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IRS TEGE Group Criminally Investigated by the FBI: How It Affects the Average Taxpayer

In response to an audit report by the Treasury Inspector General for Tax Administration (available here: http://www.treasury.gov/tigta/auditreports/2013reports/201310053fr.pdf) and a slip of the tongue by Lois Lerner, director of the IRS's Exempt Organizations Division at an American Bar Association meeting, the FBI is looking into reports that certain employees at the IRS improperly scrutinized the tax exemption applications submitted by social welfare organizations with a conservative political slant.

The gist of it is this: the Determinations Unit of the Rulings and Agreements office of the IRS's Exempt Organizations division, which is located in Cincinatti, Ohio, is responsible for processing Form 1024, Application for Recognition of Exemption Under Section 501(a). As part of this process, certain employees at that office started paying special attention to applications of organizations that had "Tea Party", "Patriot" or other similarly conservative associations in their name. Ms. Lerner knew about it, but what she did to fix it, whether that was enough, and how it happened in the first place is currently being investigated.

With everyone pointing fingers higher and higher up, it will be interesting to see where the blame lands. But how does something like this happen within the IRS, the government agency that is charged with holding each and every U.S. taxpayer accountable? The fact of the matter is that the IRS is a gigantic agency with a countless number of employees, offices, divisions, directors, chiefs, and commissioners. Yet every person at the IRS has their own responsibilities, a set of rules outlined by their office or department, and most of them have someone to whom they have to answer.

So what exactly happens when a taxpayer sends their forms or application or correspondence to any one of the many IRS offices? To understand this, it's first necessary to understand how the IRS is organized.

The IRS Restructuring and Reform Act of 1998 created a structure organized around taxpayers with similar needs, rather than taxpayers in similar locations. That is to say, an exempt organization is not going to be audited by the same Revenue Agent who is auditing a small business owner just because they live in the same city. Rather, the agency is divided into "commissioner-level organizations" that are responsible for different aspects of the agency's duties. The Services and Enforcement Organization is the one with which most taxpayers are familiar.

The Services and Enforcement Organization of the IRS is divided into four primary civil divisions: Wage and Investment, Large Business and International, Small Business/Self-Employed, and Tax-Exempt and Government Entities. Each of these divisions has its own employees, examiners, attorneys, and managers that specialize in the type of tax associated with that division. Though all of the divisions work to enforce the IRS's Strategic Goals, each division has their own Strategic Priorities, which are implemented through programs and procedures established within each division.

Assuming the form or application or correspondence got mailed to the right IRS office, cases are then assigned to be processed according to, among other things, the type of tax involved, the complexity of the matter, the stage of the procedural process, and workload. More often than not, the person to whom a case gets assigned is the luck of the draw. At the end of the day, the person who is processing a case is so far removed from the person who decided how that case should be processed that inconsistencies and discrepancies in how similar taxpayers are treated is inevitable.

Because of the complex organizational structure of the IRS, understanding who to talk to about what and when is crucial. More importantly, as in the case with the many organizations whose 501(c)(4) applications were improperly scrutinized, recognizing inappropriate conduct or a deviation from standard procedures can make or break a case.

At Brown PC, our qualified team of tax attorneys and former IRS enrolled agents has an insider's perspective on the IRS's strategies, goals, and priorities. Contact our office if you have a federal tax issue and need help figuring out what the IRS's next move may be.

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