May 15, 2013 The IRS has received a variety of questions related to the exempt organization issues recently raised. Here are some basics on the issue.

1. What are the issues raised in the recent Treasury Inspector General for Tax Administration (“TIGTA”) report? The issues relate to the application process for organizations seeking tax-exempt status. Part of the IRS’s responsibility is to review applications of organizations seeking tax-exempt status. Section 501(c)(3) organizations are required to get IRS approval. Others, including section 501(c)(4) organizations, are not required to get IRS approval, but often seek it.

2. Do the issues raised in the recent report relate to audits/ examinations? No, the issues relate to the approval process of organizations that applied to the IRS for recognition of tax-exempt status.

3. What does the IRS look for in the approval process? The IRS’s role is to determine whether organization meets the legal requirements for tax-exempt status. One requirement relates to the amount of political campaign intervention (“political activity”) that tax-exempt organizations may engage in. Section 501(c)(3) organizations are prohibited from engaging in any political activity. Other organizations, including section 501(c)(4) organizations, may only engage in a limited amount of political activity.

4. Where does an organization send its application for tax-exemption? All applications are sent to the IRS Determinations Office in Cincinnati. This office receives approximately 70,000 applications for tax-exempt status of all kinds each year. This includes applications from section 501(c)(3) and section 501(c)(4) organizations. This office, which includes fewer than 200 people working directly on applications, is primarily responsible for working determination applications. Determinations staff may consult with tax law specialists in Washington on how the law applies to their case.

5. Has the IRS seen an increase in the number of applications in which the organization is potentially engaged in political activity? Yes, the IRS has seen an increase in the number of section 501(c)(4) applications in general . The number of applications has more than doubled in recent years. In addition, the IRS has seen an increase in the number of tax-exempt organization applications in which the organization is potentially engaged in political activity. This includes both section 501(c)(3) and section 501(c)(4) organizations.

6. How did the IRS handle the increase in the number of applications from organizations that appeared to be engaged in political activity? As done in the past in other situations, such as credit counseling and down payment assistance), the IRS selected cases using identified criteria so that cases needing further review would be worked consistently. This means that cases meeting the selection criteria were centralized and assigned to designated employees developing expertise in the area so that they could be worked in a fair and consistent manner.

7. How are decisions made regarding what cases should be centralized in this area? Cases are selected for centralization if there are indications in the application that the organization may engage in political campaign intervention, lobbying, or advocacy. This was done to ensure that the legal requirements related to these activities are applied in a fair and consistent manner. The set of criteria was revised at a later point in order to avoid centralizing pure lobbying organizations that did not require follow-on development. During certain periods (August 2010 to July 2011 and January 2012 to June 2012, specific names, terms and policies (such as Tea Party and Patriot ) were inappropriately used as criteria in determining which cases should be centralized. However, case selection during these periods was not limited to these criteria.