IRS to Audit NEA

IRS to Audit NEA
January 1, 2004



According to a November 24 news release from the Landmark Legal Foundation, “the Internal Revenue Service (IRS) has launched an investigation into whether the National Education Association (NEA) has violated federal tax law by spending millions in tax-exempt, members dues on unreported political activities.”

Reg Weaver, president of the National Education Association (NEA), acknowledged the probe in a Fox News Channel special, “Breaking Point: Education in America,” which aired November 23.

“In September the IRS indicated that they were coming in,” Weaver said. “When they come in, we feel confident that they will go out the same way they did in 1999 and that is having the NEA have a clean bill of health.”



Unreported Political Expenditures

According to Landmark, the investigation into the union’s political expenditures was initiated by its filing of complaints with the IRS, starting in 2000, documenting tens of millions of dollars in political expenditures that have not been reported on the union’s tax returns over the last several years.”

“I think Mr. Weaver’s confidence in the NEA getting a clean bill of health may be a case of whistling through a graveyard,” explained Landmark President Mark R. Levin. “We provided the IRS with a chapter and verse road map into the union’s political expenditures. It appears that the NEA may finally be called to account for its failure to tell the government--and its members--how much it is spending on politics.”

The NEA regularly claims it spends nothing from its general revenues on political activities, according to Landmark documents. Yet the NEA spends more than $75 million each year on political activities, money many experts say should be accounted for.

Krista Kafer, an education analyst at The Heritage Foundation, isn’t surprised by the IRS’s pending investigation. “The NEA has been spending millions and millions of dollars on politics, but claiming that they’re not spending anything out of their general funds for these kinds of things,” she said. Kafer added that NEA money primarily backs liberal candidates and causes. “It is frustrating, particularly to those who are forced to pay union dues in non-right-to-work states, that their money is going to these kinds of activities,” she explained.

Focus on the Family, a Christian ministry based in Colorado, notes the controversy is not over the NEA spending its dues money on politics--that practice is legal. At issue is whether the NEA is properly accounting for its political spending and paying the taxes it is by law required to pay on that money.

In a statement posted on the Focus on the Family Web site, Marc Fey, the group’s education policy analyst, says a probe of NEA activities is called for.

“We’re going to find out what the truth really is,” Fey writes. “More important than that is the fact that the American people, moms and dads across the country, are seeing that the NEA has an agenda other than just educating our kids.” Fey says the NEA’s money would be better spent on issues more directly related to the classroom.



More Audits to Come?

The NEA probe may be just the first of many such audits by the IRS. Congress hasn’t even approved the agency’s 2004 budget request of $10.4 billion and already the IRS is asking for more. The 2005 budget request is more than a billion dollars greater than the 2004 request, and most of the new money would go to fund law enforcement projects, including the hiring of 5,000 additional employees.

When former Commissioner Charles Rossotti left office a year ago, he advised Congress that in order for the IRS to return to pre-1998 enforcement levels, the agency would require annual budget increases of about 2 percent per year for the next five years. Under the most recent budget request, the agency’s bankroll would grow by a whopping 12 percent over the 2004 figure.

Assuming Congress authorizes the 2004 budget request, expect unprecedented enforcement in the following five key areas.

  • Increased audits of small businesses. For years, the IRS has been concerned that partnerships and small business corporations (so-called S corporations) may not be reporting all their income. The IRS began a program two years ago to target small businesses for audit to ensure they’re reporting everything. With new enforcement funds, the agency expects to increase the number of small business audits by 110 percent in 2004.
  • More attacks on non-filers. The IRS’s known inventory of tax return non-filers is 6.8 million. For obvious reasons, it is unable to target all these people for enforcement action. However, by earmarking $3.6 million to the program and increasing its staff, the IRS expects to contact an additional 1.6 million non-filers in 2004. Through this process, the IRS expects to make $74 million in new tax assessments.
  • Increased scrutiny of W-4 Forms. Form W-4, Employees Withholding Allowance Certificate, is the form employees file with their employers to set wage withholding. Many non-filers inflate their allowances in order to stop wage withholding. The IRS intends to increase the use of its Questionable Form W-4 Program to intercept the bogus forms. Under the program, the IRS sends a letter to those whose W-4s (turned into the IRS by one’s employer) fall outside acceptable parameters. The letter demands the form be corrected or the IRS will impose penalties and instruct the employer to disregard the W-4 and withhold at the highest level. The agency’s goal is to use the Questionable W-4 Program to identify new non-filers and enforce collection against those already in its case inventory.
  • Targeting under-reporters. An under-reporter is one who failed to claim all income. The IRS uses several different methods to unearth under-reporters and currently, there are approximately 5 million cases in inventory. By increasing the staff assigned to those cases, the IRS intends to step up the attention given them and thereby create $98 million in additional tax assessments in 2004. In 2002, the agency increased its contact with these people by 36 percent over 2001 levels. This is the area under which the NEA case falls.

Dan Pilla is a nationally known tax litigation consultant and author of 11 IRS self-help defense books. His latest book, The IRS Problem Solver, was published by Harper Collins and is available through bookstores and Amazon.com. His Web site is http://www.taxhelponline.com.