Federal Politics

Published — August 26, 2010 Updated — May 19, 2014 at 12:19 pm ET

IRS not paying attention to 527 groups’ disclosures

Introduction

The Internal Revenue Service isn’t doing enough to police incomplete disclosures filed by so-called 527 political groups, which means the government is losing an estimated $5.3 million in taxes and penalties each year, according to a new watchdog report.

The 527 groups, named for a section of the U.S. tax code, are political parties, campaign committees and political action committees that are required to periodically report their contributions and expenditures to the IRS to maintain their tax-exempt status.

The Treasury Department’s inspector general for tax administration said it found that about one-fourth of reports filed by 527 groups were incomplete, or missing contributor or recipient information. But the IRS isn’t bothering to review the filings to see if they are complete or if penalties should be assessed, the watchdog said.

The IRS “should focus on increased enforcement actions for noncompliant political organizations,” the report said. A crackdown on 527 groups “will promote the full and accurate disclosure of political organizations’ financial information, which will help the public gain an accurate understanding of political organizations’ activities.”

The IRS should also conduct periodic reviews of 527 groups’ submissions and follow up on non-responses to IRS notices by slapping an extra tax or penalty on noncompliant groups, the watchdog said. Under the law, the IRS can already impose a penalty of 35 percent of the total amount of contributions and expenditures not properly reported.

Fast Fact: Contributions to 527 groups are not tax-deductible by the giver, but the recipient groups may treat the money as tax-exempt income if they file periodic disclosure reports with the IRS. Disclosures are filed on a Form 8872 and posted on a searchable IRS website.

Other new reports released by the Government Accountability Office (GAO) or various federal Offices of Inspector General (OIG):

FINANCE

  • IRS processed $110 million in stimulus law subsidies for Build America Bond interest payments to cut local governments’ financing costs (OIG)
  • IRS criminal unit investigated 168 tax-exempt groups in 2007-09, and has a conviction rate of about 35 percent (OIG)

ENVIRONMENT

  • EPA needs better management to realize a projected $115 million in savings by the agency’s helpdesk (OIG)

MONEY & POLITICS

  • Federal Election Commission final audit of $1.1 million transferred to AFL-CIO Cope political contributions committee by Communications Workers of America and American Federation of Teachers (FEC)

MISC.

  • Office of Federal Procurement Policy should issue guidance for all agencies’ “competition advocates” to use when only one bid is received for a federal contract (GAO)

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