Battered by a scandal over delays in approving groups for tax-exempt status and plagued by a backlog tens of thousands of cases long, the Internal Revenue Service unveiled a strikingly stripped-down online application last year to speed the process.þþBut to critics, the I.R.S.’s version of “don’t ask, don’t tell” is fraught with problems. An unlikely coalition of tax lawyers, state enforcement agents and even many nonprofits that favor simpler rules say that the agency — by not asking any questions about governance, conflicts of interest or function, and saying applicants don’t have to reveal any such issues — is making it too easy to commit fraud.þþThe form, 1023-EZ, was introduced over the summer and is available to small charities with an annual income of $50,000 or less and assets under $250,000. Instead of wrestling with a painstaking 26-page application that demands extensive documentation, these groups can now fill out a two-and-a-half page checklist that requires no additional paperwork or even a statement of purpose.þþ“In many communities, it takes more to get a library card than it takes to get this new exempt status,” said Tim Delaney, president and chief executive of the National Council of Nonprofits, a network of charitable groups. His group opposed the new form, arguing that the I.R.S. is abdicating its responsibility to screen groups, and that, in the long run, potential abuse will undermine public trust in charities.þþThe National Association of State Charity Officials has also taken a stand against the EZ route, complaining that it will further strain already overburdened regulators.þþTamera Ripperda, director of the I.R.S.’s Exempt Organizations division, said the criticisms were misplaced. “We underwent a thorough risk assessment of this form,” Ms. Ripperda said.þþLooking through its records, the I.R.S. found that about two-thirds of applicants were small, fledgling groups that had not started operating, so that the detailed vetting was premature. Once approved, groups are required to file yearly tax returns.þþ“We think that this is a better use of our resources,” Ms. Ripperda said. “Rather than examining groups upfront on what they plan to do, we’re going to examine them on what they’re actually doing.”þþSince the EZ form’s introduction last July, 28,000 groups have used it, Ms. Ripperda said. To check for abuse, the agency selected about 1,000 for more in-depth review and questioning.þþ“So far we’ve not found any indications that the EZ has been intentionally misused,” she said. Processing time for the new EZ application is averaging 16 days, compared with an average of 110 days for the long form.þþShe added that the backlog of existing applications had also been eliminated.þþAdvocates and tax professionals have long complained that applying for exempt status was a punishing ordeal, particularly for charities with small budgets. The original Form 1023 requires a narrative statement and extensive documentation, including bylaws, articles of incorporation, copies of contracts with officers, directors and service providers, and financial data.þþNina Olson, the National Taxpayer Advocate, had urged the agency to adopt an EZ version, but the new form, she wrote in a memorandum to the agency last year, “goes too far in the opposite direction, effectively making a mockery of the I.R.S.’s significant oversight function.”þþShe and other critics warn that without any review, even the best-meaning organizations could end up making serious legal and operational missteps.þþAs for those without the best intentions, some tax experts worry that the new application invites abuse.þþ“There is no real reporting to the I.R.S. on the front end or on an annual basis,” said Marcus Owens, a Washington lawyer who was formerly the director of the I.R.S.’s Exempt Organizations division. “It puts an extraordinary amount of faith in taxpayers playing by the rules. Most will, but how many do you need creating scams before it becomes a problem? History shows people will take advantage of it.”þþWith Tax Day little more than a week away, the Internal Revenue Service is struggling on several fronts to manage the onslaught of tax returns even as two Republican presidential candidates are campaigning to abolish the agency and Congress has imposed what many outside experts see as crippling budget cuts.þþAs for the I.R.S. itself, the commissioner, John A. Koskinen, has already sent up warning flares, telling the public to expect fewer audits, delayed refund checks and fewer protections against identity theft.þþAccording to Mr. Koskinen, funding levels are down to what they were in 1998, after taking inflation into account. Yet the number of tax filers has increased by 30 million, and there are many new legislative demands, including responsibility for administering the tax credits that subsidize millions of people under the Affordable Care Act.þþThe backlog of tax-exempt applications, for example, began to build in 2010, Ms. Ripperda said, after Congress mandated the automatic revocation of status for groups that failed to file returns three years in a row.þþServices intended to help taxpayers are also hurting. At a congressional hearing last month, Ms. Olson, the taxpayer advocate, testified that during the first seven weeks of this year, the I.R.S. was able to answer only 40 percent of taxpayer calls with an average hold time of about 26 minutes. Last year, during the same period, 76 percent of calls were answered with an average 11 minutes on hold.þþA new report from the Center on Budget and Policy Priorities chastises lawmakers for failing to provide “the I.R.S. with the funding it needs to administer the nation’s tax laws and collect taxes.”þþCongress also continues to investigate roadblocks the agency used to stop certain groups from applying for tax-exempt status, including those associated with the Tea Party movement. The I.R.S. had engaged in its own form of profiling, using a “lookout list” of certain terms that flagged conservative and progressive groups as well as open-source software developers and Palestinian rights advocates. Much of the agency’s top leadership resigned.þþStill, several Republicans, including possible presidential contenders like Senator Ted Cruz and Senator Rand Paul, have gone so far as to propose abolishing the I.R.S. altogether.þþ“In my view, there is a powerful populist instinct to take the 110,000 employees at the I.R.S., to padlock the building and to put all 110,000 of them down on our Southern border,” Mr. Cruz said in January, after the Republicans took control of Congress.þþThat’s certainly not happening before April 15, if ever. So until further notice, the I.R.S. will still be on the case.þþ
Source: NY Times
