IRS Tea Party Scandal Fallout

The IRS apologized for its political bias towards social-welfare or advocacy organizations like the Tea Party groups. The IRS targeted the Tea Party because of its political advocacy, but presumably political groups were not the only ones singled out for special scrutiny. Some lawyers reported educational groups have also been receiving undue scrutiny. It is suspected that any group advocating for conservative political issues received IRS’s biased attention. Fortunately for some non-profits, only organizations applying for tax-exemption are being adversely effected.

An article in The Chronicle of Philanthropy voiced the following concerns about the likely effects this controversy will have:

The whirlwind of controversy surrounding the disclosure that the Internal Revenue Service had singled out applications from conservative advocacy groups seeking tax-exempt status for extra scrutiny could damage the agency’s ability to regulate charities, hinder needed efforts to update IRS rules, and deter nonprofits from expanding their advocacy efforts, say nonprofit experts.

They fear that the political fallout, including plans for Congressional hearings, will delay even further some of the issues that the nonprofit world has wanted lawmakers and the IRS to tackle for many years, including beefing up oversight of tax-exempt organizations and giving clearer guidance about what constitutes political activities for both charities and advocacy groups.

“All nonprofits are being smeared as though we are engaging in political activity,” said Tim Delaney, president of the National Council of Nonprofits.

He worries that tens of thousands of charities that are navigating the slow process of getting their tax-exempt status approved could now face delays as Congress reviews how the IRS handled applications from the much smaller universe of 501(c)(4) groups. Charities make up the vast majority of the 60,000 applications for tax-exempt status the IRS manages each year, with about 3,500 applications coming from advocacy groups in 2012.

The good news for non-profits with existing tax-exempt status is that they only have to deal with fallout caused by the great recession.

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