For Immediate Release

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Contact: 

Sam Jewler (202) 588-7779; Angela Bradbery (202) 588-7741

Rep. Van Hollen, Reform Groups Sue IRS for Proper Regulation of 501(c)(4) Organizations Abusing Their Tax-Exempt Status to Make Secret Political Donations

WASHINGTON - U.S. Rep. Chris Van Hollen (D-Md.), joined by Democracy 21, the Campaign Legal Center and Public Citizen, filed a lawsuit today in federal district court in Washington, D.C., challenging the IRS regulations that govern eligibility for tax-exempt status as a section 501(c)(4) “social welfare” organization.

Attorneys from the three organizations are representing the plaintiffs in the case, with Scott Nelson of Public Citizen serving as the lead counsel.

The existing IRS regulations were adopted more than a half century ago in 1959. The lawsuit charges that the regulations are contrary to the explicit statutory language of the Internal Revenue Code and to court decisions interpreting the code.

The lawsuit comes more than two years after Democracy 21 and the Campaign Legal Center filed a petition at the IRS on July 27, 2011, challenging the regulations at issue in the case and calling on the IRS to conduct a rulemaking proceeding to adopt new regulations that properly interpret the statute. The IRS did not act on the rulemaking petition.

Since the U.S. Supreme Court’s Citizens United decision in January 2010, there has been an explosion in the number of groups claiming tax-exempt status as “social welfare” organizations under section 501(c)(4). This has included a number of organizations who have abused the tax laws to claim section 501(c)(4) tax-exempt status in order to keep secret from the American people the donors financing their campaign expenditures.

According to Public Citizen attorney Scott Nelson:

“Congress has specified in the Internal Revenue Code that a section 501(c)(4) organization must devote itself ‘exclusively’ to social welfare activity, yet the IRS has for decades allowed (c)(4)’s to engage in substantial electoral spending even though electoral activity falls outside the agency’s own definition of social welfare activity. And the IRS has done nothing to correct the mismatch between the law and its regulations even after it received a rulemaking petition explaining the problem and the urgency of addressing it to prevent (c)(4) organizations from being transformed into vehicles for massive electoral spending without donor disclosure.

“It shouldn’t take many years for the IRS to understand that when a law passed by Congress says one thing and the IRS’s regulations and policies allow just the opposite, something needs to be done.”

For more information about the lawsuit, see here.

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