A top Democratic congressman and several campaign finance groups sued Wednesday to try to force the Internal Revenue Service to crack down on political groups, saying the reason the agency has encountered so many problems with tea party groups is that it is using 20th century rules to govern 21st century politics.
Rep. Chris Van Hollen, Maryland Democrat, said the IRS scandal doesn’t show political targeting, but instead shows an agency that doesn’t have good rules for keeping political organizations from operating as tax-exempt social welfare organizations.
The lawsuit is the latest move to try to force a rethink of campaign finance rules after the 2010 Supreme Court decision in the Citizens United case, which opened up more avenues for interest groups to run political ads.
“Until this problem is addressed and solved, the big losers here are the voters who are being denied campaign finance information they have a basic right to know,” said Fred Wertheimer, one of the chief plaintiffs and founder of Democracy21, an advocacy group for clean campaigns.
The case was filed in federal district court in Washington, and the chief legal question it poses is how much political activity is allowed for groups applying under section 501 (c)(4) of the tax code, which covers organizations dedicated to “social welfare.”
Under the IRS interpretation, those groups could also engage in political activity as long as they “primarily” engage in social welfare. The actual division has never been officially defined, leaving a gray area that critics say is being exploited.
Mr. Van Hollen said the IRS for decades has been misreading tax law itself, which requires so-called 501 (c)(4) groups to be “exclusively” dedicated to social welfare. He said that means there should be no political activity allowed.
The issue became front-page news this year after an audit revealed that the IRS had targeted tea party groups for special scrutiny as they applied for tax-exempt status.
As of the end of July, many of those groups were still awaiting approval, and some of the applications have been pending for more than three years.
The IRS offered those groups still awaiting approval a deal — agree to hold their political activities to just 40 percent of what they do, and they could be eligible for expedited approval.
But many of the groups rejected that offer, saying that there was no basis in the law for a 60-40 split.
House Republicans are still investigating the IRS over the accusations of political targeting, and the oversight committee released a letter Wednesday to a deputy in the tax-exempt organizations branch asking her to clear up “inconsistencies” in her testimony.
Investigators said Holly Paz, who was top deputy to former IRS Exempt Organizations Director Lois Lerner, told them that there was no targeting of conservative groups — but other employees disputed that. The investigators also said Ms. Paz’s recollection of when Washington IRS officials became aware of potential targeting problems is at odds with other testimony and documents.
Democrats say the latest documents show progressive groups were also part of the special scrutiny, which they said shows the IRS wasn’t politically targeting conservatives, but rather was grappling with the changes to the legal landscape following the Citizens United ruling.
Still, the new lawsuit raises a number of tricky questions about political speech, including what it means to engage in political activity.