Top Democrat files suit against IRS over tax-exemption rules

August 20, 2013

A top House Democrat plans to file a lawsuit in federal district court Wednesday challenging the Internal Revenue Service’s interpretation of a law that governs whether groups qualify for tax-exempt status as so-called social welfare organizations.

Rep. Chris Van Hollen (D-Md.), the ranking member of the House Budget Committee, said Tuesday that he will serve as lead plaintiff in the case, which addresses one of the main concerns that surfaced with the recent IRS targeting controversy: differences between federal law and the IRS rules on eligibility for 501(c)(4) candidates.

Current law says the organizations must engage “exclusively” in social welfare activities, but IRS tax code requires only that they are “primarily engaged” in such purposes. That discrepancy has led to confusion for application processors, who have struggled to determine what constitutes political activity and how much should disqualify groups from tax-exemption, according to agency officials.

“I don’t think the IRS should be in the business of determining whether the primary purpose of an organization is political or educational,” Van Hollen said in an interview Tuesday. “The statute is very clear they should not be in that business.”

Dean Patterson, an IRS spokesman, declined to comment on the planned suit but noted that the agency’s 2013-2014 work plan, released on Aug. 9, calls for new guidance on determining of 501(c)(4) eligibility.

The IRS controversy arose from an inspector general’s audit that found the agency inappropriately targeted applicants for extra scrutiny based on their names, which often suggested political preferences. The issue led to a string of congressional hearings, apologies from agency officials, ongoing congressional investigations, and personnel actions, including the forced resignation of acting IRS commissioner Steve Miller.

House Republicans, especially Ways and Means Chairman Dave Camp (Mich.) and Oversight Committee Chairman Darrell Issa (Calif.), have focused their investigative efforts on determining whether the behavior was designed to stifle conservative activism during the 2010 and 2012 election cycles.

Democrats have largely attributed the problem to poor management and a lack of clarity on tax-exemption rules that caused processors to examine hundreds of cases more closely with guidance from IRS officials in Washington.

Three campaign-finance watchdog groups — Democracy 21, the Campaign Legal Center and Public Citizen — are joining Van Hollen in the lawsuit. They have scheduled a joint teleconference Wednesday to discuss the legal action.

Citizens for Responsibility and Ethics in Washington filed a similar lawsuit against the IRS. The case is ongoing, according to Dave Merchant, spokesman for the group.

William Allison, a spokesman for the GOP side of the House Budget Committee, declined to comment.

Josh Hicks covers the federal government and anchors the Federal Eye blog. He reported for newspapers in the Detroit and Seattle suburbs before joining the Post as a contributor to Glenn Kessler’s Fact Checker blog in 2011.
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