Recent headlines are calling attention to holes in the streamlined nonprofit application process at the Internal Revenue Service. But the agency appears to be standing by its efforts.

A recent New York Times article explored the case of a 63-year-old New York City man accused by local prosecutors of running a fake charity ring through which he siphoned at least $152,000 in donations. Ian Hosang, who previously served jail time for his part in a fraudulent stock market scheme, was reportedly able to secure tax-exempt status from the IRS for 76 charities. Many of them impersonated larger charities like the American Cancer Society, but donations for these fake groups — whether purporting to be in states like Michigan or Ohio — were often steered to the same mailbox on Staten Island.

Hosang worked to secure exempt status for his fake groups to establish an appearance of legitimacy for unsuspecting donors and online giving clearinghouse sites. And his filing form of choice in recent years was the streamlined 1023-EZ tax-exempt application for charities anticipating gross receipts of $50,000 or less. Despite warning signs, many of these applications were approved — including outreach from the real American Cancer Society, which was on to Hosang’s schemes.

The Times suggested this case raises questions about the IRS’s ability to serve as the gatekeeper for determining legitimate charitable entities.

“Not because the alleged scheme was so good,” said the Times reporters. “Because it was terrible. And it worked.”

This is not the first time concerns have been raised about the 1023-EZ. In a 2015 report to Congress, the Taxpayer Advocate Service, an internal watchdog at the IRS, noted the agency approved 95 percent of 1023-EZ applications, although its random review process only approved 77 percent. More recently, the watchdog said that in 2019 it determined that 46 percent of groups approved through the 1023-EZ didn’t qualify for 501(c)(3) status.

Former Taxpayer Advocate Nina Olson told the Times, “Nobody’s watching the store. They’re the gatekeeper to this whole universe of charitable subsidies. And if the IRS is not doing its job as a gatekeeper, then you’ve got real problems.”

Still, the IRS appears to be standing by its processes. Tax Notes, a news source compiled by Tax Analysts, reported last week that the agency stated it thinks it takes “the appropriate time on reviewing applications” along with its oversight over exempt groups.

“We look to reduce burdens on entities applying for exemption without compromising the integrity of the exempt sector,” said the IRS.

ECFA will continue to monitor this matter.