Democratic congressman sues IRS
August 21st, 2013
10:01 AM ET
9 years ago

Democratic congressman sues IRS

Washington (CNN) - Democratic Rep. Chris Van Hollen of Maryland filed a lawsuit Wednesday against the Internal Revenue Service over the agency's criteria for tax-exempt social welfare groups.

The lawsuit seeks clarification over a discrepancy in the way federal law defines eligibility requirements for a 501(c)(4) group versus the way the IRS defines such groups.

The difference comes down to two words: 'exclusively' and 'primarily.'

The federal tax code states that a 501(c)(4) group is tax-exempt if the non-profit is operated "exclusively" to promote social welfare.

But to meet the IRS requirements, a social welfare organization must operate "primarily" to further the general welfare of a community. In other words, a group can participate in political advocacy, as long as its "primary" work benefits a larger group of people.

The lawsuit seeks to amend IRS regulations so that 501(c)(4) status applies only to groups that work "exclusively" on social welfare.

A Treasury spokesperson said the department "cannot comment on pending litigation." The IRS also declined comment.

The wording in IRS regulations has caused confusion amid the recent scandal in which the IRS admitted to applying extra scrutiny to 501(c)(4) groups with names tied to political activism. The controversy sparked numerous congressional hearings and a change in management at the agency.

While conservative groups with the names "tea party" and "patriot" were initially revealed as some of the targeted organizations, the IRS inspector general later said that groups with the word "progressive"–a common name found in liberal organizations–were also on a list of criteria for extra scrutiny.

Van Hollen, the ranking member on the House Budget Committee, filed the suit against the Treasury Department and the IRS. Other plaintiffs in the suit include Democracy 21, Campaign Legal Center and Public Citizen.

According to the Center for Responsive Politics, about 152 social welfare groups spent $256 million in the 2012 presidential cycle, roughly 20% of the total amount of outside spending on elections held that year.

The conservative group Crossroads GPS and the liberal group Priorities USA are both examples of 501(c)(4) organizations that spent heavily in the last election cycle. Social welfare groups do not have to disclose their donors.

Other groups lumped under the category of outside spending include super PACs (which spent the most at $609 million), trade associations, unions and parties.

On a conference call with reporters, Van Hollen argued political groups who want to take part in campaign and election activity can obtain tax exempt status under Section 527 of the tax code. Unlike 501(C)(4) groups, however, Section 527 groups–such as political action committees and super PACS–must disclose their donors.

"If you do that, the IRS doesn't have to be in the business of trying to determine whether a 501(c)(4) is primarily engaged in social welfare activities or primarily engaged in political activities," he said.

Asked on the call whether he thinks Organizing for Action, the 501(c)(4) group that promotes the president's agenda in office, should be considered more of a political (527) group than a social welfare organization, Van Hollen noted that he's referring to political activity in which groups "spend money directly in an election to try to elect or defeat a candidate for federal office." OFA, on the other hand, works to educate voters on issues important to the president.

However, Fred Wertheimer, founder and president of Democracy 21, said on the call his group will be actively watching to see if OFA gets politically involved in 2014 midterm elections.

Van Hollen added that a more set-in-stone definition should be applied to IRS regulations on the meaning of "political activity."

"We believe there should be a bright line drawn, that at least is a question of whether something is political activity or not, the reason the IRS has run into all these difficulties is really trying to parse gradations between whether something is 51% political activity or 49% activity."

In fact, the IRS and the Treasury began in May talking about possible changes on how to measure "primary" activity by social welfare groups, including clarification on the definition of "political campaign intervention."

In its "Priority Guidance" plan released this month, the IRS said it was working with Treasury to develop clarification on the issue was part of its "Priority Guidance plan."

However, final guidelines have not been published.

For the lawsuit, the plaintiffs' attorneys filed the legal challenge in the U.S. District Court for the District of Columbia, with Scott Nelson of Public Citizen serving as lead attorney.

Democracy 21 and the Campaign Legal Center petitioned the IRS more than two years ago for a review of the regulations, and Citizens for Responsibility and Ethics in Washington (CREW) filed a similar suit in May.

Filed under: Chris Van Hollen • IRS
soundoff (36 Responses)
  1. simplyput

    I was wondering how Act For America managed to get classified as a non-political/non-taxable group myself. Guess I wasn't the only one.

    August 21, 2013 10:09 am at 10:09 am |
  2. much thunder..little rain

    anyone heard from al or jessie on the 3 thugs who shot the baseball player in oklahoma..didnt think so

    August 21, 2013 10:13 am at 10:13 am |
  3. Peppy

    Great, more lawsuits. This is getting truly old. No leadership in Washington is destroying America.

    August 21, 2013 10:14 am at 10:14 am |
  4. Pete

    Good, I'm glad someone of intelligence meaning a democrate in Mr.Van Hollen is putting his foot down,across the IRSs necks ..These republican led groups with Patriot,Tea Party names wanting 501(c)(4) status should be not only be called out publicly but fined and their status cancelled because you republicans know these charitable groups are NOT for the good of communities they're for the political good ,that of your extremist republicans !!So quit your crying republicans I hope for once that justice will prevail and again the IRS will to something they were instructed to do in making sure these crooked charitables get what's coming to them in fines,jail time to stop this political insanity before it gets outta hand like Citizens United has!!

    August 21, 2013 10:25 am at 10:25 am |
  5. jinx9to88

    Good! The GOP scrubs raised an issue they are gonna regret. These people are no longer gonna be able to hide there contributions and thats they way it should be. This witch hunt GOP raised found nothing and by the way not one conservative group was denied. Issa better luck next time.

    August 21, 2013 10:26 am at 10:26 am |
  6. Rudy NYC

    In my opinion, "operated exclusively" is too restrictive, and "primarily" is far too vague. The way the law is written, if a mayor rode on a team float in the LIttle League parade, then that league could be in violation of the law. The language is far too narrow to be of any practical use.

    On the other hand, the IRS regulation has defined "primarily" as being 51% or more of a groups funds are used to promote social welfare. The IRS regulation now requires that the IRS examine groups in order to make the 51% determination, which really shouldn't be the responsibility of the IRS but current regulations make it so.

    The core of the problem is the law itself, which necessitated the relaxed IRS intepretation of the law. Making the IRS follow the letter of the law, and not the intent, is probably the best first step to take towards fixing the narrow wording in the law.

    August 21, 2013 10:29 am at 10:29 am |
  7. Gunderson

    Old Gunderson thought Congress Write Law. Agencies apply law. No? It has been reported Congress wrote laws and then rode off in all directions. With such a simple thing as Non Profit Organizations getting in dutch how can Putin Care ever be understood.

    August 21, 2013 10:30 am at 10:30 am |
  8. Data Driven

    Long overdue. Stop classifying political groups as charitable organizations, and you stop the problem.

    August 21, 2013 10:31 am at 10:31 am |
  9. Boomer in Mo

    The real scandal all along has been the 501 c 4 being used for any political activity at all. The IRS has mishandled this for decades; time to clean up the mess and bring the people and businesses that own our government out into the sunshine.

    August 21, 2013 10:33 am at 10:33 am |
  10. Lynda/Minnesota

    All sides should agree that the wording the IRS folks have had to go with is ambiguous and start working together to help IRS employees better define 501 (c) (4) status rather than call one witch hunt after another witch hunt condemning the IRS underlings for trying to do their jobs.

    Yeah, I know GOPerville would rather throw stones ad nauseum, but I'm kind of leaning for the fix it or shut up meme myself.

    August 21, 2013 10:34 am at 10:34 am |
  11. Rick McDaniel

    Corruption in our government is simply rampant, and unless we demand change, we will cease to be a free country.

    August 21, 2013 10:37 am at 10:37 am |
  12. Rammer

    Would love to hear Limbaugh & Hannity comments on this. Will they??

    August 21, 2013 10:38 am at 10:38 am |
  13. Sniffit

    Good. It's about time the tax-exempt gravy train gets derailed and the IRS gets forced to obey the freekin statutes. EXCLUSIVELY. Period. That's the LAW.

    August 21, 2013 10:43 am at 10:43 am |
  14. jboh

    GOOD FOR YOU! Why should taxpayers finance political activity for anyone. We already finance oil, pharma, and corn syrup corporations' operations w/tax giveaways. While we're at it, end the carried interest and off-shore hiding of assets nonsense too. The real "welfare queens" in USA are those w/the most. None of those tax freebees go to business/job growth. It all goes to pay lobbyists/super PACS. Enough has reached too much.

    August 21, 2013 10:44 am at 10:44 am |
  15. Sniffit

    "anyone heard from al or jessie on the 3 thugs who shot the baseball player in oklahoma..didnt think so"

    We don't need to. You provide all the proof of RWNJ racism we need without them chiming in to point it out.

    August 21, 2013 10:44 am at 10:44 am |
  16. Marty, FL

    Excellent, about time!

    If it is a political group left, right or center, it should NOT receive exemption at taxpayers' expense. Period.

    Enforce the existing law.

    August 21, 2013 10:47 am at 10:47 am |
  17. Sniffit

    ""operated exclusively" is too restrictive"

    Why? We're talking about handing out tax-exempt status for their ENTIRE organization and ALL of its income, not some ratio that matches the ratio of social welfare work it does versus the amount of politicizing and electioneering it does. They want it all, they can give it all. Otherwise they're just profiteering off the tax-exempt status and placing more burden on middle-class taxpayers to cover their absence from the tax revenue.

    August 21, 2013 10:48 am at 10:48 am |
  18. The Real Tom Paine

    -Rick McDaniel

    Corruption in our government is simply rampant, and unless we demand change, we will cease to be a free country.
    What sort of change did you have in mind? Secession, perhaps? Working hard to change things is the antithesis of what you have usually proposed, so can we safely assume that's off the table, as usual? Oh, that's right, you never propose anything, only carp, whine, and rewrite history.

    August 21, 2013 10:49 am at 10:49 am |
  19. The Real Tom Paine

    Having a law that is admittedly vague has not helped this situation, and the Eisenhower-era interpretation of the law makes it even worse. Why has it taken over 50 years for this situation to be resolved?

    August 21, 2013 10:52 am at 10:52 am |
  20. the hippies were right

    Can't wait to see how Fox spews twists this one and subsequently how the sheep react!

    August 21, 2013 10:59 am at 10:59 am |
  21. Gunderson

    So you no care about Free Speech. Maybe old Gunderson no vote no more. Too Political.

    August 21, 2013 10:59 am at 10:59 am |
  22. Donna

    Still continuing the left wing lies about Progressive groups being targetted CNN??? There were NONE that had their applications held up for 2-3 YEARS and kept out of two election cycles. This was much more than being targeted for review. It was about suppressing the Tea Party movement and their ability to collect contributions and participate in our election process.

    This was the largest documented case of voter suppression in history and it was perpetrated by left wing ideologues running the IRS.

    August 21, 2013 11:04 am at 11:04 am |
  23. emskadittle

    He has to bring a suit because if Obama just told the IRS to change it, you all would go crazy and if he asked congress to do it, you know what would happen – nothing

    August 21, 2013 11:09 am at 11:09 am |
  24. jinx9to88

    I noticed alot of GOP crying on this blog because all the witch hunts you started are turning into crap. Same old GOP "Grumpy Old Parasites" blaming people for your mess ups not taking blame.

    August 21, 2013 11:09 am at 11:09 am |
  25. Norma Vessels

    If any group or organization is political in any way, from giving money, to just talking about politics in public, then they are not a charitable group or organization any longer, and should be taxed accordingly. No hand outs. There are way too many of those already.

    August 21, 2013 11:09 am at 11:09 am |
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