The IRS announced on May 22 that it will substantially revise substantially its proposed Section 501(c)(4) regulations regarding politically-related activities. This retrenchment follows in the wake of great consternation expressed through more than 150,000 publicly filed comments.
Freedom Path and Free Speech: New 501(c)(4) Challenge to Constitutionality of IRS’s Speech-Related Regulations
A newly filed lawsuit by Freedom Path, Inc. squarely pits the First Amendment’s free speech protections against the IRS’s questionable “facts and circumstances” test for evaluating politically-tinged issue advocacy activities of tax-exempt organizations. Freedom Path is a conservative section 501(c)(4) social welfare organization that engages in issue advocacy activities affecting politics. In its lawsuit filed April 28, 2014, against former IRS official Lois Lerner, other “unknown” IRS officials, and the IRS itself, Freedom Path claims it was unfairly targeted. Freedom Path’s complaint describes unreasonable IRS delays in processing its tax-exemption application, unwarranted requests for additional information, and illegal release of confidential information by IRS officials to the media.
As Freedom Path asserts in its complaint, “this lawsuit presents a rare opportunity to challenge Defendant IRS’s unconstitutionally vague and ambiguous ‘facts and circumstances’ test used to analyze [Freedom Path’s] activities, a test which is in direct conflict with the U.S. Supreme Court’s clear guidelines relating to issue advocacy and campaign speech in Federal Election Commission v. Wisconsin Right to Life, Inc.” (WRTL). The significance of Freedom Path’s lawsuit is that it seeks to enforce the rule of law – that is, to make the IRS obey the US Supreme Court’s landmark decision as the supreme law of the land.
A. Freedom Path’s Constitutional Journey
Freedom Path’s odyssey began in March 2011, when it applied to the IRS for recognition as a section 501(c)(4) social welfare organization. Freedom Path then waited for nearly one full year, with no substantive response from the IRS.
According to its complaint, Freedom Path next received “voluminous and probing requests for additional information” from the IRS in February 2012. Despite serious problems with the requests, Freedom Path responded with comprehensive answers on June 3, 2012. The IRS then waited until February 2013 to follow up. In the meantime, the IRS allegedly disclosed Freedom Path’s confidential tax information to an investigative news organization called ProPublica, which then publicly disclosed it.
The IRS recently announced that it plans to roll out a new online tax-exempt recognition form later this year known as the Form 1023-EZ, allowing applicants to enjoy a quicker, streamlined process for IRS approval. But wait: a dark cloud is on the horizon for this front-end good news. Namely, the IRS reportedly will focus more resources on back-end scrutiny of nonprofits’ 990 annual returns and other unwanted investigations of tax-exempt organizations.