September 18, 2017; Cincinnati Enquirer
Just when we thought the dispute between the IRS and Tea Party organizations that sought tax-exempt status in 2011 was over, the issue has reappeared. In a lawsuit filed earlier in September 2017 in U.S. District Court in Cincinnati, about 16 Tea Party and so-called “patriot” groups filed a class action lawsuit against the IRS based on the 2011–2012 scandal. The suit alleges that the IRS continued its discrimination long after it said it had ended. The plaintiffs are seeking to negate the claims by the IRS that politics were not an issue in delaying the granting of nonprofit status to right-leaning groups.
So, why a new suit, and why now? Some background may prove helpful in understanding this suit, which tackles the issue of discrimination in the granting of nonprofit status by the Internal Revenue Service. In 2011, during the heated presidential campaign, and following the Citizens United v. Federal Election Commission decision in January 2010, at least 300 organizations with right-wing leanings filed for 501(c)(4) tax-exempt status with the IRS. Many of those organizations alleged that approvals of their filings were delayed and that they were subjected to a heightened level of scrutiny. Claiming discrimination based on their political views, a lawsuit was filed in District Court in Ohio. The IRS claimed they were just monitoring whether the groups were conducting more political activities than the law allows. The IRS lost its effort to have this suit dismissed.
In 2014, federal district judge Susan Dlott let two of the Tea Party groups’ claims survive to trial, including that the IRS discriminated and retaliated against them based on their views, in violation of their free speech rights. Dlott did dismiss a third claim, ruling the Tea Party groups could not pursue allegations of privacy violations on behalf of their individual members.
The resolution of this suit remains in play, but in the intervening time, IRS regulations on nonprofit status have changed. The new suit, filed this month, pushes the envelope on these new regulations and revives the discrimination claims from more than four years ago.
The current regulations governing the operations and status of 501(c)(4) organizations are the purview of the IRS. Can they lobby? Can they endorse candidates? Must they carry the guise of a social welfare organization? Here’s what the regulations say:
Seeking legislation germane to the organization’s programs is a permissible means of attaining social welfare purposes. Thus, a section 501(c)(4) social welfare organization may further its exempt purposes through lobbying as its primary activity without jeopardizing its exempt status.…In addition, a section 501(c)(4) organization that engages in lobbying may be required to either provide notice to its members regarding the percentage of dues paid that are applicable to lobbying activities or pay a proxy tax.
The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax under section 527(f).
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In December 2015, Congress passed the Protecting Americans from Tax Hikes (PATH) Act, which further regulates tax-exempt status. One interpretation of this law states:
Until now, 501(c)(4)s have not been legally required to obtain the IRS’s affirmative recognition of their tax-exempt classification. Rather, organizations could simply declare such status internally, provided that they annually filed a IRS Form 990 return. The PATH Act added Section 506 to the Internal Revenue Code and it imposes new requirements on 501(c)(4)s to clarify their tax-exempt classification.
While the IRS admitted to holding back on granting nonprofit status to some groups, the intent of the suit is now to prove that discrimination continued even after the IRS claimed it had stopped.
No motive for the potential discrimination was mentioned in the filings. Lawyers representing the conservative groups said that they don’t have to prove why the activity took place. (Previous critics and even some in Congress have claimed IRS officials were trying to slow down conservative fundraising to help President Barack Obama win reelection.)
“By trying to make this about whether this was done to help Obama win is setting the goalpost artificially too high,” Eddie Greim, a lawyer representing conservative groups in the class-action suit, said in an interview with the Enquirer. “All we have to prove is whether they had the intent and if they indeed treated a set of groups differently based on their ideology.
“And these documents show that the IRS actually used ideology…which is wrong just on the face of it.”
Right or wrong, the lawsuit raises serious questions about who applies for nonprofit status and who gets it.—Carole Levine