Challenge to Regulations under Code Section 501(c)(4) under Way

Tax Notes Today reports anintriguing development in the battle over the use – or abuse – of section 501(c)(4)organizations to support candidates for political office.  According to the story, available electronically at 2013 TNT 34-8, an unsuccessfulIllinois candidate for a congressional seat and Citizensfor Responsibility and Ethics in Washington (CREW) ) are suing the IRS over regulations interpreting section 501(c)(4) ofthe Internal Revenue Code to grant federal income tax exemption to entities “primarilyengaged in promoting in some way the common good and general welfare of thepeople of the community.”   The complaint alleges that the regulations are inconsistent with the languageof Code section 501(c)(4), which exempts organizations “operated exclusively for the promotion of socialwelfare.”

This could become a noteworthy case – if a court concludes that the plaintiffs havestanding.  The Tax Notes Today storycites fellow blogger (and University of Illinois Law Professor) John D. Colombo for hisappropriately cautious words on the difficulty of establishing standing in tax caseslike this one.  But if the plaintiffsjump the procedural hurdles, it will be interesting to see how much deferencethe regulation receives from the judiciary. Readers who follow theelectioneering of tax-exempt entities are aware of the considerable latitudethe current regulations are thought to provide social welfare organizations inparticipating in the political process. It should be noted, however, that a court could interpret the language ofthe regulations to be more restrictive of pursuing non-exempt purposes – and therefore closer to theliteral meaning of the statute – than is commonly assumed.

For additionalcoverage, see this story from The Hill and the CREW webpage discussing the suitand supplying a link to its complaint filed in theUnited States District Court for the District of Columbia.     

JRB