The New York hedge-fund manager Robert Mercer, one of the biggest conservative donors in the country, has been funding a group that's paying for a Tea Party lawsuit against the Internal Revenue Service and seeking to sharply limit the role of the federal government.

Mercer's family foundation gave $500,000 in 2014 to a group called Citizens for Self Governance, according to a new filing obtained by Bloomberg this month. Mark Meckler, the group's president, said in an e-mail that the donation was in support of the group's Convention of States project, which seeks to amend the U.S. Constitution to restrict government reach. According to the website of an affiliated group, among the amendments it could consider are term limits for Congress and the Supreme Court; a balanced budget requirement; and "an upper limit on federal taxation."

Meckler said Mercer's donation was unrelated to Citizens for Self Governance's other big project, financing a federal lawsuit against the IRS over its targeting of Tea Party groups. Mercer's hedge fund, Renaissance Technologies, has been in a long-running dispute with the IRS over trades that may have cut its tax bill by as much as $6 billion.

Any attempt to link Mercer's donation with the Tea Party lawsuit would be "dishonest and untrue," Meckler said in an e-mail. Jonathan Gasthalter, a spokesman for Mercer, declined to comment.

Over the past few years, Mercer has emerged as one of the biggest patrons of conservative causes in the country. He's the top donor in the U.S. presidential race so far, having pumped $11 million into a super-PAC backing Senator Ted Cruz of Texas. He's also the co-chief executive officer of Renaissance, a Long Island-based hedge-fund management firm that has generated billions of dollars in profits with computer-driven trading strategies.

The IRS's scrutiny of Renaissance involves a series of trades known as "basket options" that the hedge fund made with banks between 1999 and 2013. According to a 2014 report by the Senate Permanent Subcommittee on Investigations, Renaissance used them to claim a lower tax rate on an estimated $34 billion in profits from the firm's flagship fund, cutting investors' taxes by more than $6 billion. The fund is open only to Renaissance employees.

In 2012, the IRS challenged the treatment of some of the trades and demanded more taxes. Renaissance says the transactions were proper and weren't tax-motivated. The dispute ended up in an internal IRS appeals process that can take many years to resolve.

A Northern California lawyer and former herbal-supplements salesman, Meckler co-founded Tea Party Patriots, one of the largest Tea Party groups, in 2009.  He left in 2012 after an internal power struggle.

Later that year, Meckler joined Citizens for Self Governance, then a small Texas nonprofit that is also known as the John Hancock Committee for the States. He quickly boosted fundraising, to $4.8 million in 2014 from $1.2 million in 2012. "Washington, D.C. is broken and will not be fixed by the ruling elite," reads the donation page on its website, which solicits gifts as small as $5. "Your donation to Citizens for Self-Governance will enable us to win the fight against an out-of-control government."

In 2013, a Treasury Department inspector general disclosed that the IRS had been subjecting Tea Party and other conservative groups to enhanced scrutiny when they applied for nonprofit status. Although not a party to the case, Citizens for Self Governance is paying for a federal lawsuit on behalf of targeted conservative groups, paying the plaintiffs' lead law firm $969,000 in 2014 alone.

In January, a judge in Ohio allowed the plaintiffs to bring the suit as a class action. "CSG has nothing financial to gain in this case," Meckler said in a statement announcing the victory. "We fund it because it’s the right thing to do. Someone had to stand up for the patriots who had been targeted, abused and discriminated against by their own government."

The Mercer Family Foundation didn't report any contributions to Citizens for Self Governance prior to 2014. Its 2015 giving isn't required to be disclosed until around the end of this year.

Related: What Kind of Man Spends Millions to Elect Ted Cruz? (Businessweek, January 2016)
Related: What Kind of Man Spends Millions to Elect Ted Cruz? (Businessweek, January 2016)
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