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May 3, 2012
TIGTA - 2012-15
David Barnes
David.barnes@tigta.treas.gov
TIGTACommunications@tigta.treas.gov
(202) 622-3062

The IRS Took Appropriate Actions to Identify Thousands of Organizations Whose Tax-Exempt Status Has Been Automatically Revoked, TIGTA Finds

WASHINGTON -- The Internal Revenue Service (IRS) appropriately identified 279,500 tax-exempt organizations that did not file a return or notice for three consecutive years, but it potentially did not identify more than 15,000 organizations that failed to file for three consecutive years, according to a report released today by the Treasury Inspector General for Tax Administration (TIGTA).

The Pension Protection Act of 2006 requires the IRS to maintain a list of organizations whose tax-exempt status has been automatically revoked for failing to file a return or notice for three consecutive years.

In a review that was requested by the IRS, TIGTA reviewed the Exempt Organizations function's readiness for and implementation of the provisions of the Pension Protection Act of 2006 related to the automatic revocation of an organization's tax-exempt status.

TIGTA found that the IRS performed extensive outreach and took actions to prepare for automatic revocations and, on June 8, 2011, informed more than 279,500 organizations that their tax-exempt status had been automatically revoked. In most cases, the IRS appropriately identified organizations that did not file a return or notice for three consecutive years.

However, auditors determined that programming changes were incomplete and did not potentially identify more than 15,000 organizations that failed to file for three consecutive years. As a result, these organizations were not informed that their tax-exempt status had been automatically revoked. In addition, TIGTA determined that improvements were needed to 1) provide better guidance to organizations when their tax-exempt status is automatically revoked if they believe they were revoked in error or are looking for how to reapply for retroactive reinstatement and 2) ensure accurate information is posted to the IRS's taxpayer database.

Throughout the review, TIGTA raised issues and the IRS took actions to address them. Specifically, computer programming issues were corrected; guidance provided on an IRS website was updated; and changes were made to an electronic filing website to reduce inaccurate address updates. In addition, TIGTA made three recommendations concerning programming changes and better guidance in the revocation notice.

"The tax-exempt status of an organization is very important to its existence," stated J. Russell George, Treasury Inspector General for Tax Administration. "The IRS must ensure it makes the correct call. I am pleased that, in general, the IRS is accurately identifying organizations whose tax-exempt status has been revoked. While we have identified some areas for improvement, the IRS is overall, getting the job done," added General George.

IRS management agreed with the recommendations and has already taken corrective actions. Two work requests have been submitted to change the programming to more accurately identify organizations that did not file and to ensure accuracy in the accounts of tax-exempt organizations.