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Breaking: New Report Exposes the Next Frontier of IRS Targeting

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New Report Exposes the Next Frontier of IRS Targeting

Finds IRS audit process could “select organizations for examination in an unfair manner”

WASHINGTON, DC—Today, Ways and Means Oversight Chairman Peter Roskam (R-IL) will hold a hearing at 10am ET on the IRS audit selection process, which a brand new independent Government Accountability Office (GAO) report commissioned by the Ways and Means Committee shows is at risk for unfair targeting of organizations based on their “religious, educational, political, or other views.” The hearing, which will be live streamed here, will feature IRS Commissioner John Koskinen, GAO Director of Strategic Issues Jay McTigue, and representatives from both conservative and liberal organizations that faced alleged unfair scrutiny from the IRS.

Prior to the hearing, Chairman Roskam released the following statement:

“We first learned the IRS was unfairly singling out conservative groups applying for tax-exempt status. This report exposes a new and more egregious frontier of potential targeting in the agency’s audit selection process. An audit takes significant time and money, and can harm or even kill a non-profit organization. That’s why it’s critical that an audit is never undertaken because of the personal bias of a few powerful IRS employees. It turns out that, even in the wake of the Lois Lerner scandal, the IRS has failed to take the steps necessary to ensure all taxpayers are treated fairly and equally. 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.”

 

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Key Report Highlights:

“[T]here are several areas where EO’s controls were not well designed or implemented.  The control deficiencies GAO found increase the risk that EO could select organizations for examination in an unfair manner—for example, based on an organization’s religious, educational, political, or other views.

•    IRS staff can deviate from some [audit] selection process procedures without executive management approval. GAO found that some procedures, including what criteria to use for audit selection and how to apply the criteria, are not included in the Internal Revenue Manual (IRM), as required by IRS policy. Since this information was not included in the IRM, staff can choose not to follow the procedures, or follow them inconsistently, without the approval of a manager. This increases the risk of unfair selection of organizations’ returns for examination.

•    Management within the EO unit does not consistently monitor selection decisions. Examinations and database files were not consistently monitored to ensure that selection decisions for audits were documented and approved. In cases where IRS staff initially recommended an audit and then chose not to perform the audit, GAO estimates that 12 to 34 percent of the files were missing approval documentation. GAO concluded that Examination Office (EO) management “has not been conducting sufficient monitoring to ensure that required approvals were taking place.” This could allow people with bias to unfairly select or not select organizations for examination.

“According to internal control standards, key duties and responsibilities should be divided or segregated among different people to reduce the risk of error. Spreading classification responsibilities for sensitive referrals to more than one classifier could help decrease the potential influence of any one classifier. Even if other safeguards are in place, having the same individual initially classify all political activity or all high profile and church referrals creates the potential for unfairness[…].”

“The IRM requires that committee members rotate every 12 months, on a staggered schedule. The members of the referral review committees are not rotating every 12 months. Based on start dates for committee members provided by EO and our database review, we found 87 percent of current committee members were serving for more than a 12 month period, as of April 30, 2015. Specifically, current committee members who exceeded their 12-month tenures have been serving on the committees for an average of 34 months…Rotating staff may help ensure that a variety of staff serve on committees, which serves as a safeguard in the classification of political activity and sensitive referrals. If the required committee rotation serves as an internal control to address risks in the referrals examination selection process, then by not following its procedures, EO has the potential to fall short of its goal of fairness.”

GAO Report