Democratic Lawmaker Sues IRS Over Rules for Tax-Exemption

Photographer: Bill Clark/CQ Roll Call via Getty Images

U.S. Representative Chris Van Hollen, a Democrat from Maryland, said that “by redefining ‘exclusively’ as ‘primarily’ in violation of the clear terms of its governing statutes, the Internal Revenue Service permits tax-exempt social welfare organizations to engage in substantial electoral activities in contravention of the law.” Close

U.S. Representative Chris Van Hollen, a Democrat from Maryland, said that “by... Read More

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Photographer: Bill Clark/CQ Roll Call via Getty Images

U.S. Representative Chris Van Hollen, a Democrat from Maryland, said that “by redefining ‘exclusively’ as ‘primarily’ in violation of the clear terms of its governing statutes, the Internal Revenue Service permits tax-exempt social welfare organizations to engage in substantial electoral activities in contravention of the law.”

Democratic U.S. Representative Chris Van Hollen sued the Internal Revenue Service to force the agency to adopt regulations that mirror federal law on determining whether a group should be given tax-exempt status.

The IRS is illegally allowing a category of tax-exempt groups to engage in election-related activity by loosely interpreting a requirement in the law that they be engaged exclusively in promoting social welfare, according to the complaint that Maryland’s Van Hollen filed today in federal court in Washington.

“By redefining ‘exclusively’ as ‘primarily’ in violation of the clear terms of its governing statutes, the IRS permits tax-exempt social welfare organizations to engage in substantial electoral activities in contravention of the law,” Van Hollen and three advocacy groups said in the complaint.

The issue of tax-exempt groups spending money on elections triggered a political furor after the IRS disclosed in May that it gave extra scrutiny to organizations seeking nonprofit status if they had “tea party” or “patriot” in their name.

Later, Representative Sander Levin, a Michigan Democrat, said groups with names tied to liberal causes were also subjected to additional scrutiny.

The revelations triggered congressional hearings, the resignation of acting IRS Commissioner Steven Miller and a Justice Department investigation.

‘527’ Organizations

The problem with allowing social welfare groups to spend money on elections is that they don’t have to disclose who their donors are, giving them an advantage over other tax-exempt political fundraising entities known as “527” organizations, which are required to publicly list their contributors, according to Van Hollen’s suit.

Social welfare groups “are permitted to raise funds for electoral purposes without complying with the requirements imposed on 527 political organizations,” Van Hollen said in the complaint.

Van Hollen was in charge of recruiting Democratic candidates for House seats in the 2008 and 2010 election cycles.

A similar lawsuit was filed in May by the Washington-based watchdog group Citizens for Responsibility and Ethics in Washington.

Not Required

The share of election spending by non-political party groups not required to disclose the identity of donors has increased to 30 percent in 2012 from 1 percent in 2006, according to a July report by the Committee for Economic Development, a non-profit business-led public policy group in Washington.

Much of the increase occurred after the Supreme Court’s 2010 Citizen’s United ruling, which removed limits on independent election spending by corporations and labor unions.

Two of the plaintiffs in the Van Hollen suit, Democracy 21 and the Campaign Legal Center, petitioned the IRS in July 2011 to issue rules in line with the law. The tax agency took no action on the request, according to Paul Ryan, senior counsel for the Campaign Legal Center.

The suit asks the court to order the IRS to conduct the rulemaking.

Dean Patterson, an IRS spokesman, declined to comment on the suit.

The case is Van Hollen v. IRS, 13-cv-01276, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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