Over the past few weeks several 501(c)(3) organizations in the midwest have been notified by the IRS that they will be audited in what appears to be selective targeting of charities that elect to use the expenditure test to measure their allowable lobbying budgets. While no written verification is yet available, three leading advocates of charity lobbying – the Alliance for Justice, Charity Lobbying in the Public Interest and OMB Watch – have written IRS Tax Exempt and Government Entities Director Evelyn Petschek “to express our grave concern and dismay.” The letter notes that the expenditure test, passed as Section 501(h) of the tax code, was intended to “provide clear standards for measuring permitted lobbying,” and that the IRS issued an information letter in 2000, stating “the Internal Revenue Manual specifically informs our examination personnel that making the election will not be the basis for initiating an examination.” The IRS 2003 Workplan targets several “market segments” of exempt organizations for review in specific areas, including PACs and several other non-charitable types of exempt organizations. Social service organizations were also listed. The IRS website states the purpose of the market segment studies is to “enable EO to accurately assess the risks of noncompliance; identify education and outreach needs; and more efficiently use IRS resources.” Organizations are selected by random sample, and asked about a variety of issues, including, but not limited to, lobbying. Charity lobbying was not identified as a market segment. These audits appear to be the result of a “Non-Compliance Indicator” project. The IRS workplan states that, “The cases selected for examination under these projects will meet certain condition codes that are developed by Examination & Planning Programs and Classification.” IRS agents have reportedly been directed to look at non-compliance with lobbying restrictions using charity spending of more than $10,000 on lobbying as a trigger, raising substantial questions about the validity of the process used in the Non-Compliance Indicator Project. The letter to the IRS from the Alliance for Justice, Charity Lobbying in the Public Interest and OMB Watch requested a meeting to discuss “the implications of the situation and identify ways in which the Service can affirm that charities should make the 501(h) election and that it will not trigger an audit.” See the full text of the letter to the IRS.