The IRS’s process for picking which nonprofits it audits is so loose that it could be abused, with the potential for political targeting, the government’s chief watchdog said Thursday.
Government Accountability Office investigators said the IRS doesn’t do a good enough job tracking audit decisions, and doesn’t rotate through the officers that make those decisions, leaving open a window for mischief.
“This increases the risk of unfair selection of organizations’ returns for examination,” the GAO investigators said in their report.
Combined with the 2013 finding that the IRS unfairly targeted tea party groups for special scrutiny in their tax-exempt applications, Republicans said the report suggests a real danger to nonprofit groups.
The tax agency wasn’t phased by the report, however, saying it accepts that better controls are needed, but it doesn’t think anything has gone wrong.
“We don’t think looking backwards that those controls led to anyone being improperly targeted,” Commissioner John Koskinen told Congress at a hearing called to examine the GAO’s report.
Republican critics countered that’s because the agency has done such a poor job of documenting why it conducts some audits that it’s impossible to know if they were fair or not.
“I’m concerned you’re not taking this report seriously,” said Rep. Kristi Noem, South Dakota Republican. “You keep calling this hypothetical but my colleagues have found real cases … and shared them today. How can we tell if targeting is happening or not if documentation is not being made?”
Mr. Koskinen replied that he is taking the report “very seriously.”
Nonprofit groups apply for tax-exempt status at the beginning of their operations, which is when the IRS targeted tea party organizations for special scrutiny, the agency’s inspector general found. But as they operate, the nonprofits are supposed to file returns showing their activities comply with the law, and that’s where the audits, which are the subject of the new report, come in.
“This report exposes a new and more egregious frontier of potential targeting in the agency’s audit selection process,” said House Ways and Means oversight subcommittee Chairman Peter Roskam, Illinois Republican. “If the agency wants to restore public confidence, the American people need to see concrete reforms to ensure that they will never again be targeted.”
The IRS selected 1,144 groups for an examination in fiscal year 2014, the GAO said. That’s a tiny fraction of the universe of 1.6 million tax-exempt organizations.
Investigators said the criteria the IRS uses to pick out who gets examined, and the panel of people who makes the decision, both need updating.
Overall, the investigators said the “control system” needs work.
Despite not seeing major problems with the way things are operating, the IRS agreed with most of the recommendations and Mr. Koskinen said he’ll work to make sure they’re implemented.
He said he is aware of fears many Americans have that his agency is targeting people unfairly. He said that shouldn’t happen, and he’s working on it.