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November 8, 2013
IRS Releases EO Training Documents Following Tax Analysts Lawsuit
by Chuck O'Toole

Full Text Published by Tax Analysts®

A 2009 IRS manual explaining how to screen groups' tax exemption applications instructed trainees to ensure groups "involved in sensitive political issues" were given closer review, regardless of whether those organizations' applications otherwise appeared suitable for closure.

The instruction appears in "Exempt Organizations Determinations Unit 2," part of nearly 3,000 pages of training materials used by the Service's scandal-plagued exempt organizations determinations office that the IRS released in response to a Freedom of Information Act lawsuit filed by Tax Analysts.

The materials, most of which date from mid-2012, provide guidelines for employees tasked with reviewing applications from organizations seeking tax-exempt status. The materials specify cases in which applications may require closer, more specialized scrutiny, which include but are not limited to political advocacy cases.

Tax Analysts requested the documents in May following the controversy that erupted around the determinations office's handling of exemption applications from conservative organizations. The company brought suit against the Service in August, seeking to compel expedited processing of the request. The IRS released roughly 1,000 pages in September, followed by another 1,800 pages in November.

Tax Analysts' attorney in the matter, Cornish F. Hitchcock, said the documents represent some but not all of what the company hopes to receive under its FOIA request.

"Our motion for a preliminary injunction is on hold pending the IRS's continued processing of documents," Hitchcock said. "Although the IRS has indicated that they have produced the bulk of the training documents we're seeking, we've pointed out some items that seem to be missing. The Service has until November 27 to produce all remaining documents or explain to the court why it can't do so."

Christopher Bergin, president and publisher of Tax Analysts, called the IRS's release of the documents "encouraging."

"It is unfortunate that Tax Analysts needed to go to court to get this process started," Bergin said. "An important mission of Tax Analysts is to promote transparency in tax administration. We will vigorously continue to pursue that mission."

In an October 2 court filing, the IRS said it had fully responded to Tax Analysts' complaint and asked for the suit's dismissal.

The documents comprise four student manuals, one instructor's manual, and untitled PowerPoint presentations covering a range of issues related to exemption application screening. For all of the manuals save one -- "Exempt Organizations Determinations Unit 2" -- revision dates indicate the material was updated in June or July 2012, after an internal IRS investigation had alerted senior officials to the problems in the determinations office. It could not be determined whether the 2012 editions included any updates in response to that investigation.

Political Cases

The IRS also provided a September 2009 version of Unit 2, which covers some advanced topics for more senior screeners. That document instructs screeners to assign "applications from organizations involved in sensitive political issues such as voter registration, voter guides, voter education, and voter polling" for full case development "regardless of whether it appears the application is suitable for merit closure in screening." That section continues, "Such cases must be given special attention and must be treated consistently, as they tend to be high-profile cases subject to media attention, especially during election years."

Unit 2 also warns screeners that individuals or groups who submit applications "involving sensitive political issues typically prefer to avoid undue scrutiny, thus it is likely that their activity narratives are vague and carefully-worded to reduce the likelihood of extensive development." In those cases, the manual says, "Specialists must ensure they obtain copies of all brochures, pamphlets, guides, etc., to find out how the organization presents itself to the public. If the organization has a website, a thorough review of the site and links to other websites is of the utmost importance."

Also noted in Unit 2 is that applications involving sensitive political issues and other "impact cases" are subject to mandatory review by EO Quality Assurance. The document describes impact cases as ones that "have a controversial issue involved or involve situations were the outcome of the case may cause widespread adverse publicity for the Service."

The PowerPoint presentations are undated but at least one includes a reference to guidance issued in fiscal 2011.

The determinations office, located in Cincinnati, came under fire starting in May when Lois Lerner, then the exempt organizations director in the IRS Tax-Exempt and Government Entities Division, admitted that screeners had been setting aside applications from groups with conservative-sounding names and sending them for closer review.

That disclosure and subsequent revelations unleashed a storm of criticism, leading to several resignations and numerous investigations into how and why politics played a role in the IRS's treatment of exemption applicants.

According to a report by the Treasury Inspector General for Tax Administration, Determinations Office reviewers began using inappropriate political criteria to screen applications in early 2010.

Two of the training manuals, the Unit 1a instructor guide and the student guide, refer to "Be On the Lookout," or BOLO, lists, which flag specific terms or types of organizations as signs that the applications are likely to warrant closer review. The screeners involved in the EO controversy were given BOLO lists that included terms associated with conservative political movements, such as "Tea Party," "patriot," or "9/12 Project."

The two training manuals instruct screeners to consult with their manager when they get an application that matches the BOLO lists. They make no mention of specific BOLO criteria.

Lindsey McPherson contributed to this article.

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