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Editor: Paul L. Caron
Pepperdine University School of Law

Monday, December 5, 2016

The IRS Scandal, Day 1306:  Government Rejects Claim That Rev. Rul. 2004-6 Allows The IRS To Target Conservative Groups

IRS Logo 2Law360, IRS Defends Test Used To Determine Nonprofit Status:

Federal attorneys defending the Internal Revenue Service against accusations it used an unconstitutional method to deny tax-exempt nonprofit status to a conservative group told a Texas federal judge Wednesday that the test in question “is neither unconstitutionally vague nor overly broad.” [Government's Motion; Government's Brief]

In arguments against plaintiff Freedom Path Inc.’s bid for partial summary judgment, the federal government disputed the group’s assertion that the test used by the IRS to determine whether a group that otherwise is exempt from federal income tax has spent money on a function that Congress has made subject to tax [Revenue Ruling 2004-6] is unconstitutionally vague, subjectively applied and burdensome on free speech. ...

Revenue Ruling 2004-6 is not constitutionally invalid on its face, as it is sufficiently clear in its terms to give fair notice of its requirements, and its objective factors do not make it readily susceptible to arbitrary or discriminatory application, the U.S. argued in its brief. Nor does the test infringe First Amendment rights, the government said. “Revenue Ruling 2004-6 prohibits no speech; it merely aids in determining whether a tax is owed for activity that Congress has chosen not to subsidize in section 501(c),” federal attorneys said. “And the range of opportunities for both administrative and judicial review provides further insurance against any remote possibility of abuse in the Revenue Ruling’s application.” ...

The suit stems from allegations that the IRS improperly used “Be on the Look Out” lists to target conservative “patriot” and “tea party” groups’ requests for tax-exempt status for increased scrutiny. Although the IRS has ended its use of the lists, Freedom Path claims the “facts and circumstances” test in Ruling 2004-6, which involves an examination of an organization’s activities to determine whether it is engaged exclusively in social welfare rather than for-profit or partisan-political activity, continues to threaten the group’s ability to operate as a nonprofit advocacy group. The group has argued that the “facts and circumstances” test is unconstitutional, and that the IRS’ methodology invites “viewpoint discrimination.”

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