WASHINGTON -- Rep. Chris Van Hollen (D-Md.) said Tuesday that he and two campaign finance watchdog groups would sue the IRS, challenging regulations that allow nonprofit groups to be involved in politics if they're "primarily" devoted to a social welfare purpose.
Van Hollen said he and watchdog groups Campaign Legal Center and Democracy 21 would sue to clarify an IRS regulation that he said was at odds with the law, which requires certain groups to "exclusively" engage in social welfare to earn nonprofit status. The IRS regulation permitting groups “primarily” engaged in social welfare allows the organizations to participate in an undefined amount of political activity, said the congressman, a leading advocate of campaign finance reform and ranking member of the House Budget Committee.
The 1959 IRS regulation has become an issue since the Supreme Court's 2010 Citizens United decision opened the door for nonprofit groups organized under section 501(c)(4) and 501(c)(6) of the tax code to raise and spend corporate and union money on elections without disclosing donors. The scandal involving the agency's singling out conservative groups applying for nonprofit status has increased attention to the regulation, especially among Democratic lawmakers.
"The statute is very clear," Van Hollen said during the keynote address at a conference on money and politics held by the Brennan Center for Justice. "It says that a 501(c)(4) organization is reserved for entities that are engaged 'exclusively' in social welfare activities, and it's not clear to me what part of 'exclusive' the writers of the regulation didn't get when it came to this particular provision of the law."
Van Hollen noted that the Campaign Legal Center and Democracy 21 have petitioned the IRS, seeking a review of the regulations for allowable political activity for nonprofits, and a definition of how much of the groups' budget or time meets the definition of "primarily." The IRS did not respond to those petitions.
"We have now exhausted the administrative remedies and we do now plan to move forward," Van Hollen said. "I plan to move forward with these groups to file a lawsuit against the IRS to enforce the plain meaning of the law, and frankly get the IRS out of the business of trying to draw these fine distinctions between whether something is 49 percent or 48 percent, or whatever it may be, political activity."
The main problem with this regulation, according to Van Hollen and other critics, is that it allows some 501(c)(4) and 501(c)(6) nonprofits to argue that they only need to spend 51 percent of their funds or time on their social welfare purpose to be considered "primarily" in the interest of social welfare and thus, eligible for nonprofit status. Critics say this allows groups to use the tax code to hide political donors.
Nearly every Democratic member of the Senate Finance Committee blasted the IRS' regulation during a hearing on IRS scandal. Sen. Michael Bennet (D-Colo.) asked then-acting IRS Commissioner Steve Miller to defend the regulation. Miller responded, "I'm not going to defend it or attack it. It is what the regulation is."
The finance committee later suggested changes to the nonprofit tax laws as part of a package of reforms. These included alterations to the "exclusively" versus "primarily" regulatory debate.
Neither Van Hollen nor the two groups said when they would file the lawsuit.