With more than $3 trillion in assets, tax-exempt organizations are big business. For the Internal Revenue Service, ferreting out criminal tax fraud in the sector is no easy task.
A report released today by the Treasury Department’s Inspector General for Tax Administration details some of the problems the IRS has in managing such cases, which have declined in the past three years and tend to yield low rates of conviction.
In a separate report also released today, the inspector general urged the IRS to crack down on section 527 tax-exempt political organizations that don’t file timely or complete reports.
The IRS estimates there are approximately 1.8 million tax-exempt organizations in the United States. Between 2007 and 2009, the IRS initiated 87 tax-exempt investigations -- less than one-half percent of total investigations during that period. But the report noted that “While the number of cases and the percentage to the total of all investigations has declined, the percentage is consistent with the percentage of tax returns filed by tax-exempt organizations.”
The report also found that tax-exempt investigations are not as successful as other kinds. Defendants in tax-exempt investigations were ultimately convicted or pleaded guilty 35% of the time. The conviction rate for all investigations is about 53%.
The defendants in the successfully prosecuted tax-exempt cases were sentenced to an average of four years and three months in prison, and in total were ordered to pay nearly $41.2 million in tax assessments, fines, restitution, court costs and forfeited property
Victor Song, chief of the Criminal Investigation Division, responded in a letter that the conviction rate for tax-exempt cases is actually 81.8% if measured by the percent of adjudicated cases that result in convictions. He also disagreed with the inspector general’s recommendation to modify how data is tracked.
In the report on tax-exempt 527 political organizations, the inspector general urged the IRS to be more aggressive in fining groups for filing late or incomplete forms. The IG estimated the IRS could collect $5.3 million in additional penalties by doing so.
“The assessment of taxes and penalties for incomplete filings, when appropriate, could lead to increased accountability and disclosure by political organizations,” the report states.