IRS Checking Form 990 Against Watch Lists

The Internal Revenue Service (IRS) is screening applications for tax-exempt status for terrorist names, IRS Commissioner Mark W. Everson testified at an April 5 Senate Finance Committee hearing on nonprofit accountability and tax compliance. The IRS's counter-terrorism project, focusing on the abuse of charities, is developing an electronic capability to review filed Forms 990 and 990-PF for terrorist names.

The explosive growth of the U.S. economy's nonprofit sector over the last decade has fueled tax fraud, terrorist financing schemes and illegal political activities, Everson said at the congressional hearing.

The IRS has already instituted procedures and is currently developing the electronic capability to review filed Forms 990 and 990-PF for terrorist names. Name matches are "coordinated with the appropriate office for verification and further action." In his testimony, Everson did not elaborate on which terrorism watch lists the IRS checks names against or where the name matches are sent. He also did not extrapolate on the consequences for an organization that had a name match.

The Senate Finance Committee did not question Everson about the controversy surrounding watch lists. The lists are notoriously fraught with inaccuracies and ambiguities, so there is no way to verify whether a name on the list is actually the individual encountered. For example, one of the lists is 143 pages of individuals -- about 20,000 names and aliases -- and organizations. Some of the names are partial, such as "Ahmed the Tall."

The IRS is also planning a redesign of the Form 990. In November 2004, the IRS revised Form 1023, the application form to qualify as a tax-exempt organization, to ask for specific information on foreign activities, and the revision of Form 990 will most likely be similar.

The IRS is seeking more information about the practices of organizations that make grants to foreign entities, and the level of oversight the organizations exercise over the use of funds abroad. IRS agents are currently examining more than 100 charities that make grants overseas to determine whether they are supporting terrorism. According to Everson, investigations so far have contributed to the sentencing of 44 individuals in terrorism related cases, 32 of them for money laundering.

Since 2001, federal authorities have raided and shut down 25 charities, freezing the assets of the organization and arresting or deporting its staff. Yet, not one staff member has been convicted on a terrorism-related charge.

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