Congress should allow “apology payments” of as much as $1,000 to tax-exempt groups and other taxpayers who faced burdens or costly delays because the Internal Revenue Service violated their rights, the agency’s taxpayer advocate said Wednesday.
The payments “would serve as a symbolic gesture to show that the government recognizes its mistake and the taxpayer’s burden,” National Taxpayer Advocate Nina Olson wrote in a special report following the targeting of political groups for special scrutiny.
The report said employees in the Exempt Organizations unit in Cincinnati violated eight of 10 rights in her Taxpayers Bill of Rights in a breakdown that has triggered multiple congressional investigations and a Justice Department criminal probe, and led to the resignation of the acting IRS chief and other top officials.
“Today, the IRS is an institution in crisis,” Olson wrote in her semiannual assessment to Congress.
She repeated earlier criticism of budget cuts she says have hurt IRS employees’ ability to do their jobs for taxpayers, although her report does not directly link the failures by employees in the tax-exempt division to constrained resources.
The case is getting new attention this week after congressional Democrats disclosed that the IRS gave additional scrutiny not just to conservative groups but “progressive” groups applying for tax-exempt status, information an inspector general’s audit did not include.
Olson said employees had “very little guidance” to help them decide whether a group applying for tax-exempt status was too political in nature to qualify. She recommended clearer rules governing political involvement of nonprofit groups and simpler forms to make it easier for the IRS to enforce limits on political activity.
IRS agents are supposed to report taxpayer inquiries to the advocate’s office if their case has been delayed more than 30 days beyond normal processing time. But the Exempt Organizations division did not do this — even though close to 300 applications were delayed much longer than 30 days, the report said.
In a statement Wednesday, new Acting IRS Commissioner Daniel Werfel said Olson’s office will play an important role in fixing the problems.
“In particular, we will work with the advocate’s office to improve education inside and outside the IRS about taxpayer rights,” he said.
Olson first proposed apology payments in 2007. She has proposed capping the payment program at $1 million a year. On Wednesday, she also advocated that groups be allowed to sue if their applications are delayed more than nine months.
Public charities can appeal to the courts if the IRS doesn’t give them a determination within 270 days. But groups applying for tax-exempt status as a social welfare group — like many conservative and liberal-leaning groups that were targeted — don’t have that right.
Olson also proposed that the IRS make guidance available to groups seeking tax-exempt status on the Internet and randomly audit tax-exempt groups to make sure they are not primarily engaging in political activity.
She said she would create a liaison in her office to work with the Exempt Organizations unit.