Senator accuses IRS of targeting vets groups

A Kansas senator wants the IRS to explain why veterans groups are being asked to prove their members actually served in the military.

Sen. Jerry Moran, R-Kan., said he is “troubled” by an IRS rule that could make veterans service organizations provide DD-214 separation documents “for every member at posts around the country.”

The American Legion, the nation’s largest veterans group, has about 2.4 million members and 14,000 posts. Veterans of Foreign Wars, with 1.5 million members, is the nation’s second largest veterans group. It has more than 7,600 chapters

The policy that has Moran and others excited was published in January 2011 in an Internal Revenue Service Manual chapter covering tax-exempt veterans’ service organizations. Apparently, the policy is just now getting attention from veterans’ groups.

“There is no group of Americans I hold in higher regard than our nation’s veterans,” Moran said in a Aug. 27 letter to Daniel Werfel, the IRS’s acting commissioner. “The last thing veterans should have to worry about is their privacy within veteran service organizations or the ability of those organizations to endure seemingly arbitrary IRS audits and the severe financial penalties that could ensue.”

Moran questions whether veterans groups were ever notified of the requirement, and asks what gives the IRS legal authority to ask for the documentation.

He also asks for clarification about the potential $1,000 per day fine an organization could face for not providing the documentation.

The IRS policy sets conditions for veterans organizations to be exempt from federal taxes. One of the rules is that at least 75 percent of the members must be current or former members of the armed forces. Of the remaining 25 percent, 90 percent must be either spouses, widows, ancestors or descendants of veterans. No more than 2.5 percent of the total membership could be non-veterans who are not related to veterans.

Anyone dishonorably discharged cannot be counted as a veteran, under the IRS rules.

Organizations could be asked to provide proof their membership meets this requirement.

To be tax-exempt, veterans organizations must be organized as non-profit groups but they can make money. The rule allows operating a bar, restaurant, gambling and dinner dances, if conducted among members of the post.