Watchdog sues IRS to change regulations for tax-exempt groups

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The watchdog group's lawsuit is a reaction to the IRS admitting it applied a higher level of scrutiny to conservative groups applying for the exemption.

CREW argues that under the current regulations for 501(c)(4) organizations, those groups can spent virtually half of their yearly expenditures on "electoral activities" while still qualifying as tax exempt, though the exemption is meant for groups that spend the majority of their time on social welfare activities.

"As the ongoing IRS scandal shows, the 501(c)(4) regulation is unmanageable," CREW executive director Melanie Sloan said in a statement on Tuesday. "It clearly conflicts with the Tax Code and IRS employees are simply at a loss as to how to apply it. Remarkably, the IRS has known the regulation presents enforcement issues for more than 50 years, but has failed to act. CREW has sued to force the IRS to finally deal with this issue."

CREW previously filed a petition in April to motivate the IRS to change its regulations for 501(c)(4) groups. The purpose of the lawsuit and the petition is to change the parameters in which the groups can operate so they don't engage in "substantial political activity."

"Until now, it has been impossible to persuade the IRS or Congress to confront this issue.  But now that the entire country has been educated about this previously obscure tax matter, this lawsuit may finally spur reform," Sloan adds. "The current IRS scandal directly stems from the problematic regulation. Only by changing it can we be sure we won’t see a repeat of the current debacle."

The NorCal Tea Party Patriot group is also suing the IRS over the agency's increased focus on conservative organizations.