Thursday, August 22, 2013
The Washington Post reports that Chris Van Hollen (D-MD) is planning on filing suit against the IRS regarding the Section 501(c)(4) regulations that have been the spotlight as of late. Van Hollen, the ranking member of the House Budget Committee, will be the lead plaintiff in the suit, along with Democracy 21, The Campaign Legal Center, and Public Citizen. According to the Post, CREW has a similar suit pending.
If I understand the Post's article correctly**, the suit will focus on the validity of the IRS regulations under Section 501(c)(4). As we all probably know (ad nauseum) at this point, Section 501(c)(4) provides that an organization exempt under that section must be "operated exclusively for the promotion of social welfare" (emphasis added).
Treas. Reg. Section 1.501(c)(4)-1(a)(2) provides, "[a]n organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community" (emphasis added). As the promotion of social welfare does not include political campaign activity, it follows that an organization that is organized primarily for political campaign intervention purposes cannot meet the "exclusively" test of the statute.
I'm assuming that the lawsuit will take the position that it was an abuse of IRS discretion to issue regulations interpreting "exclusively" to mean "primarily" in the context of the amount of allowable non-social welfare activities. That raises a number of interesting issues:
For my civil procedure and con law friends, it's been a very long time since I've looked at standing issues. In the exemption context, of course, there is no taxpayer standing - but this isn't an exemption case. Is Van Hollen a plaintff because he is asserting that he personally has been injured by the enforcement of this rule (for example, because of the ability of opponents to get Crossroads funding or something?) Is there some other basis for standing?
For my admin law friends, what is our standard of review? Is this still straight up Chevron as a agency interpretation of statute with the force of law? Has any of that changed given recent Supreme Court action in this area (I am rapidly getting to the outer edge of my knowledge here). Does the fact that the IRS has recently come out with new 501(c)(4) review guidelines matter in the least?
Are we worried about collateral damage? The statutory language of Section 501(c)(3) also contains the word "exclusively." Treas. Reg. Section 1.501(c)(3)-1(c)(1) states, "[a]n organization will be regarded as 'operated exclusively' for one or more exempt purposes only if it engages primarily in activities which accomplish" one or more exempt purposes (emphasis added). It's always been interesting to me that in the Section 501(c)(4) context, some are willing to take the position that primarily means 51% , so you can push your political activities to 49% (of... something). In the Section 501(c)(3) context, I personally would be unwilling to tell a client that they can do that much non-exempt activity. Heck, I get queasy if a charity is in double digits percentage (of... anything) of non-exempt activity. But, technically, it is the same issue of statutory/regulatory construction.
This Section 501(c)(4) ambiguity could all be fixed by legislation, of course. Too bad none of the litigants has the ear of a Congressm.... um... wait....
(h/t Jonathan Adler via The Volokh Conspiracy Daily for pointing to this article)
** The Post article states, "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." Of course, the tax code is current law, the tax code does not belong to the IRS, and the primarily engaged test is in the Regs. So I'm assuming that's what the Post meant.