Report: IRS missing information from 9,774 politically active nonprofits

An oversight agency found that 9,774 politically active nonprofits haven’t notified the Internal Revenue Service of their existence or filed the necessary paperwork to receive tax exemption, The Los Angeles Times reports. 

The report, from the Treasury Inspector General for Tax Administration, dinged the IRS for failing to find those organizations, which are required to notify the agency within 60 days that they plan to operate as 501(c)(4) nonprofits. The IRS may be missing out on collecting nearly $96 million in penalties, according to the report.

This news is not entirely shocking. The IRS has been chronically underfunded and understaffed, with employees dedicated to tax-exempt groups declining 5% from 2010 to 2013. It noted that pursuing action against non-compliant organizations would a “resource-intensive process.”

This is of particular concern to critics of organizations operating under 501(c)(4) status, otherwise referred to as “social welfare” groups. Such organizations have become increasingly controversial because they are allowed to participate in more political activity than charities, as long as politics does not become their primary focus. But there has been widespread concern that because their donors aren’t public, they are used to funnel so-called “dark money.” 

To address those concerns, New York created a state law that, in part, required such organizations to disclose their donors if they spent more than $10,000 on political communications. But a federal court struck down those provisions last year, after a group of nonprofit organizations sued over free speech concerns. Meanwhile, the IRS is still working on regulations that would help keep donor information off tax forms from 501(c)(4) groups unless requested by the agency.