Ways and Means votes to overhaul charitable organization rules

Tax Hot TopicsTax Hot Topics The House Ways and Means Committee approved a series of bills last week targeting IRS administrative functions, including a bill that would overhaul how organizations apply for, and receive, tax-exempt status under Section 501(c)(4).

Many of the bills are direct responses to the IRS’s heavily criticized handling of investigations into the tax-exempt status of many organizations in 2012 and 2013. The IRS has admitted to improperly scrutinizing some political organizations. The bills passed by the committee include provisions that would do the following:
  • Require the IRS to fire employees who threaten audits for political reasons (H.R. 709)
  • Allow the IRS to disclose internal investigations of illegal activity by employees (H.R. 1026)
  • Prohibit IRS officials from using personal email accounts for government business (H.R. 1152)
  • Provide an administrative appeals process for adverse tax-exempt determinations (H.R. 1314)

The most significant bill (H.R. 1104) would change the process for organizations applying for tax-exempt status under Section 501(c)(4), which covers qualifying local associations of employees and social welfare organizations, including organizations that engage in substantial lobbying activities. Under that bill, the IRS would be required to create a new application process, and organizations would be deemed approved without a determination letter if they properly fulfilled the requirements of the application within 60 days of organizing.

All the bills easily passed the Ways and Means Committee with bipartisan support, and Republican leaders hope to bring them to the House floor for a vote the week of April 13. The timing allows Republicans to highlight the measures when the public is focused on the individual filing deadline of April 15, but Senate Finance Committee Chair Orrin Hatch, R-Utah., has made no promises to address them. The administration would likely oppose many of the bills if they advance.

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