IRS may botch complaints of tax-exempt abuse: watchdog

WASHINGTON Mon Jul 2, 2012 6:40pm EDT

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WASHINGTON (Reuters) - The Internal Revenue Service is missing opportunities to catch possible abuse by tax-exempt groups, the agency's watchdog said on Monday amid concern that some groups are spending heavily on the political campaign for the November 6 elections.

Allegations of abuse may be mishandled or lost, said the report by the Treasury Inspector General for Tax Administration. Lax IRS enforcement may cost the government millions of dollars in uncollected taxes, the report said.

The number of alleged tax-exempt abuse complaints to the IRS "has significantly increased over the last several years," J. Russell George, the head of TIGTA, said in an interview.

Critics say new political groups are pushing legal boundaries, putting pressure on the IRS and raising questions about their tax-exempt status and ability to keep donors' identities secret.

The Supreme Court's 2010 Citizens United ruling expanding the rights of corporate and other outside spending groups has focused renewed attention on tax-exempt groups - and IRS oversight of them.

Tax-exempt groups monitored by the IRS range from churches, to the U.S. Chamber of Commerce and to Planned Parenthood.

In June, Democratic President Barack Obama's re-election campaign asked the Federal Election Commission to force Crossroads GPS, a tax-exempt group founded by Karl Rove, former adviser to President George W. Bush, to register as a PAC and disclose its donors.

Thousands of complaints flood the IRS annually from the public, lawmakers and IRS auditors. While the IRS has more quickly acknowledged the tips, about a quarter of them take longer than four months to process, the report said.

The IRS, which asked TIGTA to do the audit, declined to comment.

The IRS could not immediately locate 26 percent of the complaint cases TIGTA requested as part of its audit. Other entries into an IRS database were inaccurate.

Republican senators said in June the IRS is discriminating against Tea Party and other conservative groups applying for tax-exempt status. Democrats are demanding the IRS probe whether the conservative groups deserve tax-exempt status.

(Reporting by Patrick Temple-West; Editing by Howard Goller)

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