IRS rarely denies ‘social welfare’ applications

Introduction

During its past four fiscal years, the Internal Revenue Service has formally denied the applications of just 60 organizations seeking recognition under Section 501(c)(4) of the U.S. tax code as “social welfare” groups.

In the same period, the agency processed 8,214 applications and approved 6,837 of them — about 83 percent, according to a Center for Public Integrity analysis of IRS data.

Sometimes applications were neither approved nor denied, meaning groups could still be awaiting recognition of tax-exempt status or still be providing the IRS with additional information. They may also have withdrawn their applications.

The IRS’s approval processes have come under fire following an inspector general report that found IRS employees used “inappropriate criteria” to discern which organizations’ applications warranted additional scrutiny.

The IRS’s 2012 fiscal year, which covered the period between Oct. 1, 2011, and Sept. 30, 2012, saw a surge of new applications under Section 501(c)(4). During that period, 2,774 groups sought recognition as “social welfare” nonprofits, as the Center for Public Integrity has previously reported.

That represented an increase of more than 56 percent from fiscal year 2011 — and an increase of nearly 86 percent from fiscal year 2008.

The IRS processed 23,722 applications for 501(c)(4) nonprofit status between fiscal years 2001 and 2012, records indicate.

The agency approved roughly 77 percent of those, while rejecting less than three-tenths of one percent: 66 denials versus 18,214 approvals, albeit in fiscal year 2008 the IRS did not report how many groups it denied “to avoid disclosure of specific taxpayer data.”

Before the House Ways and Means Committee on Friday, Steven Miller, who served as the agency’s commissioner until he resigned last week, testified that IRS did not have “sufficient personnel” to process all of the applications its tax-exempt unit has received.

Both the Senate Finance Committee and the House Oversight and Government Reform Committee are planning hearings on the topic this week.