LITIGATING THE 501(C)(4) TAX EXEMPTION:

Original Post - 10/06/2025

The battle over 501c4 organizations appears to be heating up again. The last round involved alleged IRS targeting of Tea Party organizations (technically under 501c3, not c4). The current one seems to be a replay - based heavily on a very vague IRS definition.

From Politico - Tax Weekly. Your thoughts?

The IRS’s guidelines for determining whether a politically active group can be tax-exempt under 501(c)(4) of the tax code are “unconstitutionally vague,” a federal judge in the District of Columbia ruled last week.

Judge Jia M. Cobb made clear that her ruling, issued on Tuesday, only applied to the IRS’s denial of tax-exempt status for the nonprofit advocacy group Freedom Path. However, the decision is likely to draw wider interest given long-simmering partisan disputes over how the IRS should determine whether groups that engage in political issues deserve tax-exempt status.

Freedom Path, a conservative group that advocates against excessive government spending and the Affordable Care Act, sued the IRS in 2020, claiming the agency unfairly rejected its 501(c)(4) tax exemption application after requesting information about the group’s activities and communications. 

The IRS has long held that 501(c)(4) groups can engage in political activity as long as their primary activity remains the promotion of social welfare. But the agency hasn’t officially or consistently defined “primary,” according to Cobb’s opinion.

The IRS claims it found a majority of Freedom Path’s direct expenditures for 2012, around the time it applied for tax-exempt status, “constituted political campaign intervention,” which prompted the agency to reject the group’s application.

Though Cobb found the agency’s definition of political and primary activities are “unconstitutionally vague,” she did not grant Freedom Path 501(c)(4) status and rejected the alternate guidelines that the nonprofit and the IRS put forward. 

She ordered them to propose interpretations of the rules that are not unconstitutionally vague and are “appropriately rooted in the statutory and regulatory scheme, and constitutional principles, that govern this tax exemption in light of” her ruling.

Freedom Path’s lawsuit came in the wake of a scandal that erupted in 2013 when a high-ranking IRS official acknowledged tea party groups that sought tax-exempt status had been subjected to increased scrutiny. (A subsequent report by the IRS’s watchdog determined that some liberal groups had been targeted too.)

Republicans have ever since used the incident to decry discrimination against conservative groups and have barred the IRS from issuing new regulations for 501(c)(4)s, through an annual appropriations rider.