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Baucus Slams IRS Over Lax Control Of Tax-Exempt Sector

by Mike Godfrey,, Washington

29 May 2007

Senate Finance Committee Chairman Max Baucus (D-Mont.) has called on the Internal Revenue Service to step up efforts to identify tax-exempt charities and nonprofit organizations with possible links to terrorist activities.

In a letter to Treasury Secretary Henry Paulson, Baucus questioned why the IRS has been so slow to implement computerized tracking systems, and why it uses only a limited terror watch-list to screen tax-exempt groups.

His questions were prompted by a new report from the Treasury Inspector General for Tax Administration (TIGTA), which found that the IRS’s current system for screening tax exempt organizations’ filing information offers only minimal assurances that potential terrorist-related activities are being identified. As a result, the report suggested, there is a significant risk that organizations with suspected terrorist links will not be reported to government agencies fighting terrorism.

“Shutting down terrorist financing is one of the biggest challenges facing our country in the aftermath of the September 11 attacks. It’s disturbing that the Treasury Department does not require the IRS to use the most basic tool for fighting terrorism financing: a comprehensive watch list,” announced Baucus, adding:

“A significant source of alleged terrorist support has been through charities and nonprofit organizations, and the IRS needs to use all of its available resources to identify tax-exempt organizations with potential links to terrorist groups.”

TIGTA investigators found that the IRS has no real system for screening nonprofits for terrorist connections. They found that the main criterion used by IRS personnel in screening nonprofits is to look for “Middle-Eastern sounding names”.

The TIGTA report found that the IRS uses a manual process and a limited terrorist watch list from the Department of the Treasury to screen tax-exempt entities for connections to individuals or groups with possible links to terrorism.

"The IRS consults a list compiled by the Office of Foreign Assets Control (OFAC) that fails to include tens of thousands of individuals and organizations that the government considers to have potential terrorist links," Baucus wrote.

"The government’s Terrorist Screening Center, however, keeps a comprehensive list of individuals and organizations suspected of having terrorist ties. That list, which includes more than 200,000 names, is available to the IRS but is not being used by the agency’s screeners," his letter went on to observe.

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