Lawsuit Aims To Prevent IRS From Targeting Conservative Groups

The mechanism that allowed the IRS to deny right-leaning groups legal nonprofit status during Barack Obama’s administration is still on the books, but this week a conservative group is challenging the provision in court to prevent it from being weaponized again.

Back in 2013, when Obama was president and Lois Lerner led the IRS Tax-Exempt Organizations division, Americans learned that conservative groups seeking nonprofit tax-exempt status were being blackballed by the IRS.

A 2014 House Oversight Committee report shows how huge the scandal was when it was discovered: “A May 2013 review of the IRS tax-exempt applications found that not a single group identifying itself as ‘Tea Party’ was approved by the IRS after February 2010, when the new targeting criteria were instated, while dozens of ‘progressive’ groups were approved.”

But 11 years later, the same criteria on the application for a nonprofit 501(c)(4) tax-exempt status remain, leaving the door open to more corruption.

Lex Politica Attorney Chris Gober has been working since then to change the rule on behalf of Freedom Path, a now nearly inactive conservative issue advocacy organization that filed for tax-exempt status in 2011. After the IRS requested a list of Freedom Path’s donors in 2012, and the 2014 Lois Lerner scandal blew over, finally in 2020 — nine years after its application — the IRS denied Freedom Path nonprofit status on the basis of the same “Facts and Circumstances Test” weaponized against conservative groups in the scandal.  

The Trump administration’s Department of Justice is defending the Facts and Circumstances Test as the case returns to court this week for a status report with Washington, D.C., District Judge Jia M. Cobb. Freedom Path is asking the court to declare the Facts and Circumstances Test “unconstitutionally vague.”

The IRS uses the 11-factor Facts and Circumstances Test (seen below) to evaluate whether a group’s advocacy communications, such as advertising campaigns, should be considered “issue advocacy” — which would allow the group to become a tax-exempt nonprofit — or if its communications should be considered a “political campaign intervention,” preventing the group from gaining tax-exempt status.

The test is subjective; results depend on the values of the person evaluating the applicant’s material.

“It has a necessary chilling effect, because conservative groups nationwide will have to self-censor rather than risk IRS retaliation,” Gober told The Federalist.

For example, Freedom Path once killed a planned TV ad supporting the repeal of ObamaCare because the organization was not sure how IRS bureaucrats would interpret it, Gober said. This uncertainty curtails free speech.  

The issue is similar to that addressed by the 2010 Supreme Court decision in Citizens United v. Federal Election Commission. In that case the FEC used a similar 11-factor test to decide whether a group’s communication was used to express political advocacy. The court called the FEC’s similar test ambiguous and said it interfered with free speech.

“The FEC has created a regime that allows it to select what political speech is safe for public consumption by applying ambiguous tests. If parties want to avoid litigation and the possibility of civil and criminal penalties, they must either refrain from speaking or ask the FEC to issue an advisory opinion approving of the political speech in question. Government officials pore over each word of a text to see if, in their judgment, it accords with the 11-factor test they have promulgated. This is an unprecedented governmental intervention into the realm of speech,” Supreme Court Justice Anthony Kennedy wrote in the opinion at the time.

The IRS examines nonprofits’ speech most when they apply for tax-exempt status, and also may spot check existing nonprofits by randomly sending a letter requesting copies of advertisements it has run and a closer look at their spending, Gober said. It means nonprofits often feel like they must keep their speech guarded, not free.  

“We want to strike down this test as unconstitutional and require the IRS or Congress to go back and say, ‘All right, you need to rewrite a new test that actually dictates what is issue advocacy and what is political speech,’” Gober said.

The IRS Facts and Circumstances Test

Factors that tend to show that an advocacy communication on a public policy issue is for an exempt function under § 527(e)(2) include, but are not limited to, the following:

• The communication identifies a candidate for public office;
• The timing of the communication coincides with an electoral campaign;
• The communication targets voters in a particular election;
• The communication identifies that candidate’s position on the public policy issue that is the subject of the communication;
• The position of the candidate on the public policy issue has been raised as distinguishing the candidate from others in the campaign, either in the communication itself or in other public communications; and
• The communication is not part of an ongoing series of substantially similar advocacy communications by the organization on the same issue.

In facts and circumstances such as those described in the six situations, factors that tend to show that an advocacy communication on a public policy issue is not for an exempt function under § 527(e)(2) include, but are not limited to, the following:

• The absence of any one or more of the factors listed … above;
• The communication identifies specific legislation, or a specific event outside the control of the organization, that the organization hopes to influence;
• The timing of the communication coincides with a specific event outside the control of the organization that the organization hopes to influence, such as a legislative vote or other major legislative action (for example, a hearing before a legislative committee on the issue that is the subject of the communication);
• The communication identifies the candidate solely as a government official who is in a position to act on the public policy issue in connection with the specific event (such as a legislator who is eligible to vote on the legislation); and
• The communication identifies the candidate solely in the list of key or principal sponsors of the legislation that is the subject of the communication.

Beth Brelje is an elections correspondent for The Federalist. She is an award-winning investigative journalist with decades of media experience.