IRS Releases Letters Revoking Charity Status

By Elizabeth Schwinn

In the wake of a recent ruling by a federal appeals court, the Internal Revenue Service has started to make public the letters the tax agency sends to groups that explain why it has denied or revoked their tax-exempt status. The decision to release the letters — which reverses the IRS’s long-held policy of withholding them — should help provide a window into the tax agency’s thinking on how organizations can qualify as charities, and comes amid growing scrutiny of nonprofit organizations by government and the public.

A federal appeals court ruled that the revenue service must disclose the letters, overturning an opinion by a federal district court. The IRS had argued that its letters could not be made public without violating laws protecting the privacy of organizations. But the appeals court said that federal public-records law requires disclosure of such documents so that the IRS’s enforcement of tax laws is in plain view. The case was brought by Tax Analysts, a nonprofit publisher of tax information.

In a memorandum, the IRS said that it is making the rulings available to the public but will black out the parts of the letters that identify the organizations involved, as the appeals-court ruling allowed.

Among the documents that the IRS has now released are several letters to groups that the government decided do not qualify as charities. Among them: a mental-health group that provides commercial services to its member health-maintenance organizations and an outpatient psychiatric facility that lacks a board of directors and allows its partners to take home its profits as salary.

A copy of the IRS memo is available online at http://www.irs.gov/pub/irs-aod/aod200402.