The Current IRS Scandal: Better than Housewives of New Jersey

The Current IRS Scandal: Better than Housewives of New Jersey

In the last two weeks there has been Senate testimony, a White House press conference, and a major resignation all surrounding the current controversy about the IRS Nonprofit Division’s handling of tax-exempt applications.

irs

For people who don’t normally follow nonprofit news, the continuous coverage is the reality TV equivalent of Teresa Giudice flipping a table over amid expletives, children and husbands gaped

in horror, and a backdrop of spotless linens and chilled Champagne.

Who new taxes could be so exciting?

With 27 different
The agency has long been an “afterthought, beset by mismanagement, financial constraints and an unwillingness to spell out just what it expects from social welfare nonprofits.”classifications of “nonprofit” tax-exempt status, it might seem obvious how the Division became so dysfunctional, but as ProPublica noted last week it is more than that:

Any consultant working regularly in the nonprofit sector with start-up organizations has known this to be true for a long time.

Why certain organizations are able to have their applications expedited in a matter of weeks while others, just as worthy and meeting urgent community needs, have had to wait up to 9 months for basic application processing or a seemingly simple re-definition of their status (from private to public, for instance) has long been contributed to a method of tax-exempt divination akin to the Magic 8 Ball.

Shake. Shake. The outlook does not look good.

Shake. Shake. It is decidedly so.

Shake. Shake. Ask again later.

But now through Senate testimony, scathing watchdog reports, and admissions of bad management and horrible customer service, we are learning for the first time just how bad things are:

200 low-level employees responsible for reviewing more than 60,000 nonprofit applications per year and using “inappropriate criteria” to do so.

If that sounds bad, consider this: On average each employee was responsible for going through roughly one application per day.

60,000 applications annually. One application per day. Do the math.

The former Acting Commissioner may try to simply blame lax management and insufficient oversight, but we have become a culture that openly questions such shallow apologies and blanket rationales for unjustified intrusions.

We want Andy Cohen with the key players seated on opposing couches. We want the tough questions asked:

• How did IRS managers above those heads of the 200 application reviewers get it so wrong too?

• How many potentially new tax-exempt organizations were impacted in total?

• Who knew this was on-going?

Whether those applications were sidelined with or without “executive approval,” the one thing that is certain is that changes in regulations, application handling, and reviews are coming.

Structural fixes. More transparency. More checks and balance.

Because as those who follow any of the Housewives programs know, once a table is turned, it can’t be edited out. That drama feeds the changes in people in reality TV that make them take a look at themselves and the relationships in their lives.

And it should be this way not only for the IRS but the nonprofit sector too: Ready your organization for the inevitable transformation and the different forms of scrutiny it may bring with it.

This is all to say that the sector has not begun to feel the aftershocks of recent events. We have learned that there was misconduct in review of these applications. Nonprofits that should have been given fair scrutiny were denied it. But we have not yet begun to uncover how the bias fell in the other direction:

Namely, how many “social welfare” nonprofit were given a pass on their review.

And it may be some time before we know exactly the extent to which audits of private citizens may have been triggered by involvement in flagged organizations or the number of worthy community efforts in regions hard hit by poverty and violence that still have applications suspended in limbo (the IRS’s interminably slow review process is not confined to 501(c)(4) applications).

Grab a cool drink and some popcorn, nonprofit leaders. This summer’s hottest reality TV series may be C-Span. The show has just started, and it is one you don’t want to miss because next season it may come back to impact you.

Adrienne Lewis-Wagner is a freelance fund development consultant living in Michigan. Her blog The Prospect can be found at http://alwconsulting.org

Sources

Barker, K. & Elliot, J. (2013). How the IRS‘s nonprofit division got so dysfunctional. ProPublica. Retrieved from www.propublica.org/article/how-irs-nonprofit-division-got-so-dysfunctional

 

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