS for 14 years, thereby accumulating unpaid federal taxes of nearly $8 million at the time of our audit. Rather than fulfill their role as “trustees” of this money and forward it to IRS as required by law, the officials responsible for these exempt organizations diverted the money to fund the organizations’ operations, which sometimes included millions of dollars in management fees to related entities, or for personal benefits, such as their own salaries. At the time of our audit, IRS had completed TFRP assessments on officials of 15 of the 25 exempt organizations. However, as we have previously reported, collections of TFRP assessments are generally minimal. Further, available data show that IRS has taken some collection action and placed liens on the assets of 23 of the 25 entities or their officials. However, IRS initiated actions to seize assets of only 1 of the 25 exempt organizations in our case studies.

Our investigations revealed that despite owing substantial amounts of federal taxes to IRS, top officials of some exempt organizations received substantial salaries—often in the six-figure range and in one case in excess of $1 million—and had substantial personal assets, including multimillion- dollar homes and luxury cars. Our investigations found that 3 of these exempt organizations are related to other exempt organizations, for-profit entities, or both that are also tax delinquent. The related entities were primarily discovered because of common top officials. Combined, the 3 exempt organizations and their related entities owed nearly $40 million in delinquent taxes. Further, 4 of the 25 case study organizations we investigated had key officials and other employees who were convicted of criminal activities, including tax evasion and operating an illegal gambling establishment, at the same time the organizations continued to benefit from a tax exempt status. One entity was fined by a state for employing convicted felons in positions of trust.

Table 1 highlights 10 of the 25 organizations with unpaid taxes that we investigated. Appendix II provides a summary of the other 15 cases we examined. We are referring all 25 cases we examined to IRS for further collection activity and criminal investigation, if warranted.

The following provide illustrative detailed information on several of these cases: Case 1: This exempt organization is related to several for-profit entities that provide health care and other services, all of which have tax debts. The related entities appear to be set up under complex forms of ownership designed to shield income and assets, such as limited liability companies and offshore entities. Combined, these entities owe nearly $30 million in federal taxes, of which more than $10 million is attributable to the exempt organization. The exempt organization in particular had not paid federal taxes since the late 1990s, despite receiving millions in federal payments. At the same time, the exempt organization paid millions in management fees to a contractor that, according to available public records, is affiliated with the exempt organization. IRS has not placed a TFRP on any individual with respect to this exempt organization’s tax debt.

Case 2: This industry association owes more than $6 million in tax debt dating back to the late 1990s. A top official of the association admitted that he intentionally failed to remit payroll taxes in order to fund operations, which in a recent year included providing more than 10 officials with six- figure salaries, with one receiving a salary in excess of $500,000. At the same time, another top officer owned a multimillion-dollar luxury estate and purchased luxury vehicles. IRS has assessed a multimillion-dollar TFRP against an officer of the organization.

Case 3: This health care organization owes more than $15 million in tax debt dating back to the early 2000s. While not paying its payroll taxes, the organization paid several employees large amounts of annual compensation, including a total compensation package for a top official in excess of $1 million annually, and several other employees with combined compensation of over $1 million. The top official also made several hundred thousand dollars in cash transactions at banks and casinos while the organization owed millions in unpaid taxes. Despite holding the organization’s top office and earning seven-figure compensation, this official told IRS that he was not responsible for the exempt organization’s unpaid taxes.

Case 5: This children’s services organization owes more than $500,000 primarily related to payroll taxes dating back to the late 1980s. The top official of this exempt organization was convicted of attempting to bribe an IRS employee. Other organization employees have criminal records, including records for violent crimes. Further, organization officials allegedly requested that some payments to it be made in cash.

Case 6: This community services organization owes almost $3 million in tax debt dating from the late 1990s. The organization was fined for employing convicted felons in positions responsible for public safety. In addition, an organization employee was engaged in criminal activity at one of the organization’s job sites. To date, IRS has not assessed a TFRP against organization officials. The organization has been replaced by a related entity that is operating out of the same facility. Many of the contracts awarded to the exempt organization have been transferred to this entity.

Despite continuing to abuse the federal tax system, all of the 25 case study organizations continued to retain their tax exempt status. Existing federal statutes do not authorize IRS to revoke exempt status based on an organization’s tax delinquency. However, the I.R.C. provides IRS with the authority to approve and monitor exempt organizations and also stipulates the circumstances under which IRS can revoke an organization’s tax exempt status. Specifically, IRS can revoke exempt status when it determines the organization has ceased to operate in a manner consistent with the purpose for which it was granted the tax exempt status. For example, if an organization was granted tax exempt status because it was established to provide employment or other services to underprivileged individuals, and it ceases to do so, IRS can revoke the organization’s tax exempt status. In addition, if an organization engages in excess benefit behavior, IRS has the authority to assess a tax against the individual who received the benefit. The I.R.C. provides IRS authority to revoke an organization’s tax exempt status if it repeatedly engages in excess benefits behavior, including excess compensation.

However, the I.R.C. does not provide IRS the authority to revoke tax exempt status based on failure to pay taxes. According to IRS officials, organizations whose exempt status is revoked may have delinquent debts, but that was not the criteria for revocation. IRS officials also informed us that revocation is an action of last resort, arrived at after evaluation of many factors and after imposing intermediate sanctions to try and correct the problem. Similarly, in cases of excess compensation, IRS generally tried to impose a tax on the individual who received the excess benefits, rather than revoke the exempt status of the organization.

Exempt Organizations with Unpaid Federal Taxes Received Billions in Federal Grant Payments

Based on analysis of limited grant payment data, we found that exempt organizations with unpaid federal taxes received over $14 billion in direct federal grant payments from three federal agency disbursement systems in fiscal years 2005 and 2006. Grant applicants are required to self-certify on the grant application whether they are delinquent on any federal debt, including federal taxes. Our audit of six case study organizations with delinquent taxes that also received federal grants found that five of the six appear to have violated the False Statements Act because they did not declare their delinquent federal taxes on their grant applications.

Tax Delinquent Exempt Organizations Received Billions in Federal Grants

Based on our analysis, we determined that of the nearly 55,000 exempt organizations with federal tax debt, more than 1,200 received over $14 billion in federal grants from HHS, Education, the Department of Energy, the National Aeronautics and Space Administration, and other federal agencies in fiscal years 2005 and 2006. The more than 1,200 exempt organizations owed over $70 million in tax debt yet received substantial amounts in federal grants.

However, our estimate of over $14 billion in federal grants received by exempt organizations with federal tax debt is likely understated. First, because our analysis was limited to data from the three federal grant payment systems, our analysis did not include all federal grant disbursements. Further, our analysis included only data on direct recipients of federal grant payments, that is, payments provided directly by the federal government to the end user. Based on our analysis of data from FAADS, we estimated that these grants account for only about 20 percent of the total grants awarded by the federal government. The remaining 80 percent of federal grants are provided to states and local governments, which, in turn, disburse them to end users.

Exempt Organizations with Tax Debt Misrepresented Their Tax Status to Granting Agencies

Organizations that are applying for federal grants complete SF 424s to provide granting agencies with entity information, such as name, employer identification number, address, and a descriptive title of the project for which the grant will be used. The SF 424 also requires that the grant applicant provide information as to whether the applicant has any delinquent federal debts. The instructions that accompany the SF 424 define federal debt to include taxes owed. The applicant is required to certify that the information provided on the SF 424 is true and correct.

We examined information provided on the SF 424 for six of our case study tax exempt organizations that received grants, all of which had substantial tax debts outstanding. We found that five of the six that received federal grants failed to disclose that they had federal tax debts on the SF 424s filed with the granting agencies. The six entities applied for and received over $13 million in total grant payments in fiscal years 2005 and 2006. In a recent 3-year time span, one of the exempt organizations we audited applied for multiple grants to provide community services. Even though the entity had an outstanding balance of unpaid federal taxes, the entity did not disclose its tax liability on the SF 424s. The organization subsequently received several million dollars in grant payments during 2 recent fiscal years. Figure 3 provides excerpts of an SF 424 for this organization where the applicant appears to have violated the False Statements Act by not disclosing its delinquent tax debt. Appendix IV contains a copy of the entire SF 424.

We found that while granting agencies can ask prospective grantees for consent to verify federal tax debt information with IRS, granting agencies do so only in a few cases where the grant applicant discloses having federal debts. Agencies do not confirm with IRS the accuracy of applicant information related to federal tax debts because of strict taxpayer privacy laws. Officials at three granting agencies informed us that procedurally, if tax debt is declared on the SF 424, the agencies would request further information to determine if any action needs to be taken. Without accurate debt information, granting agencies are limited in their ability to fully evaluate whether the grantee is a responsible party, the grantee should receive the grant, additional action needs to be taken, or a combination of these.

Concluding Observations

The majority of exempt organizations appear to pay their federal taxes. However, our work has shown that tens of thousands of exempt organizations and their officers have taken advantage of the opportunity to avoid paying their federal taxes, in part because IRS does not have the authority to revoke exempt status for failure to pay taxes. In many cases, officers of these delinquent organizations are responsible for diversion of payroll tax money—a felony offense—to pay their substantial salaries and accumulate substantial personal wealth. It is likely that many of these exempt organizations have provided significant and positive services to those in need; but it is also important that they comply with federal tax law. We have referred all 25 of the cases we investigated to IRS for collection and criminal investigation.

Agency Comments and Our Evaluation

We provided a draft of this report to the Commissioner of IRS for review and comment on April 6, 2007. Officials in IRS’s TE/GE provided oral comments on the draft on April 24, 2007. The oral comments highlighted several planned actions to enhance exempt organizations’ tax compliance efforts. The planned actions cited included analyzing discrepancies between payroll data reported to the Social Security Administration and data reported to IRS, and piloting a new modeling program to identify exempt organizations with a high risk of employment tax noncompliance. In its oral comments, IRS also agreed with the draft report’s finding that IRS does not have authority to revoke an organization’s exempt status for nonpayment of employment taxes, except under extraordinary circumstances which rarely occur.

IRS planned actions, if implemented effectively, should help IRS avoid additional payroll and other tax compliance issues by exempt organizations. For IRS to ensure that tax exempt organizations comply with tax law it will be important to use the full range of available enforcement tools and hold tax exempt organizations and associated key officials accountable for noncompliance. As discussed in the body of this report, we identified a number of exempt organizations and their officials that were delinquent in paying significant dollar amounts in federal payroll and other taxes.

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Please contact me at (202) 512-9505 or kutzg@gao.gov if you or your staff have any questions concerning this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine whether and, if so, to what extent (1) exempt organizations have unpaid federal taxes, including payroll taxes; (2) selected case study organizations and their executives are involved in abusive or potentially criminal activity; and (3) exempt organizations with unpaid federal taxes received direct grants from certain federal agencies.

To determine whether and to what extent exempt organizations have unpaid payroll and other federal taxes, we first identified the population of exempt organizations to be included in our analysis. These organizations include those that either received a formal determination of their exempt status or met basic criteria to be considered exempt. To perform this step, we obtained the exempt organization business master file from the Internal Revenue Service (IRS) as of September 30, 2006. This database contained information on over 2.5 million entities, each with a code indicating the most recent “exempt” status. In consultation with IRS, we identified nearly 1.8 million entities with status codes indicating that they are currently tax exempt.

To identify exempt organizations with unpaid federal taxes, we obtained IRS’s September 30, 2006, unpaid assessments file and matched it to the 1.8 million entities we identified as currently tax exempt using taxpayer identification numbers (TIN). To avoid overstating the amount owed by exempt organizations with unpaid federal tax debts and to capture only significant tax debt, we excluded tax debts meeting specific criteria. The criteria we used to exclude tax debts are as follows: tax debts IRS classified as compliance assessments or memo accounts for financial reporting, tax debts from calendar year 2006 tax periods, and exempt organizations with total unpaid taxes of $100 or less.

The criteria above were used to exclude tax debts that might be under dispute or generally duplicative or invalid and tax debts that are recently incurred. Specifically, compliance assessments or memo accounts were excluded because these taxes have neither been agreed to by the taxpayers nor affirmed by the court, or these taxes could be invalid or duplicative of other taxes already reported. We excluded tax debts from calendar year 2006 tax periods to eliminate tax debt that may involve matters that are routinely resolved between the taxpayers and IRS, with the taxes paid or abated within a short period. We also excluded tax debts of $100 or less because they are insignificant for the purpose of determining the extent of taxes owed by exempt organizations.

To prepare case studies of selected exempt organizations and their directors or senior officers for abuse of the federal tax system, we selected 25 exempt organizations using a nonrepresentative selection approach based on data-mining results, our judgment, and a number of other criteria, including the amount of unpaid taxes, number of unpaid tax periods, amount of payments reported by IRS, and indications that key officials might be involved in multiple entities with tax debts.

We obtained copies of automated tax transcripts and other tax records (for example, revenue officers’ notes) from IRS as of September 30, 2006, and reviewed these records to exclude exempt organizations that had recently paid off their unpaid tax balances and considered other factors before reducing the selection of exempt organizations to 25 case studies. For the selected 25 cases, we performed searches of criminal, financial, and public records. Our investigators contacted several of the exempt organizations and performed interviews.

To determine whether and to what extent exempt organizations with tax debt received federal grants, we obtained and analyzed federal grant payment databases from the Department of Education’s (Education) Grant Administration and Payment System (GAPS), the Department of the Treasury Financial Management Service’s (FMS) Automated Standard Application Payment system (ASAP), and the Department of Health and Human Services’ (HHS) Payment Management System (PMS) for fiscal years 2005 and 2006. These three agencies process grants on behalf of many other federal agencies and, in fiscal years 2005 and 2006, processed the majority of direct and pass-through grants, excluding Medicare and Medicaid. We then matched the grant payment data to the exempt organizations with federal tax debt using the TINs. Of the 25 case studies of exempt organizations with unpaid federal taxes, 6 submitted grant application forms related to grant payments made during fiscal years 2005 and 2006. We requested and reviewed the grant application forms for all 6 entities. We also interviewed officials from HHS, Education, and the Department of Agriculture on whether tax debts are considered in their decisions on whether to provide grants to particular grant applicants.

We conducted our audit work from August 2006 through March 2007 in accordance with U.S. generally accepted government auditing standards, and we performed our investigative work in accordance with standards prescribed by the President’s Council on Integrity and Efficiency.

Data Reliability Assessment

For IRS unpaid assessments data, we relied on the work we performed during our annual audits of IRS’s financial statements. While our financial statement audits have identified some data reliability problems associated with the coding of some of the fields in IRS’s tax records, including errors and delays in recording taxpayer information and payments, we determined that the data were sufficiently reliable to address our report’s objectives. Our financial audit procedures, including the reconciliation of the value of unpaid taxes recorded in IRS’s master file to IRS’s general ledger, identified no material differences.

To help ensure reliability of the exempt organization data, we interviewed IRS officials concerning the reliability of the data provided to us. In addition, we performed electronic testing of specific data elements in the database that we used to perform our work.

For the GAPS, ASAP, and PMS data, we interviewed officials from Education, FMS, and HHS responsible for the databases. In addition, we performed electronic testing of specific data elements that we used to perform our work.

Based on our discussions with agency officials, our review of agency documents, and our own testing, we concluded that the data elements used for this report were sufficiently reliable for our purposes.

We briefed IRS officials on March 27, 2007, on the details of our audit, including our findings and their implications. On April 6, 2007, we requested comments on a draft of this report from the Commissioner of IRS. We received oral comments from the Tax Exempt and Government Entities Division of IRS on April 24, 2007, and have summarized these comments in the Agency Comments and Our Evaluation section of this report.

Appendix II: Exempt Organizations with Unpaid Federal Taxes

Table 1 provides data on 10 detailed case studies. Table 2 provides details of the remaining 15 exempt organizations we selected as case studies. As with the 10 cases discussed in the body of this report, we also found abuse, potential criminal activity, or both related to the federal tax system during our audit and investigations of these 15 case studies. The case studies primarily involved exempt organizations with unpaid payroll taxes, one for as many as 14 years.

Appendix III: Types of Exempt Organizations

Section 501(c) of the Internal Revenue Code (I.R.C.) lists several types of organizations that qualify for exemption from federal income taxes. The types of exempt organizations are summarized in table 3.

Appendix IV: OMB Form SF 424 – Application for Federal Assistance

Phone Number (give area code)

Fax Number (give area code)

8. TYPE OF APPLICATION: 7. TYPE OF APPLICANT: (See back of form for Application Types)

If Revision, enter appropriate letter(s) in box(es) (See back of form for description of letters.)

Other (specify)

Other (specify)

TITLE (Name of Program): 12. AREAS AFFECTED BY PROJECT (Cities, Counties, States, etc.): 14. CONGRESSIONAL DISTRICTS OF: a. Applicant 15. ESTIMATED FUNDING: 16. IS APPLICATION SUBJECT TO REVIEW BY STATE EXECUTIVE ORDER 12372 PROCESS? . a. Yes. THIS PREAPPLICATION/APPLICATION WAS MADE .

AVAILABLE TO THE STATE EXECUTIVE ORDER 12372 PROCESS FOR REVIEW ON .. b. No. PROGRAM IS NOT COVERED BY E. O. 12372 .

OR PROGRAM HAS NOT BEEN SELECTED BY STATE .

17. IS THE APPLICANT DELINQUENT ON ANY FEDERAL DEBT? .

Yes If “Yes” attach an explanation. 18. TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL DATA IN THIS APPLICATION/PREAPPLICATION ARE TRUE AND CORRECT. THE DOCUMENT HAS BEEN DULY AUTHORIZED BY THE GOVERNING BODY OF THE APPLICANT AND THE APPLICANT WILL COMPLY WITH THE ATTACHED ASSURANCES IF THE ASSISTANCE IS AWARDED. a. Authorized Representative Prefix Middle Name First Name c. Telephone Number (give area code)

Appendix V: GAO Contact and Staff Acknowledgments

Acknowledgments

In addition to the contact named above, the following individuals made major contributions to this report: Tuyet-Quan Thai, Assistant Director; Gary Bianchi; Ray Bush; Shafee Carnegie; William Cordrey; Jessica Gray; Ken Hill; Aaron Holling; Leslie Jones; Shirley Jones; Jason Kelly; John Kelly; Rick Kusman; Barbara Lewis; Andrew McIntosh; Aaron Piazza; John Ryan; Barry Shillito; and Michael Zola.