That’s the title of a story from yesterday’s Wall St. Journal.    As a follow-up, Paul Streckfus’ EO Tax Journal (paid service) asked some intriguing questions about the source of the information that the IRS is taking steps to investigate Crossroads GPS specifically.

Streckfus also sent along a partial transcript of the relevant remarks by Holly Paz, the acting director of Exempt Organization Rulings and Agreements at the IRS, and the official quoted in the Journal story.  Ms. Paz was speaking to the American Institute of CPAs — full transcript (quoted with permission) after the jump.

Transcribed Remarks of What Holly Paz Said to the AICPA on June 22, 2012

“This year we are incorporating information from the revised Form 990 into the following projects. The first is in regard to section 501(c)(4)/(5)/(6) organizations that declare themselves to be tax exempt without seeking a determination from the IRS in contrast to section 501(c)(3)s. So we are reviewing these self-declarer organizations to see if they have classified themselves correctly under the appropriate subsection and meet the requirements of that subsection. To do this we will be sending a comprehensive questionnaire to these organizations.

* * * * *

“We are also using 990 data and risk models [indicators of potential noncompliance] in the area of political campaign activity. We will continue to work to enforce the rules regarding political campaign expenditures. What we will be doing this fiscal year is combining what we learned from our past projects on political activity with new information we glean from the 990s to focus our exam resources on serious allegations of political intervention. We’re doing this in two ways. As in the past, information that comes into us from outside sources will be reviewed by a committee of career civil servants. In addition, other potential violations identified through our risk modeling will also be sent to this committee. The committee’s task is to identify the cases that should be sent for a full examination. In addition, we are also going to be ensuring that people are properly reporting and paying the section 527(f) tax that subjects certain organizations to a tax on political expenditures.”

Question: You talked about the (c)(4)/(5)/(6)s that were self-declarers and you said you would be sending out questionnaires. What about those (4)/(5)/(6)s that had applied and filed a Form 1024 and had been approved for exemption?

Paz: You’re correct that the (4)/(5)/(6)s project we’re doing now is self-declarers. We haven’t had the opportunity to look at them as we have for those that applied for exemption. We’re particularly interested in those holding themselves out as (c)(4)/(5)/(6)s and to connect with them. (4)/(5)/(6)s that did apply for exemption could conceivably be looked at in a lot of other different examination programs that we have going on right now such as the UBIT project, and a whole variety of projects that (4)/(5)/(6)s might get looked at, and as the result of a general referral.

Ultimately there may be a project down the line looking at (4)/(5)/(6)s, the ones that did apply for exemption. Right now there is not a specific project devoted to (4)/(5)/(6)s other than self-declarers. That could change. I tbink you see from the workplan we are trying to look at various subsections of 501(c) that we have not looked at so much in the past. (4)/(5)/(6)s are one of those areas that have not gotten a lot of attention because there are a lot less of them than 501(c)(3)s but it is an area that we will be looking at in the future and what we are trying to do in all exam projects is what we learn in one project is take that forward and help us design the next project.

Question: What kind of questions are you asking self-declarers?

Paz: The questionnaire has not yet gone out. It will be rolled out in the near future. (4)/(5)/(6)s have very different legal requirements so we in looking at each subsection have specific questions for each subsection but also general questions about compliance with the annual filing requirement and their activities, those sorts of thing. And we will, as we have done in the past, make that questionnaire public.
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What EO Said in Its 2012 Workplan

Reporting Requirements
Reprinted from FY 2012 EO Workplan

II. Compliance: Using the Form 990

The IRS redesigned the Form 990 to promote transparency and compliance. The new form, which was effective in tax year 2008, has provided EO with a wealth of information on exempt organizations. EO has used this information to develop risk models to assess the likelihood of noncompliance by organizations, allowing more effective use of examination resources. In FY 2012, EO will incorporate information from the revised Form 990 in the following activities.

501(c)(4), (5) and (6) self-declarers

These groups — social welfare organizations; labor, agricultural and horticultural groups; and business leagues, such as a chamber of commerce — can declare themselves tax-exempt without seeking a determination from the IRS. EO will review organizations to ensure that they have classified themselves correctly and that they are complying with applicable rules. In FY 2012, EO will send a comprehensive questionnaire to organizations based on Form 990 filings to assess compliance in this area.

Political activity

As in any election year, EO will continue its work to enforce the rules relating to political campaigns and campaign expenditures. In FY 2012, EO will combine what it has learned from past projects on political activities with new information gleaned from the redesigned Form 990 to focus its examination resources on serious allegations of impermissible political intervention. As in the past, information from outside sources about political campaign intervention will be reviewed by a committee of career civil servants. In addition, other potential violations identified through risk modeling of Form 990 data also will be sent to the committee for evaluation. The committee will focus on identifying the cases to refer for examination. EO will further refine its risk models based on the results of examinations. EO will also ensure reporting and payment compliance with section 527(f).