Federal Court Finds Section 501(c)(4) Regulation Regarding Political Activity to be Unconstitutionally Vague

Freedom Path, a would-be 501(c)(4)-exempt Social Welfare organization, challenged the IRS’s denial of its tax exemption, as well as the lawfulness of IRS’s regulation regarding political activity and related Revenue Rulings. This longstanding interpretation allows 501(c)(4) organizations to engage in “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office” but only so long as that Political Activity is not the organization’s Primary Activity.

Judge Cobb, of the U.S. District Court for DC, issued an opinion and order today finding that the IRS’s approach was unconstitutionally vague. The opinion surveys the caselaw regarding the application of vagueness doctrine to IRS’s decisions regarding exempt status, including the meaning and continued viability of the D.C. Circuit’s precedent in Big Mama Rag. The Court concludes that both the Primary Activity and the Political Activity tests, at least when considered in tandem, render the IRS’s approach unconstitutionally vague.

There is much to unpack on this development. For now, read the opinion and stay tuned…