In Lawsuit Against IRS, CREW Continues Battle to Close 501(c)(4) Loophole

Washington, D.C. — Today, Citizens for Responsibility and Ethics in Washington (CREW) filed a brief in Gill v. Dep’t of the Treasury, responding to the IRS’s motion to dismiss the lawsuit for lack of standing.  This lawsuit, brought by CREW, former Illinois congressional candidate Dr. David Gill, and his campaign committee, challenges an IRS regulation allowing 501(c)(4) organizations to be “primarily engaged” in promoting social welfare, while the Tax Code dictates such groups be “operated exclusively” for social welfare purposes.

Read CREW's brief in response to the IRS motion to dismiss

During the 2012 election cycle, section 501(c)(4) groups relied on the this tax loophole to pour nearly $255 million of anonymous money into elections.  Dr. Gill in particular was targeted by the American Action Network (AAN), which spent nearly $1.5 million to defeat him, primarily by producing advertisements that falsely accused Dr. Gill, a respected physician, of opposing Medicare.  He subsequently learned the ads were funded in part by Aetna and PhRMA, most likely because Dr. Gill supports a single-payer national health care plan, which they both oppose.

“The law is clear: 501(c)(4) groups are to be operated for the sole purpose of furthering the public good, not as vehicles to funnel millions of dollars from anonymous donors into misleading vicious campaign ads,” said CREW Executive Director Melanie Sloan.  “For over 50 years this problem has been raised and ignored.  We hope our lawsuit will finally force the IRS to fix the regulation.”

The current IRS scandal directly stems from the improper regulation. While selective enforcement is inexcusable, the Inspector General found agency employees were not provided with clear criteria to determine whether applicants are involved in an acceptable level of political activity.

“The real scandal at the IRS isn’t overly aggressive enforcement against 501(c)(4)s, it is under-enforcement.  In this post-Citizens United world, phony non-profits can’t be permitted to exploit our tax laws to allow wealthy donors and corporations to hide their political involvement. Unless courts or Congress force reforms, future problems are inevitable.”