IRS Exempt Organizations Division 2006 Accomplishments

The following list of accomplishments of the Exempt Organizations division of the IRS (EO) in 2006 is excerpted (and slightly modified) from the IRS Letter to colleagues, members of the press and taxpayers dated as of November 7, 2006:

  1. Political Campaign Activity.  EO responded to increased complaints about political intervention by 501(c)(3) organizations and dramatic increases in the amount of money financing campaigns during election cycles, by launching the Political Activity Compliance Initiative (PACI), to investigate specific, credible allegations of wrongdoing, and by increasing our educational efforts.
  2. Credit Counseling.  The Credit Counseling Compliance Project, which focused on abuse by tax-exempt credit counseling organizations, succeeded in halting the spread of abuse in this industry.  Over the past several years, we saw an increasing number of credit counseling organizations become mere sellers of debt- management plans.  These organizations appeared motivated primarily by profit, and offered little or no counseling or education.
  3. Down-Payment Assistance.  The IRS was finding that organizations claiming to be charities were being used to funnel down-payment assistance from sellers to buyers through self-serving, circular-financing arrangements.  In a typical scheme, there is a direct correlation between the amount of the down-payment assistance provided to the buyer and the payment received from the seller.  Moreover, the seller pays the organization only if the sale closes, and the organization usually charges an additional fee for its services.  EO issued formal guidance (Rev. Rul. 2006-27) that contrasts down-payment assistance organizations operating in a manner consistent with the requirements for qualifying as charities with seller-financed arrangements that do not.
  4. Disaster Relief – Hurricane Katrina.  Based on lessons learned from previous disasters, the IRS encouraged those wanting to help victims of Hurricane Katrina to use established charities familiar with disaster relief because such organizations are usually able to administer relief programs more efficiently than newly formed organizations.  For those who wanted to start new organizations, EO initiated a process to expedite requests for tax-exempt status.  EO approved over 500 new charities, which better positioned these organizations to raise funds and provide relief to hurricane victims.
  5. IRC Section 527 Political Organizations.  The Exempt Organization Compliance Unit (EOCU) sent over 1,700 compliance check letters to section 527 political organizations that had stopped filing Form 8872 (the form used by political organizations to report contributions and expenditures).  Over 84% of these organizations responded that they were no longer required to file because they were qualified state and local political organizations or had terminated.
  6. Executive Compensation Initiative Project.  EO completed most of the examinations that are part of the Executive Compensation Initiative Project and evaluated the results.  EO expects to issue a report later this year.
  7. Hospitals.  As part of EO’s new hospital project identified in its FY 2006 Implementing Guidelines, the EOCU sent over 500 hospital compliance check letters and questionnaires.  The majority of hospitals contacted have responded, and EO is evaluating those responses.
  8. Counter-Terrorism.  EO continued to work with Treasury’s Task Force, the IRS Criminal Investigation (CI) Division and other law enforcement agencies to support government-wide anti-terrorism activities.  EO assisted Treasury and CI in providing information on issues concerning nonprofits to the Financial Action Task Force (FATF) and Asia/Pacific Group assessment team on the United States’ anti-money laundering and counter-terrorism financing standards.  EO completed examinations of foreign grantmaking organizations and is now evaluating the results of those examinations.
  9. Guidance.  EO was involved in issuing guidance on a wide range of technical issues, including:
    • Notice 2006-1, which provides guidance on the reporting requirements for donee organizations that receive vehicle donations with a claimed value of more than $500 after December 31, 2004.
    • Notice 2006-42, which provides guidance on the meaning of "gross receipts" for purposes of determining whether small insurance companies qualify as tax-exempt under IRC 501(c)(15).
    • Notice 2006-65, which makes entities aware of and requests comments on new excise taxes and disclosure rules for tax-exempt entities entering into potentially abusive tax shelter transactions.
    • Publication 4302, A Charity’s Guide to Vehicle Donations, which was revised to include tax law changes enacted under the American Jobs Creation Act of 2004 and subsequent guidance provided in Notice 2005-44 and Notice 2006-1.
    • Publication 4303.  A Donor’s Guide to Vehicle Donation, which was revised to include tax law changes enacted under the American Jobs Creation Act of 2004 and subsequent guidance provided in Notice 2005-44.
    • A fact sheet (FS-2006-17), which provides information to help section 501(c)(3) organizations stay in compliance with the federal tax law regarding the prohibition on political campaign intervention.
  10. Determinations.  EO reduced the number of applications for tax-exempt status awaiting assignment from 12,000 cases to 7,000 cases.  While EO is working to reduce the backlog, it recognizes that applicants may be frustrated by the wait time.  To address this frustration and reduce the volume of calls to its customer assistance lines, the IRS added information on its website entitled:  "Where is My Exemption Application?" that explains the determination process, gives the status of applications requiring additional development, and explains how an organization can check on the status of its application.

    To ensure that donors and other interested parties have up-to-date information about section 501(c)(3) organizations that have had their tax-exempt status revoked, the IRS began listing all recent revocations on the Charities and Nonprofits page of

  11. Modernized e-file (MeF).  EO initiated a robust campaign to educate organizations about the new electronic filing requirement.
  12. Risk Modeling.  Risk modeling involves the development of models that will better enable EO to detect high risk compliance patterns and formulate effective enforcement strategies.  EO developed several risk models that it will test in FY 2007.
  13. Cyber Assistant.  EO completed a prototype of the long awaited web-based tool, Cyber Assistant, that guides applicants for tax-exempt status through Form 1023.  EO also began an active search for partners to pilot, test and market Cyber Assistant.
  14. Education and Outreach.  EO continued to provide a high level of education and outreach to the exempt organization community.  Among its accomplishments:  holding 18 Small and Mid-Size Exempt Organization workshops reaching over 2,000 individuals, participating in the IRS Nationwide Tax Forums reaching nearly 12,000 individuals, holding five "phone forums" reaching over 1,000 individuals, issuing 21 editions of its electronic newsletter reaching over 14,000 subscribers, and updating and improving the Charities and Non-Profits pages of (including the addition of Life Cycle of a Private Foundation).
  15. Other Priorities.  EO continued to work in other areas identified as potentially abusive, including:  applications from supporting organizations, donors and organizations involved in abusive donor-advised funds, and conservation easement misuse.