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July 16, 2014

IRS Nonprofit Unit Sidelined as 'Dark Money' Proliferates

Buffeted by scandal and starved of resources, the Internal Revenue Service's exempt organizations division has all but stopped regulating politically active nonprofit groups, according to the Center for Public Integrity.

A six-month inquiry into the nonprofit news outlet found that the IRS investigations of tax-exempt group's returns have declined by 10 percent since 2011, while applications for 501(c)(4) status have risen by 27 percent. Less than 0.25 percent of such applications are denied, compared to nearly 4 percent in the early 1980s. The nonprofits unit has lost 14 percent of its staff positions over the past two decades, while the number of groups it regulates has grown by more than 40 percent.

Amid lingering congressional investigations of allegations that the IRS targeted tea-party groups seeking nonprofit status, action on both liberal and conservative 501(c)(4)s that have raised and spent hundreds of millions dollars in recent elections has stalled. Even for groups whose missions appear to be highly political, "nobody wanted to say 'no, you’re not exempt,' " an employee of the nonprofits unit said, speaking on condition of anonymity.

The IRS has repeatedly backed off proposals to tighten rules or strengthen enforcement of nonprofit politicking under pressure from elected officials and lobbyists, the Center for Public Integrity says. At the same time, its budget has been cut by $855-million, or 7 percent, since fiscal year 2010, and 11,000 jobs have been eliminated.

Asked about the agency's ability regulate nonprofits, IRS Commissioner John Koskinen said, "We don’t have enough employees anywhere. I think the whole agency is at risk at the level of underfunding we have."