IRS Delays in Acting on Applications for 501(c)(4) Tax Exemption Persist

Five years after the IRS first began identifying “Tea Party cases” for special scrutiny, and almost two years after Lois Lerner’s apology and the Treasury Inspector General’s report detailing the targeting of applications for tax exemption from conservative-sounding groups, Karl Rove’s Crossroads GPS and at least five other groups are still awaiting determination letters from the IRS.

The article quotes both supporters and opponents of the organizations’ missions criticizing the IRS for taking so long to reach a decision on the applications.

“It’s inexcusable. Justice delayed is justice denied,” a former IRS official said. “A disgrace,” according to Paul S. Ryan of the Campaign Legal Center.

The groups cited in the Politico article are 501(c)(4) “social welfare” organizations. Unlike other types of tax-exempt entities, social welfare groups can operate without first seeking IRS approval of their tax-exempt status. However, there are several reasons that make applying for tax-exempt recognition advisable for these groups, including tax implications for donors. The lack of final IRS action on applications has dried up donations and severely restricted operations by many of the groups mentioned in the article. Former IRS official Marvin Friedlander refers to the process as “death by bureaucratic delay.”

Bureaucratic delays were cited prominently in the TIGTA audit report released in May of 2013. The IRS took no action on “Tea Party cases” for more than a year while IRS headquarters staff considered how best to handle the applications. Many groups singled out in this process were sent one or more questionnaires from the IRS asking (according to the inspector general) “inappropriate questions” and requesting items including donor lists, membership lists, Facebook and web site printouts, as well as to state the future intentions of any leaders or members to seek public office.

One of the few errors in the Politico article was its assertion that progressive groups as well as conservative ones were targeted by the IRS. As NPQ reported in July 2013 and included in a September 2013 update on the IRS scandal, the Treasury Inspector General for Tax Administration (TIGTA) found only one of five “be on the lookout” (BOLO) memos that included the term “progressive,” and that BOLO was never made active by the IRS.

The IRS claims that it has fulfilled the TIGTA’s recommendation that long-pending applications in 2013 be expedited, but doesn’t comment on why a few groups, including one of the largest and best-known 501(c)(4) organizations, have not yet received a final determination.

Unlike charities, social welfare groups can’t bring legal action against the IRS if it takes too long to approve their applications for tax exemption. So the groups either remain in limbo or choose to dissolve and, in at least one case, reorganize under a different corporate name and start over. Some have placed money in reserve to pay state and federal taxes should their applications ultimately be denied (in some states, federal tax exemption affects state tax treatment). This is a tough message for both boards and donors, as groups have money on hand but are afraid to spend it, and donors know that a potentially significant part of their gifts may need to be warehoused pending a decision from the IRS.

Regardless how one feels about 501(c)(4) organizations in general or the activities of particular groups, any nonprofit should expect an impartial IRS determination on their tax exemption, to borrow a phrase, with all deliberate speed. The continued delays reported by Politico are yet more evidence that we have a long way to go before the IRS scandal is put behind us.

2014 IRS Form 990-N Now Available to Nonprofits for No Charge Through Aplos Software

Nonprofit organizations are now able to prepare and e-file their 2014 Form 990-N with Aplos Software’s user-friendly online software for no charge. To maintain tax-exempt status, The IRS requires organizations with less than $50,000 in annual receipts to submit this annual informational return.

Aplos Software, a web-based software and authorized IRS e-file provider, announced today that its tax preparation and filing software, Aplos e-File, is now accepting IRS Form 990-N returns for the 2014 fiscal year. Form 990-N (e-Postcard) for the current year can be filed for free and prior years can be filed for $19.99 per return. The web-based tax preparation software can be accessed at https://www.aplos.com/irs-form-990-efile.

Form 990-N is a short electronic return for organizations whose annual receipts are normally $50,000 or less. Aplos e-File takes the tax-exempt organization through the form step-by-step, provides relevant tips and guidance, and ensures that all needed information is included. When complete, Aplos e-File submits the return electronically to the IRS and provides a copy of the return for their records.

“Effectively managing a nonprofit starts with being up-to-date with all the required IRS returns to maintain tax-exempt status,” said Tim Goetz, CEO and co-founder of Aplos Software. “We’ve streamlined the 990-N process for nonprofits by making it simple and free to use. As a result, these organizations can confidently submit their forms and continue to move forward with their mission.”

The deadline for submitting Form 990-N is the 15th of the fifth month after the close of the organization’s tax year. Nonprofits that start a new fiscal year on January 1 are now eligible to submit their 2014 return and their Form 990 filing deadline is May 15, 2015.

If an organization fails to file the form three years in a row, the organization will automatically lose its tax-exempt status with the IRS. There are no penalties if a Form 990-N is submitted late. Visit http://www.irs.gov for more information about annual reporting requirements.

Organizations that do not need to file the IRS form include organizations that are part of a group return, churches and their auxiliaries, conventions or associations, and organizations that are required to file a different return.