From inside a 501c3 - reporting

[underpants]

As part of my current job at a 501c3 non-profit charity I complete annual reports to 27 states. Yes they are arduous and time consuming but guess what- they are the law IF you want to fund raise in those states.

South Carolina has a best and worst list that is jawdropping when you see some of the bad ones
http://www.sos.sc.gov/forms/ScroogeandAngelpr.pdf

North Dakota has 3 forms and 3 different checks that we have to mail

etc. Some states don't require filings to raise money from their residents.

Okay so that is annual State filings. For the initial determination there was considerable effort needed. I wasn't at the organization when they initially filed but I reviewed the paperwork that they completed in 2003 to the IRS (Form 1023) just this week - it was 13 pages. Lots of specific questions about operations, intended purposes, and specific questions about political activity.
Now remember this is for 501c3 status. 501c4 criteria changed (40 years ago) to allow for some political activity. The fact that these rightwing groups were clearly fully political is not why I would have looked into them, the shear number of new applicants for 501c4 status would have warranted a closer look. I have a lot of compliance audit experience and a recent increase in any group or sub-group of that size demands a closer look.

Now - should they have used "tea party" and "9/12" and other terms for their search....mmm probably not but was the expanded group comprised of a large sample of such groups? If so then yes. In fact part of part of Miller's testimony dealt with efficiency (don't the TeaBagger types what better efficiency in government?)
http://swampland.time.com/2013/05/17/ousted-irs-chief-regrets-treatment-of-tea-party/

Once you have tax exempt status, which is rarely revoked, you not only can raise funds (or be bankrolled) where you don't pay taxes AND the donors get a tax credit you also get to buy office supplies, food, pretty much anything you want tax free as long as they are bought BY the organization. Need new tires (that will be used by the President of the 501c4)? Tax exempt. Need a new computer (that will be used for 501c4 activities)? Tax exempt. They do have to file a 990 report with the IRS so those expenses could (read: should) be reviewed but they typically aren't. The example of the tires is a bit extreme but it does happen - yes it is fraudulent but it surely occurs. I have seen no such activity at my organization just to be clear.


The 990 report brings up another factor - paperwork. How did my 501c3 organization respond to the initial Form 1023 questions? Their lawyers completed it. Expensive and cumbersome yes but necessary. You have to do the paperwork.
From an NPR report just this week - they didn't want to do the paperwork.

Backer supplied one of the questionnaires the IRS sent to his clients. There are four pages of questions, single-spaced. Many seem basic, and the very first cites the educational activity the group says it will engage in.

Bower says they use the money they raise to buy pocket Constitutions to hand out, and they are all unpaid volunteers. She said they did note, on one form, that they are an educational group that occasionally holds book study groups. She says they were then asked by the IRS for a written summary of each book.

"I don't have time to write him a book report; I did that in high school," Bower says.

She says the group had read two books. The first was endorsed by talk show host Glenn Beck, called The 5000 Year Leap. The other was the pocket Constitution they've been handing out. So she packed both up and sent them to the IRS, saying they could read the books for themselves.
http://www.npr.org/2013/05/15/184040236/irs-inquiries-crossed-the-line-tea-party-groups-say


Here is the part that really gets me. I can't find the complete list of the 300 organizations that were scrutinized. What was "75%" of the 300 is now switched to "300 conservative groups" in a short amount of time. Trust me I have looked but then maybe I am just not using the right search criteria.

[John1956PA]

1. I have done some work with Form 1023 applications and have found the IRS to be reasonable.

Granted, in my law practice, I never represented a group which was in any way political in nature. If such a group were to approach me and ask that I assist in submitting a Form 1023 application, I would caution the group that heightened scrutiny from the IRS can be expected.

Let's say that a progressive group were to contact me regarding a Form 1023 application. I would not accept the assignment unless I was satisfied that the primary efforts expended by group members were not aimed at benefiting political candidates. In my opinion, the group could support food banks, disaster relief, and humanitarian causes as long as the group did not discriminate against the recipients of such charity on the basis of political ideology (or on the basis of race, religion, gender, age, etc.).

In other words, my view is that if a political group such as "Local Town Democrats for a Better Community" wants 501(c)4 recognition, its goals should be at least 90% altruistic in nature. The political benefit to the group is essentially one of advertisement; by showing compassion, voters might be inclined to vote for political candidates from the same party as that of the group's members. Finally, I would have little problem if 10% of the group's revenues went to support political candidates who supported the same social causes which the group favors.

[underpants]

2. 2011 - 20,000 applications for 501c3 status 2,000 for 501c4

I have read that several places today. It also appears that they found 200+ of the 298 to not qualify for 501c4 status.