Watchdog Group Sues IRS Over Policing Nonprofits

Posted February 19, 2013 at 12:15pm

The watchdog group Citizens for Responsibility and Ethics in Washington on Tuesday sued the IRS on the grounds that its regulations governing politically active nonprofit groups flout tax laws, as written.

CREW joined with Democrat David Gill, an emergency room physician who lost a costly and contentious Illinois House race last year, in filing the suit. The action was filed as a civil suit under the 1946 Administrative Procedure Act in the U.S. District Court for the District of Columbia.

“The IRS will not be able to maintain its silence in court,” CREW Executive Director Melanie Sloan said in a press conference call, noting that her group has complained repeatedly to the IRS about politically active tax exempt groups, to no avail. Democracy 21 and the Campaign Legal Center have also filed complaints and a rule-making petition demanding that the IRS curb tax-exempt groups, which do not disclose donors but spent record sums in the 2012 campaign.

The lawsuit argues Gill, who lost narrowly to Republican Rep. Rodney Davis in the Illinois 13th district race, suffered material harm as a result of ads run by the American Action Network, a conservative, tax-exempt social welfare group. AAN spent $11.8 million in the 2012 elections overall, according to the Sunlight Foundation, and $1.5 million targeting Gill. The group’s ads portrayed Gill as a mad scientist and incorrectly alleged he would destroy Medicare, Sloan said.

The suit argues tax laws require 501(c)(4) nonprofits such as AAN to operate “exclusively” for the social welfare, but that IRS regulations instead specify only that social welfare should be a 501(c)(4) group’s “primary purpose.” Many nonprofits interpret that to mean that as long as they don’t spend more than half their money on politics, they are in the clear, a CREW attorney noted.

“The lawsuit alleges that IRS regulation is arbitrary, capricious and contrary to law,” Sloan said. “There’s really no dictionary that would show ‘exclusively’ and ‘primarily’ as synonymous.”

Asked how Gill ended up leading the suit, Sloan said CREW had spoken with a number of candidates harmed by outside spending and that he had been the most amenable to a legal challenge.

“Campaigns should be transparent,” said Gill, who lost to Davis by less than three-tenths of 1 percent. “Voters should know who is funding political advertisements so that they have the information necessary to properly evaluate the claims therein.”

Sloan noted that AAN has received millions of dollars from both Aetna Corp. and the Pharmaceutical Research and Manufacturers of America. An AAN spokesman dismissed the complaint as “a tired long-since-settled argument from a George Soros-tied left-wing front group and a failed candidate with an extreme ideology, looking to blame anyone but himself for losing his fourth-straight congressional election.”

An earlier version misstated the amount the AAN received from Aetna Corp. and the Pharmaceutical Research and Manufacturers of America. The amount was in the millions, according to CREW.