U.S. Rep. Bill Pascrell, Jr. (D-NJ-09), the Chairman of the House Ways and Means Subcommittee on Oversight, has written an urgent inquiry to IRS Commissioner Charles Rettig demanding answers on a recent news report identifying rampant fraud by fake charities approved by the IRS.

“I write today with urgency regarding a recent article stat[ing] that a “convicted stock market fraudster” successfully applied for tax exemptions for 76 phony nonprofit charities, many of which used names almost indistinguishable from well-known nonprofits. Fifty-six of the approved fraudulent organizations applied using Internal Revenue Service (IRS) Form 1023-EZ, which requires minimal information from applicants. This should never have happened,” Chairman Pascrell writes the IRS.

This is the latest blackeye for the IRS under Rettig. In his letter, Pascrell seeks answers and oversight of how the IRS approves charities to receive tax-exempt privileges.

On May 13, 2022, Pascrell became the first member of Congress to demand Rettig’s dismissal. He reiterated those calls on July 7 after the audits of Comey and McCabe were brought to light, saying: “If you think the audit of Donald Trump’s purported enemies was a random act of God then I have a bridge in North Jersey I’d like to sell you.” On July 8, Pascrell wrote to President Biden demanding he “fire Mr. Rettig so we can begin the crucial work of fixing the IRS.”

As Chairman of the Subcommittee on Oversight, Rep. Pascrell has been focused on fixing the IRS. On October 26, 2021, Pascrell demanded answers from Commissioner Rettig on systemic mail delays impacting IRS operations, tax filings, and refunds. Pascrell raised alarms on the slow start to the 2021 tax-filing season, and with Chairman Richard Neal (D-MA-01) castigated the IRS’s continually sending out erroneous notices to taxpayers.

The text of Chairman Pascrell’s letter to the IRS is below.

July 20, 2022

The Honorable Charles P. Rettig

Commissioner

Internal Revenue Service

1111 Constitution Avenue, NW

Washington, DC 20224

Dear Commissioner Rettig,

I write today with urgency regarding a recent article in The New York Times about the haphazard approval process for tax-exempt organizations described in Section 501(c)(3) of the Internal Revenue Code. The article states that a “convicted stock market fraudster” successfully applied for tax exemptions for 76 phony nonprofit charities, many of which used names almost indistinguishable from well-known nonprofits. Fifty-six of the approved fraudulent organizations applied using Internal Revenue Service (IRS) Form 1023-EZ, which requires minimal information from applicants. This should never have happened.   

Although Form 1023-EZ was developed to curtail an increasing backlog of exempt organization applications, it seemingly led to fraudulent applications being approved with lax oversight by the IRS. A 2019 study by the Taxpayer Advocate Service found that 46% – nearly half – of approved applicants did not actually pass the “organizational test” required by statute to establish legitimacy as a charitable organization. Once approved, bogus charities scam unwitting donors who trust IRS-certified 501(c)(3) organizations to be properly vetted and legitimate. The IRS has failed these citizens.

To help the Ways and Means Subcommittee on Oversight better understand how the IRS processes applications for tax exemption, please provide answers to the following questions by August 3, 2022:

1. For both Forms 1023-EZ and Forms 1023, please provide the following: (a) the number of applications received each year since 2015; (b) the number of applications approved; (c) the number of applications rejected; (d) the number of applications returned for additional information that then provided such information; and (e) the number of applications returned for additional information that failed to provide such information.

1. Describe the procedures for processing Forms 1023-EZ, including who reviews the application, the average amount of time (number of hours) to review the application, and the number of days, on average, from receipt to IRS’s determination. What steps are taken when there is suspected fraud?

1. Describe the current oversight of the tax-exempt organization application process. What happens with respect to an application when the IRS is notified of concerns by individuals, the media, law enforcement, state tax agencies, or other organizations?

Additionally, I request a briefing for my staff on this issue and expect your prompt attention to this matter.

Sincerely,