1.  Werfel Releases 30-Day Report, Introducing Fast-Track Self-Certification Option for Section 501(c)(4) Organizations Caught in the Backlog

On June 24, 2013, the Internal Revenue Service issued a report titled "Charting a Path Forward at the IRS: Initial Assessment and Plan of Action." The report offers IRS Principal Deputy Commissioner Danny Werfel's initial assessment of the events described in the Treasury Inspector General for Tax Administration's report, released May 14, regarding the IRS EO Determinations function's use of "inappropriate criteria" in screening and processing some applications for tax-exempt status.

The report discusses the steps that Mr. Werfel and his leadership team have taken during the past month to examine and address the alleged mismanagement of some applications, and outlines an action plan for further investigation and corrective actions. Their findings and action steps are presented in three sections: (i) Accountability, (ii) Fixing the Problems with the Review of Applications for Tax Exempt Status, and (iii) Broad Review of IRS Operations and Challenges.

The highlight of the report is the introduction of an optional "self-certification" process that will effectively grant some applicant organizations a fast-track to a favorable section 501(c)(4) determination letter. The IRS plans to mail about 80 letters offering an expedited path to organizations with 501(c)(4) applications pending for more than 120 days as of May 28, 2013, that indicate the organization may be involved in political campaign intervention or issue advocacy.

An eligible organization that elects this "safe-harbor" option will receive an approved determination letter granting section 501(c)(4) status within two weeks if it certifies that: (i) the organization devotes 60 percent or more of both spending and time on activities that promote social welfare as defined by section 501(c)(4), and (ii) political campaign intervention involves 40 percent or less of both spending and time. These thresholds apply for past, current and future years of operation.

Notably, in defining campaign intervention for purposes of determining eligibility for the safe harbor, the IRS goes beyond the tax law rulings on the issue (Rev. Ruls. 2004-6 and 2007-41, both of which are appended to the IRS template letter to organizations) to include communications that are defined, in part, based on a Federal Election Commission standard.

To view the IRS announcement, click here.

To view the full "Path Forward" report, click here.

To view the IRS's summary of the "Path Forward" report, click here.

To view the IRS announcement of the optional self-certification program for certain section 501(c)(4) organizations, click here.

To view the TIGTA report, click here.

  1. Taxpayer Advocate's Semi-Annual Report to Congress Includes a Special Report Regarding Exempt Organizations Review Concerns

On June 26 2013, National Taxpayer Advocate Nina E. Olson released her mid-year report to Congress identifying the priority issues that TAS will address in the coming year. Not surprisingly, the report includes a "special report" addressing the issues plaguing the Exempt Organizations Determinations function. Ms. Olson's report groups the factors contributing to the use of inappropriate screening criteria and processing delays into four categories: (i) lack of guidance and transparency, (ii) absence of adequate checks and balances, (iii) management and administrative failures, and (iv) EO's "cultural difficulty" with the Taxpayer Advocate Service. Ms. Olson offers 16 specific recommendations to address these issues.

To view the full TAS Report, click here.

For the Special Report related to Exempt Organizations issues, click here.

  1. IRS Set to Commence 1,000 Tax Exempt Bond Examinations by Year-End

On June 21, 2013, IRS Lead Tax Specialist (Tax Exempt Bonds, Compliance and Program Management), Christopher C. Woodin, announced during an AICPA conference that, by the end of 2013, the IRS Tax Exempt Bond Division will begin examinations of 1,000 tax exempt bonds issued by various organizations. According to Mr. Woodin, the examinations will accompany changes to the post-issuance compliance rules for tax exempt bonds found in the Internal Revenue Manual. Although this announcement is consistent with the Tax Exempt Bond FY 2013 Work Plan, the announcement offered new insight into the breadth and scope of the planned examinations.

To view the Tax Exempt Bond FY 2013 Work Plan, click here.