By Michael Volpe

The Internal Revenue Service, the one single federal agency that probably engenders more fear than any other, is backing down.

And it took the veterans of the American military to make it happen.

The American Legion is reporting on its website that a regulation which was costing that organization thousands of dollars, dozens of man-hours for compliance, and plenty of headaches, is being changed.

Throughout the summer 2013, a number of American Legion outposts were being visited by IRS agents and asked to provide a plethora of military forms known as a DD 214 form – or face a $1,000 per day fine.

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A DD 214 form is the paperwork which accompanies a discharge from the military, and prior to this summer, American Legion outposts were only asked to provide these forms to the IRS in extraordinary circumstances.

The American Legion complained to Rep. Jeff Miller (R-FL), head of the Veteran Affairs committee. After investigating the matter, Murphy noticed an obscure rule change in the IRS field manual, and he fired off a letter on August 28, 2013, to the head of the agency, complaining about the issue.

"As you know, 501(c)19 of the Internal Revenue Code provides tax exempt status to certain veterans' organizations. Under Field Determination Guidelines published on January 27, 2011, these organizations are now required to provide IRS auditors with materials including 'membership applications, DD Forms 214, or other discharge documents' or risk significant financial penalties," he wrote.

Initially, the IRS played down the rule change, saying in a letter back to Murphy on Sept. 4, 2013, that the field manual hadn't been changed since 1999.

"Your letter also requested a description of what prompted the January 2011 policy change. The January 2011 IRM revision was not a policy change, nor did we modify the IRM to require agents to request additional information. In the time frame provided, we have only been able to research our historical IRM sections dating back to 1999. However, our review of those IRM sections shows that this information regarding membership documentation is also in the enclosed 1999, 2003, and 2005 IRM updates," the agency said.

The American Legion remained undaunted and, according to a report on their website, the organization met with a series of IRS officials until the rule was redefined.

"Earlier this month, Legion staff and legal representation met with four IRS officials – the only veterans service organization (VSO) to do so – during which time the Legion asked that the IRS agree to change its internal regulations and guidance to comply with the above three resolutions. The Legion explained that while it preferred to fix this issue administratively, rather than legislatively, both options are available to the organization," the Legion report says.

As a result of the pressure, the IRS Field Manual was updated on Nov. 26, 2013, and the new guidance requires IRS agents to have evidence of wrongdoing before asking for the DD 214 forms.

"If an agent possesses information that contradicts documentary information provided or if the organization fails to satisfy a reasonable request, agents may then request DD Forms 214 or other discharge documents from the organization in order to ascertain compliance with the federal tax laws cited herein. DD Forms 214 must include the name, department, component and branch of service, and record of service dates. All other personal information may be redacted," is the requirement.

The American Legion also called on the IRS to create an ombudsman who would act as a liaison to the group and groups like it, known as Veteran Services Organizations (VSO).

WND had reported months ago on the dispute.

The issue was uncovered just at a time when the IRS also was caught harassing conservative organizations with demands for personal ideological details, such as the content of prayers.

Louis J. Celli Jr., director of the National Legislative Division at the American Legion, said at the time IRS officers had begun demanding birth dates and Social Security numbers of members.

Celli said one outpost in Texas, where officials were unable to comply immediately with the requirements, was fined $12,000, or $1,000 for each of 12 days it failed to produce the documents the IRS demanded.

Celli explained that the DD 214 forms were not only cumbersome to provide but full of personal information on each individual member. He also said that on occasion, the IRS demanded that the American Legion provide discharge documents even on members who are still on active duty, without any explanation.

The IRS has been the subject of intense scrutiny since it was revealed in May that it singled out conservative groups with "tea party" in their name for extra scrutiny. In those cases, IRS agents were instructed to pull any group with "tea party" in their name and perform a far more intense audit.

Multiple lawsuits have resulted from the IRS actions, and the Thomas More Society has said that several pro-life groups it represents allege IRS harassment. The legal group sent a letter to the House Ways and Means Committee complaining that several pro-life groups reported they were forced to answer intrusive questions such as "how often do you pray?"