House Republicans Urge IRS to Step Up Scrutiny of Tax-Exempt Groups

A member of the powerful House Ways and Means Committee said on Friday that he plans to take a closer look at the IRS to make sure the agency is doing an adequate job of overseeing tax-exempt organizations.

Rep. Charles Boustany, Republican of Louisiana, made his remarks at a hearing called to examine the AARP’s financial structure and its advocacy efforts to promote passage of last year’s health-care act. He and other Republicans also said they would ask the IRS to consider whether AARP, the giant advocacy group for older people, deserved to keep its tax-exempt status.

Meanwhile, Democrats said Republicans were unfairly singling out AARP because of its advocacy on the health-care bill.

“This is nothing but a political witch hunt. I ask my colleagues, Who is next? Who else is on your list? My college? Your church? This is a dangerous game to play,” said Rep. John Lewis, Democrat of Georgia.

Insurance Income

The hearing came two days after Mr. Boustany and two other Republicans issued a report that said AARP’s financial structure had come to resemble an insurance company more than a membership group. The report said that royalty payments to AARP from for-profit insurance companies made up nearly 46 percent of AARP’s revenue in 2009, while membership dues totaled just 17 percent.

The report also said that AARP stands to earn as much as $1-billion in the next decade in its contract with UnitedHealth Group as a result of the health-care law.

“AARP no longer operates like a seniors’ advocacy organization,” said Rep. Wally Herger, Republican of California. “AARP is dependent on the hundreds of millions of dollars it receives primarily from insurance companies and could not continue to operate in its current fashion without this revenue.” AARP officials said at the hearing that the nonprofit is strictly a nonpartisan organization and that it had been open about its sources of money.

“There is no veil,” said Barry Rand, AARP’s chief executive. “We disagree with each of the conclusions drawn in this one-sided report. We reject the allegation that our public-policy positions are influenced by our revenues. Our policy positions are set by our all-volunteer board of directors based on the needs of the 50-plus population. They are determined totally independent from revenue considerations.”

The revenue from royalties, including the roughly $430-million AARP receives from UnitedHealth Group, allows the organization to keep membership costs low, Mr. Rand said. Dues for AARP’s 100,000 members are $16 a year.

No Long-Term Effects

Republican lawmakers also questioned the organization’s governance structure. AARP board members oversee both the unit that runs the insurance plan and the unit that oversees its advocacy.

Tax experts called to testify at the hearing had mixed views about the organization’s approach.

William Josephson, who served as head of the charities bureau in the New York attorney general’s office, said that the “interlocking directors” structure AARP had in place is something that could raise concerns about whether the organization’s governance system was sufficiently independent but that it was not necessarily wrong.

Another witness, Frances Hill, professor of law at the University of Miami, said AARP’s structure did not lead her to question whether it deserves tax-exempt status.

“I saw nothing in that section of the report on tax issues that would cause me to think that their revocation of exemption is likely or warranted,” Ms. Hill said.

After the hearing, tax experts said they doubted it would have any long-term effects on nonprofit regulation.

Hugh Webster, a Washington tax lawyer, said he thought it was unlikely the IRS would investigate the AARP or other advocacy groups.

“This was a drive-by shooting of AARP,” Mr. Webster said. AARP, he said, operates “well within the tax laws. It’s just that their name carries such weight and value and they make incredible amounts of money, so it gets people’s attention.”