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October 27, 2017

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IRS settles class action lawsuits alleging discrimination

The Internal Revenue Service (IRS) recently settled class action lawsuits representing over 400 conservative groups that state they were “improperly” delayed tax-exempt status, according to a recent report by USA Today. It appears the federal agency singled out hundreds of groups due to their ideological stances. These groups underwent additional questioning which led to delays.

Tax exemption status is based on the activities of the group. The IRS clarifies that a group that is listed as a 501(c)3, for instance, must operate as a “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.” An organization that meets this definition can qualify for exemption for tax obligations. Instead of looking into the group’s operations, the agency requested unneeded and sensitive information. The piece by USA Today provides some examples of the sensitive information demanded by the IRS, including a list of donors.

Attorney General Jeff Sessions is quoted, noting the agency’s use of “heightened scrutiny was wrong and should never have occurred.”

Lessons for charitable groups from this error

The IRS has faced increased scrutiny for its treatment of charitable organizations. Those who run charitable organizations should take note and take any contact from the IRS seriously. If the IRS does contact the organization or attempt to demand tax payment, it is wise to seek legal counsel. An experienced tax relief lawyer can review the situation and provide guidance to help better ensure the interests of the charitable organization are protected. 

Tax Controversy