Lawmakers see plenty of other places where IRS can find tax scofflaws

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From pro athletes who waste money at their charitable foundations to federal employees who don’t pay their taxes, legislators have a few suggestions for whom the IRS should have been scrutinizing instead of going after partisan organizations.

The tax agency has been reeling since it acknowledged last week that it inappropriately singled out conservative activist groups for special scrutiny in their applications for tax-exempt status.


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But the agency everyone loves to hate has been slower to audit other areas where lawmakers said tax cheats are likely at work, including pro athletes who, according to an ESPN “Outside the Lines” investigation, often file shoddy paperwork detailing the charitable activities of their tax-exempt foundations. Or don’t file at all.

“Obviously, they weren’t paying attention to what they should have been doing,” said Sen. Tom Coburn, an Oklahoma Republican who has begged the Internal Revenue Service to look into the athletes’ foundations.

Mr. Coburn, the top waste-watcher in Congress, has a list of areas he thinks the IRS should have been investigating, including the fraudulent use of child tax credits through fake Social Security numbers and federal employees who he says should be ousted from their jobs for being serious tax delinquents.

The revenue agency’s responsibilities are myriad. They include monitoring the spectrum of charities and interest groups that request tax-exempt status and making sure all Americans pay their fair share to Uncle Sam.

But the agency’s decision to subject the conservative groups to special scrutiny has ignited a round of second-guessing about how the IRS uses its manpower.

“It required excessive use of very limited resources,” said Sen. John Barrasso, Wyoming Republican.

“You’ve only got so much time,” said Sen. John McCain, Arizona Republican, echoing his colleague. “They weren’t paying attention to many liberal groups that seemed to get their applications approved rather rapidly.”

Politics aside, the IRS constantly has to evaluate how much time it will devote to each application for 501(c) status — the section of the tax code that governs tax-exempt organizations, said David Kautter, managing director of the Kogod Tax Center at American University.

Nearly 30 categories fall under the 501(c) heading. They include cemetery groups that provide burial services and groups that facilitate benefits to coal miners suffering from black lung. The category that governs many nonprofit charities is likely the best known.

“If you focus on one, you’re not spending as much time on the others,” Mr. Kautter said of the IRS political targeting. “I think there has been a misuse of resources and a poor allocation of resources. It’s got to have implications for the rest of the system.”

A spokesman at the IRS could not be reached Wednesday for comment on whether its partisan scrutiny affected other operations.

Peter Morici, an economist at the University of Maryland, College Park, said “any use of time would be better than targeting groups on the basis of ideology or political views.”

He said he recently read that the IRS is taking a closer look at issues surrounding “carried interest,” a type of profit paid to investment managers that is taxed at a generally lower rate than regular income.

“I have been of a mind that it is probably abused — used to transform compensation into capital gains,” Mr. Morici said in an email.

Mr. Coburn has tried to compel the IRS to take a closer look at potential tax cheats, including federal employees who are delinquent on their taxes, and in some benefits such as the earned income tax credit.

A few weeks ago, before the IRS scandal broke, Mr. Coburn tried to amend an Internet sales tax bill with a provision that would have pushed the IRS to take a closer look at the athlete foundations.

Mr. Coburn’s amendment didn’t come up for a vote, but he signaled Wednesday that his tax-related measures will resurface in the Senate.

“It’ll all come forward sooner or later,” he said.

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