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February 27, 2014

Today’s Decision in CREW v. Dep’t of Treasury

By CREW Staff

Scales of JusticeToday, in CREW v. Dep’t of Treasury,  U.S. District Court Judge John D. Bates issued a decision dismissing CREW’s lawsuit challenging the refusal of the IRS to initiate a rulemaking procedure to reconcile the IRS regulation governing tax-exempt section 501(c)(4) organizations with the tax code.  Judge Bates concluded CREW lacked standing to sue because it had not demonstrated a clear injury caused by the IRS’s refusal to conform its regulation — which grants a tax exemption under section 501(c)(4) of the Tax Code to groups primarily engaged in social welfare activities — to the underlying statute, which requires such groups to be organized “exclusively” for social welfare purposes.

The IRS regulation has created an enormous loophole that has allowed hundreds of millions of dollars of “dark” or anonymous money to flow into our elections.  CREW filed its lawsuit after the IRS failed to act on CREW’s rulemaking petition despite the wealth of evidence produced by the last election cycle that 501(c)(4) groups were significantly abusing their tax exempt status to engage in electoral politics.

The IRS moved to dismiss the lawsuit, arguing CREW lacked standing to sue because it was speculative whether a change in IRS regulations would lead section 501(c)(4) groups to convert to tax-exempt groups, such as 527s, subject to disclosure requirements.  Judge Bates agreed.

Coincidentally, Judge Bates issued his opinion on the last day for which the IRS is accepting comments on its proposal to increase regulation of section 501(c)(4) groups.  CREW has submitted comments criticizing the IRS draft for failing to address the clear conflict between the IRS regulations and the Tax Code. 

In light of this court ruling and the IRS’s failure to act, Americans will suffer through yet another election cycle infused with vast amounts of dark money, leaving voters at a loss to discover who is influencing their votes and why.

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