Expatriate Owl

A politically-incorrect perspective that does not necessarily tow the party line, on various matters including but not limited to taxation, academia, government and religion.

Tuesday, February 28, 2006

IRS's PACI Report

As dictated by my personal and professional schedule, this is a period where my posts are a little fewer, and a little further between. I miss doing it, but there are more pressing demands upon my time and effort. This is not a totally negative development, and, quite frankly, some interesting things have been and are now occurring.

In the post of 18 January 2006, the IRS was sent a letter by some concerned liberal clergy, essentially requesting that the Rev. Rod Parsley's church be audited. Well now, the IRS has just released its Project 302 Political Activities Compliance Initiative Final Report, which discusses its PACI audits such as the one the concerned clergy requested be done on Rev. Parsley.

My take on that report is as follows:

1. All audits are initiated through "referrals" or "information items." This essentially means that they are all brought about by either someone with inside information who is snitching on the organization (typically a disgruntled employee or a dumped mistress), or some enemy who, like the aforementioned "concerned clergy," is sicking the IRS on their adversary.

Other types of tax returns are usually audited because they were drawn from the universe of filed returns based upon some sort of selection criteria which vary from year to year and from type of tax return to type of tax return (though there are a fair amount of "referrals" involved). Accordingly the selection criteria for these Political Activity audits of tax-exempt organizations can skew the selection process. This has greater potential for abuse.

2. There are certain supposed safeguards on tax inquiries and audits of religious houses of worship. Internal Revenue Code Section 7611 effectively requires that such inquiries and audits may not go forward without the blessing of "an appropriate high-level Treasury official." In a sense, this may well be a safeguard, but the downside is that the IRS agents out on the front lines, knowing that the inquiry or audit has been cleared by a "high-level Treasury official," might get a bit more zealous to please the HLTO than they would with a normal, ordinary, garden variety audit (if there really is such a thing -- no two of my cases were ever the same when I was with the IRS).

No taxation authority can ever be truly objective, but there are at least some checks and balances within the IRS, without which the abuses of taxpayers would surely be over a hundredfold what they are now. One of these safeguards is a limited degree of autonomy reposed in the group manager of the front-line IRS agent, which allows him or her to weed out cases that would waste the IRS's resources. The involvement of a HLTO can only reduce this autonomy (unless, of course, the group manager and/or the front-line agent is a member of the KMA Club with sufficient seniority to pull his or her pension).

3. The Report recommendations, which somehow coincided with Commissioner Everson's 24 February 2006 public remarks at a private club, are clear indications that more houses of worship and other tax-exempt entities will be scrutinized to ensure that they keep out of the political sphere. This is not necessarily a bad thing, provided that the IRS's own bureaucratic processes are likewise kept free of the taint of partisan politics. But knowing what has been tried before, I wouldn't bet on the IRS being able to rise above politics on all occasions.

4. My post of 9 November 2005 concludes with the following paragraph:

"It is reassuring to know that the IRS is enforcing the provisions of the Internal Revenue Code that prohibit churches from engaging in political activity. Perhaps the IRS will give similar scrutiny to the various Muslim mosques, whose activities of late have grown ever increasingly political."

I restate that paragraph now. If the IRS is going to hold feet to the fire, then let them hold EVERYONE'S feet to the fire by enforcing the law in an evenhanded manner.


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