New IRS plan: Let Some Groups Give Themselves Tax-Exempt Status

Nancy Cook

The Obama administration is trying to seize control of the story about the Internal Revenue Service's mismanagement and blundering by releasing a lengthy 60-page report on Monday about the changes it has since made at the agency.

Much of the report is meant to appease critics, except for one glaring, potentially problematic shift. The IRS is going to allow organizations, which have waited for more than 120 days for a ruling on their tax exempt status, to "self certify."

This means that these groups will receive permanent 501(c)4 status as long as they say they're only doing so much political activity and devoting the majority of their time and resources to social welfare activities. The new IRS plan defines this self-certification process for tax exempt status as a group that devotes no more than 40 percent of its money and manpower to political activities. This includes any public announcements or communication about a candidate, close to a primary or general election.

On a conference call with reporters, the acting head of the IRS, Daniel Werfel, said this was a second option for existing tax exempt cases stuck in the IRS's pipeline--if they did not want to wait any longer for the agency's final say.

"The application for 501(c)4's is already and has always been an optional process," he said. "You can always operate now without getting an application. But, we have entities that would like to know earlier in the process if the IRS is in agreement that they've appropriately categorized themselves."

The self-certification process for tax exempt status is not available to new groups filing with the IRS, according to an agency spokesman. Groups that self-certify could still be audited in the future, Werfel added.

But, at least initially, this idea of self-certification shows a hesitation on the part of the agency and the administration to delve into the knotty problem of regulating tax exempt groups.