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The IRS ‘scandal’: Now, a lawsuit

Rep. Chris Van Hollen plans to file a lawsuit on Wednesday that will challenge the IRS interpretation of the law governing tax-exempt groups.
/ Source: MSNBC TV

Rep. Chris Van Hollen plans to file a lawsuit on Wednesday that will challenge the IRS interpretation of the law governing tax-exempt groups.

Rep. Chris Van Hollen is preparing to file a lawsuit in federal district court challenging the Treasury Department and the Internal Revenue Service over the agency’s interpretation of the 501(c)(4) law that determines tax-exempt status for social welfare organizations.

Hoping to force the agency to clarify its rules, the ranking member of the House Budget Committee said Tuesday that he will serve as lead plaintiff in the lawsuit, which will address one of the primary concerns with the recent IRS targeting controversy: differences between federal law and the IRS rules on eligibility for 501(c)(4) status. The lawsuit, also filed by three campaign-finance watchdog groups—Democracy 21, the Campaign Legal Center and Public Citizen—challenges IRS regulations adopted in 1959 that govern eligibility for tax-exempt status under 501(c)(4).

“What we’re asking the court to do is to instruct the IRS to apply the law as it was written,” the Maryland congressman said on MSNBC’s The Last Word with Lawrence O’Donnell. “The way the law was written – it was never intended that the IRS would be in the business of trying to determine whether an organization that was seeking this special 501(c)(4) tax-exempt status, whether it’s primarily engaged in political activities or primarily engaged in social welfare activities.”

The original Revenue Act of 1913 states that organizations must engage “exclusively” for the promotion of social welfare, but IRS rules say that organizations can qualify if they are “primarily engaged” in social welfare purposes. This inconsistency has confused Democrats and other critics who have said that the IRS’s interpretation of the law has made it impossible to determine what fully constitutes political activity and how much of this engagement should bar groups from tax-exempt status.

Rep. Van Hollen added, “The law is clear. You can only get that status if you’re exclusively involved in social welfare activities and because they totally  mangled the English language when they put forward the regulations, the guidelines, the IRS has  been in this position of trying to dig into the backgrounds of organizations to say ‘Are you primarily involved in social welfare activities or political?’”

In May, an inspector general’s audit found that the IRS had given Tea Party groups extra scrutiny based on the organizations’ names. The controversy launched congressional investigations and hearings with the resignation of acting IRS commissioner Steve Miller. Republicans speculated whether the agency’s actions were an effort to suppress right-wing support during the last two election cycles, but Democrats insisted the controversy was based on poor management and a lack of clarity on the regulations even though progressive groups were also given additional scrutiny. 

The IRS has declined to comment on the expected lawsuit.