New Report and Hearing on IRS Exempt Org Audit Selection Processon Process

New Report and Hearing on IRS Exempt Org Audit Selection Processon Process

This week the Government Accountability Office (GAO) released a report commissioned by the Committee on Ways and Means relating to the IRS Exempt Organization (EO) selection process for examinations. This report is the latest in a series of inquiries stemming from the scandal of two years ago, in which the IRS was accused of targeting conservative political groups in the exemption application process. 

Today the Ways and Means Subcommittee on Government Oversight held a hearing on the GAO Report, calling as witnesses GAO Director of Strategic Issues Jay McTigue, IRS Commissioner John Koskinen and a panel representing nonprofit organizations that had undergone a recent IRS audit. GWSCPA Executive Director Kari Bedell was in attendance but not providing testimony.  You can view the hearing here.

While the GAO Report did not find evidence that the IRS EO selection process was biased, they did find internal control deficiencies in the audit selection process in the following areas: 

  1. Weaknesses in documentation
  2. Management’s monitoring of key procedures
  3. Segregation of key duties

Notably, the GAO report cites a need to clarify and document standards better in their Internal Revenue Manual (IRM), which is relied upon by staff when considering an organization for audit selection. 

In his remarks and the ensuing question period, Commissioner Koskinen said he agreed with the GAO Report and said the IRS intends to comply with all recommendations as resources allow.  

The Subcommittee’s questions focused largely on those examinations selected based on referrals, which account for approximately 20% of all exempt organization audits. There are currently about 1.6 million tax-exempt organizations in the United States, and annually just under 1% of those are selected for examination.