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IRS Controversy & Restructuring

In the past year, the Tax Exempt and Government Entities Division (“TE/GE”) of the Internal Revenue Service (“IRS”) has been engulfed in controversy, resulting in sweeping changes in both its personnel and operations. The controversy began in May 2013, when Lois Lerner, at the time the Commissioner of TE/GE, revealed at an American Bar Association (“ABA”) Tax Section conference that the IRS had used inappropriate criteria to identify and scrutinize exemption applications from organizations with certain words in their names, such as “Tea Party” and “patriot.”

Since then, Congressional Republicans have initiated several investigations into the IRS’s operations, and all of the top personnel at TE/GE have left the IRS. Ms. Lerner resigned in September of last year, and Steven Miller, the IRS Deputy Commissioner, Joe Grant, the Commissioner of TE/GE, and Holly Paz, the Director of the Rulings and Agreements Office in the Exempt Organizations Division, have all been replaced. John Koskinen has been named the new IRS Commissioner, Sunita Lough has recently begun her tenure as the new TE/GE Commissioner, and Tamera Ripperda has been hired as the new EO Division Director. The IRS is hoping to hire a replacement for Ms. Paz later this year.

Additionally, in March of this year, the IRS announced a planned “realignment” of TE/GE within the agency as a whole. Historically, the IRS has been divided into two sides, with one side responsible for tax law interpretation and the other responsible for tax law application. The application side falls under the Commissioner, and includes revenue agents who conduct audits and other enforcement personnel. The interpretation side consists of the IRS Office of Chief Counsel.  

The realignment will move TE/GE technical law specialists and support staff, who are responsible for writing revenue rulings, revenue procedures, certain private letter rulings and technical advice, into the Office of Chief Counsel. At the ABA Tax Section conference held on May 9, 2014, Ms. Lough confirmed that 22 Tax Law Specialists from TE/GE’s Rulings and Agreements section would be moved to the Office of Chief Counsel this year.  

Ms. Lough also informed the audience at the ABA meeting that in the future, the IRS plans to rely more heavily on data analysis to drive its strategic review decisions and to determine where to allocate resources. This will begin with Form 1023-EZ, which is the IRS’s new streamlined exemption application.  

Meanwhile, the Congressional investigations into the controversy continue, and exempt organizations practitioners nationwide are waiting with bated breath to see how these changes at TE/GE (as well as increasing Congressional and public interest in the activities of tax-exempt organizations) will affect the IRS’s policies and practices going forward. We will update this blog with any further developments. Stay tuned!