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Scandal-scarred IRS rejects key Treasury Department recommendations

While the IRS has admitted it made mistakes vetting tea party and other conservative groups seeking tax exempt status, the agency has rejected two of nine recommendations that a government watchdog says are needed to ensure the problems don't happen again.

The Treasury Inspector General for Tax Administration said its recommendations — part of a report released late Tuesday that looked into complaints the Internal Revenue Service was giving extra and undue scrutiny to conservative groups — were aimed at speeding up but also clarifying the agency's approval process for tax-exemptions.

In a letter to the inspector general, the IRS acknowledged that "some errors occurred in the handling of the influx" of applications for tax exempt status and agreed with seven of the watchdogs recommendations, such as holding training workshops before elections and more oversight to speed up the application process.

But the agency disagreed with two key recommendations and offered its own solutions.

In one case, the inspector general said the IRS must do a better job documenting the reasons why its agents believe certain applications need special attention, such as when they suspect a group's political actions may be crossing a line that would disqualify it for tax-exempt status.

But the IRS said it instead would review its screening procedures to determine if, and to what extent, more documentation was needed.

The watchdog also recommended the IRS develop more guidance for agents on how to process tax-exemption requests from groups they suspect aren't be eligible due to political activity. It also said the guidelines should be posted to the Internet to "provide transparency to organizations on the application process."

The IRS countered that, instead of new guidelines, it would offer more training "as needed to handle potential political intervention matters."

In both cases, the IRS suggested it worried the recommendations would further burden a system already fraught with lengthy delays. To make its point, the agency said that between 2008 and 2012 the number of groups seeking 501(c)(4) tax exemptions more than doubled.

The IRS added that much of its workload was dedicated to checking out the "numerous referrals from the public, media, watchdog groups and members of the Congress alluding that specific 501(c)(4) organizations were engaged in political campaign activity to an impermissible extent."

But the inspector general said neither IRS alternative was good enough, adding that until the agency makes changes to close out all of its outstanding tax-exempt applications, "we do not consider the concerns in this report to be resolved."

The inspector general's 54-page report — a year in the making — blamed the delay in part on "inappropriate criteria" used by the IRS to single out tea party and other conservative groups applying for tax-exempt status. It said the IRS punted making decisions on some conservative groups' applications for more than three years. Some applicants simply gave up.

Despite the special scrutiny, none of the nearly 300 applications were ever denied, the auditors said.

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