The Congressional investigation into the IRS’ handling of non-profit status applications by conservative tea party groups reveals that group members were 10 times more likely to be audited than the general public. For the overall population filing income tax returns, the audit rate is one percent; however, members of the tea party groups have an audit rate of 10 percent. In addition to the substantially higher audit rate, an attorney representing a number of tea party members also alleges the agency handles the audits in a more hardnosed manner than is standard.
The investigation into IRS tactics began over a year ago as the prior head of the agency division, Lois Lerner, admitted to Congress that tea party groups received special scrutiny. In order for donations to be tax deductible, an organization must seek approval from the IRS. Many of the groups were required to submit donor lists as part of the non-profit 501(c)(3) status application process and the donor lists were not supposed to be kept or used for any other purpose. Lerner was cited for being in contempt of Congress this week after she invoked her Fifth Amendment right not to testify, but only after testifying that she was innocent. The vote for contempt fell along party lines as all Republicans voted in favor and a mere handful of Democrats failed to vote against contempt. Democrats criticize that there was a heavy-handedness by Republican leadership against Ms. Lerner, but offer no apology for the IRS actions.
IRS audits generally occur on a random basis, unless a tax return shows “red flags” indicating tax payer aggressiveness in claiming deductions. Common red flags include rental property losses, hobby activity losses, cars listed as used entirely for business and home office deductions. Tax payers with these types of deductions and a few others are much more likely to receive an audit notice. Given that tea party members tend to be older, most of those receiving audit notices have been paying taxes for years without an issue. The IRS has not offered any evidence that the tea party donors hit the red flags on a higher than normal basis to justify being 10 times more likely to suffer through an audit.
Cleta Mitchell, an attorney who handles IRS disputes, said in a radio interview on May 9 that the IRS not only targets tea party donors at a higher rate, they also handle the audits in harsher fashion. Mitchell contends she has spoken with other tax professionals who state that the auditors show a tougher attitude against the tea party donors than is typical. She states that the auditors appear as if their minds are made up instead of seeking information to determine taxes due.
Democrats remain in a furor over alleged Republican grandstanding with the Lerner contempt vote. Whether or not House Republicans are overplaying their hand, the fact remains that the IRS made tea party donors 10 times more likely to receive audit notices than other tax payers. Potentially mistreating taxpayers based on political affiliation undermines the income tax system, which relies on voluntary reporting of income.
By William Costolo