The IRS and the Legion audits

 
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The IRS and the Legion audits

Getting a lot of mail on this one, so figured I better do a post on it.  It started getting traction with this Daily Caller piece, which then got picked up by Fox News:

The American Legion is raising concerns about also being a victim of IRS targeting, prompting a Republican senator to demand answers from the agency.

The veterans’ service group says it recently learned about a so-called IRS “audit manual” that requires American Legion posts to keep dates of service and member records or perhaps face a $1,000-a-day fine, according to The Daily Caller.

Our National Judge Advocate, Phil Onderdonk, was actually quoted extensively in the original Daily Caller piece:

“The American Legion has recently learned of the so-called IRS ‘audit manual’ and is concerned that portions of it attempt to amend statutes passed by Congress and approved by the president,” American Legion legal counsel Philip Onderdonk, Jr. told The Daily Caller.

“Resolutions recommending action by the Legion’s legislative division on two of the most egregious sections of the IRS document are being presented for a vote by members at The American Legion’s annual national convention in Houston [this] week. If the resolutions are adopted, the Legion will be empowered as a body to urge correction of the veterans service organization-related portion(s) of the IRS manual and suggest congressional review of the entire 38 section IRS document,” Onderdonk said.

First, let’s go back to what is actually happening here.  According to the US Code for Veterans Service Organizations, codified under 501(c)(19), in order to qualify, posts must have

at least 75% of the members are past or present members of the U.S. Armed Forces and that at least 97.5% of all members of the organization are past or present members of the U.S. Armed Forces, cadets (including only students in college or university ROTC programs or at armed services academies) or spouses, widows, widowers, ancestors, or lineal descendants of any of those listed here…

There are other requirements, but that is the one chiefly at play here.  (It is a two pronged test, with the other prong being the “purposes requirement” which no one is alleging we are violating.)

Now, the way this has always been done in the past is that the IRS would get access to the Membership List for a Post, and then do interviews or research to ensure that this requirement threshold is met.  The big change here is that without telling anyone, the IRS changed their “Field Examination Guidelines” to require that individual Posts had to maintain the “membership applications, DD Forms 214, or other discharge documents.”  The problem here is that, because Posts had no prior warning that Posts needed to keep the DD214’s, it’s virtually impossible to go back, mid-Year on our memberships, and get those documents.  The usual way this is done is that the Post Adjutant confirms that the individual is qualified for Membership, and then either returns that documentation or destroys it.  The reasoning on this is fairly obvious; most posts do not have the ability to secure such documentation, and no one wants to leave a trove of personal information unsecured. 

As Judge Onderdonk presciently predicted, there were numerous resolutions passed at convention this year. 

Resolution 63:  Correction of Internal Revenue Service Audit Manual

Resolution No. 62: Change Internal Revenue Rules in Counting Sons of the American Legion

Membership at the Post Level as Outlined in Section 501(c)(19) of the US Code

(Note, this second one is pretty big.  It resolved that Congress should either drop the requirement or “provide clarifying language that the minimum percentage be based upon the aggregate enrollments based on the entire national organization of the veterans service organization rather than on a local community-based post.”)

Resolution No. 64: IRS Audit Manual on Sons of the American Legion Eligibility

I’m sure I will have more in the near future as Congress and the IRS move on this.

Posted in the burner | 4 comments
 
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Lots of things to consider mow due to Identity theft possibilities.
Security of documents
maintaining index of documents - maintain date aquired, index number, date of destruction
maintaining access list for those who are allowed access to documents
maintain secure storage with limited access - sign in/out
audit - yearly,quarterly
Privacy Policy in place and notification plan for if document missing
Clear copier/FAX machine memory of stored images.
This is just for hard copies
If on computer either stand alone or on network (connection to internet) things get more complicated.
depending on computer access and all the things that can and do go wrong with computers.

FYI, I am the Adjutant for my post. We require a copy of your DD214 when you join our Post. The main reason for this is NOT to meet IRS requirements. We do this so if and when the surviving spouse or family member needs proof of military service in order to obtain burial rights, we have it. At no time do we show this info to anyone else. And if IRS says they need proof, I will present them with a spreadsheet of all our members, with signatures of the Elected Post Officers stating that we have seen each members DD214 in person. They will not have access to our files unless National tells me I must give it to them....Then all information other that what is required to meet their needs will be redacted.

Just a warning about information release of discharge/DD-214
When supplying a next of kin with a copy of discharge/DD-214
The request must be in writing
Next-of-kin must also provide proof of death of the veteran, such as a copy of the death certificate, a letter from the funeral home or a published obituary.
Once the veteran had passed away you must securely dispose of the document and document its disposal.
Always make sure you are covering all the bases.
Between being a District Adjutant and a Post Adjutant. I have been through five (5) such audits by the IRS.
They will request a review of discharges/DD-214's.
Even though the IRS states a Post/District/Department needs to maintain a list with veterans name and ERA of service - They will want more information than that.
You may try redacting veterans information by blocking out service number/SSN and Date of Birth.
Depending on how you blank out information, it is not that hard to scan the document and separate the colors. Not all black is black. Enough software out there that makes it simple enough to remove the masking colors.
The IRS does not work or play well with others!!

Regardless of the IRS demands all documents related to a post business should be encrypted to protect the Post and especially PII-personally identifiable information that may be collected and stored. The potential theft, loss, disclosure of this information would expose the Posts to additonal liabilities, financial damage, credibiliy contraction and membership loss.

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News from the World of Military and Veterans Issues. Iraq and A-Stan in parenthesis reflects that the author is currently deployed to that theater.