Washington, D.C. ? The Internal Revenue Service does a poor job in identifying tax-exempt groups that may have links to terrorists, according to a report released Friday.

IRS investigators look at paper documents and use a limited terrorist watch list to pinpoint possible ties between charitable and other nonprofit groups and terrorists, said the office of the Treasury Inspector General for Tax Administration, which does independent oversight of the tax agency.

As a result, it said, “There is a risk that these charities will not be reported to the federal government authorities fighting terrorism.”

The report said that in fiscal year 2006 there were about 1.6 million tax-exempt organizations, excluding churches, with $2.4 trillion in assets and $1.2 trillion in annual revenues. In tax year 2003, the latest year figures were available, these organizations filed about 300,000 returns subject to review for possible terrorist connections.