The opinion of the court was delivered by: Louis F. Oberdorfer United States District Judge
In 1985, several prominent Democrats, including then-Governor Bill Clinton, formed the Democratic Leadership Council (DLC). The IRS granted the DLC tax-exempt status as a "social-welfare" organization under I.R.C. § 501(c)(4).In 2002, the IRS revoked the DLC's tax-exempt status for the years 1997, 1998, and 1999, concluding that the DLC rendered an impermissible level of private benefit during those years-namely, support to Democratic officials. The DLC paid approximately $20,000 in total taxes and interestfor those years, but filed this suit for a refund. The DLC contends that it acted within the bounds of § 501(c)(4) for the three years in question and that, in any event, the IRS's own regulations prohibit the retroactive revocation of tax-exempt status that occurred here. The parties have filed cross motions for summary judgment. Though there may be legitimate questions whether the DLC was entitled to § 501(c)(4) status, the DLC did not omit or misstate a material fact in its 1985 application for that status or operate in a manner materially different from that originally represented when the IRS granted it that status. Accordingly, the IRS violated its regulations when it retroactively revoked that status, and the DLC is entitled to summary judgment and a refund of the taxes it paid for the years in question.
For purposes of the pending summary-judgment motions, the following facts are undisputed.
A. The Founding of The DLC as a Tax-Exempt Organization
The Democratic Leadership Council was founded by prominent members of the Democratic Party and incorporated on March 4, 1985. Pl.'s Mot. for Summ. J. ("Pl.'s Mot.") [dkt # 18], Ex. B at 11--13, 161. The DLC's Articles of Incorporation designated Senator Charles S. Robb, Senator Sam Nunn, and Congressman Richard A. Gephardt as directors. Id. at 12. For all relevant times, Alvin From has been the DLC's President and Chief Executive Officer. Id. at 42. As stated in its Articles of Incorporation, the DLC was founded "for the promotion of welfare within the meaning of Section 501(c)(4)" and "for the purpose of bringing about civil betterments and social improvements." Pl.'s Mot., Ex. A, Part II. President From described the individuals who formed the organization as "interested in pushing a different kind of agenda, sort of like a third way, which was progressive." Pl.'s Mot., Ex. B at 12. President From believed the DLC was founded on a philosophy different from that under which the Democratic Party operated at the time:
We thought that the economic agenda of the Democratic Party was grounded in redistribution and not growing the economy. We believe[d] that you had to grow the economy. But we also differed from the conservatives. They were concerned only about growing the economy and not about helping ordinary people benefit from that growth.
And so we developed a set of policies grounded in fiscal discipline, investing in people, in technologies, and expanding trade that I believe had a great impact when they were actually put into place.
Id. at 17. The DLC uses the terms "Third Way" and "New Democrat" to refer generally to its approach and policies. E.g., id. at 19 ("And we thought the country needed an alternative. And that's what we set out to do. I think that's what we did. It's called the Third Way
[i]nternationally. It is a progressive agenda. And the brand here is New Democrat.").
On November 8, 1985, the DLC filed its Form 1024 application with the IRS for tax- exempt status as a "social-welfare" organization under § 501(c)(4). The application included the DLC's Articles of Incorporation. It further explained that the DLC "was organized in early 1985 by certain elected officials and others who were concerned with the formulation of national policy and with the direction of policy debate within the Democratic Party." Pl.'s Mot., Ex. A, Part III, Question 3 at 1. The application stated that "the organization was conceived as an active forum for the development of fresh policy options and approaches which could spark and advance public debate." Id. To further this purpose, the application stated, the DLC intended to engage in the following activities: create task forces; hold town meetings and issue forums with business, labor, civic, student, and other audiences; hold policy meetings; contract for studies; initiate public-affairs programs (including press conferences, meetings with editorial boards, and press releases); and host fund-raising receptions. Id. at 1--2. The application also represented that the DLC would "not intervene in campaigns on behalf of any public candidate," nor "seek to influence voter perceptions indirectly, such as by establishing voting records or other ratings of candidates." Id. at 2--3.
The application also specifically addressed the DLC's relationship with the Democratic Party:
The Democratic Leadership Council is so named because it was founded by federal and state elected officials who are Democrats and who were concerned with the direction of the policy debate within their party, as well as within the country as a whole. Through the establishment of DLC, these officials and others with similar interests and goals expected to improve the overall contribution to Democratic leaders, in the federal and state government, to national policy debate, and to urge upon both the party and the general public new and innovative approaches to policy.
On February 7, 1986, based on the DLC's application for exempt status, the IRS recognized the DLC as a tax-exempt organization under § 501(c)(4).Pl.'s Mot., Ex. C at 20--21. The recognition letter stated that the IRS was "assuming [the DLC's] operations will be as stated in [the] application." Id. It also requested that the DLC notify the IRS if its "purpose, character, or method of operation change." Id.
In the ensuing years, the DLC undertook to advance its mission in various ways, including "trying to attract prominent political figures," who were also Democrats. Pl.'s Mot., Ex. F at 20. The DLC held public meetings organized around these Democratic officials. Id. at 21. Additionally, the DLC disseminated its policy positions through publications such as the DLC Update and New Democrat magazine.Def.'s Mot. for Summ. J. ("Def.'s Mot."), Ex. 2, 8.
B. The DLC's Activities During 1997, 1998, and 1999
The DLC engaged in similar activities during the tax years in question: 1997, 1998, and 1999.Its activities continued to reflect its connections to the Democratic Party. The DLC, however, also continued to work with Republicans "wherever [it] could" to promote common issues. Pl.'s Mot., Ex. B at 14.
Speakers at the DLC's Annual Policy Conference during these years included prominent Democratic elected officials, including President Clinton and Vice-President Gore, both of whom had substantial involvement in DLC activities for many years, including President Clinton's role in the founding of the DLC and serving as its Chairman. Def.'s Mot., Ex. 1, 80, 81. The DLC also held certain events that were attended exclusively, or nearly exclusively, by Democrats. In 1998, for example, the DLC designed and tested a program to teach elected officials and other rising political leaders how to develop and articulate a New Democrat governing agenda. Pl.'s Mot., Ex. D at 53--54. Every state and local official who attended these workshops was a Democrat. Likewise, in February 1999, the DLC held an orientation for the newly elected members of the House of Representatives, and only Democrat members were invited. Pl.'s Mot., Ex. B at 112.
These leadership workshops imposed a cost amounting to approximately two or three percent of the DLC's annual budget. Id. at 189. The DLC's chief of staff estimated that 95 to 99 percent of the budget was spent on materials and conferences open to and available to the public. Pl.'s Mot., Ex. D at 89. President From explained why the House orientation event was geared solely to Democrats: "[T]he purpose of the DLC is to promote a new progressive agenda. Republicans aren't likely to support that. The agents for promoting it are elected officials who are Democrats. Now, sometimes Republicans also support the ideas. And when they do, we work with them." Pl.'s Mot., Ex. B at 112.
DLC publications further discussed its purposes and connection to the Democratic Party. In May 1997, for example, From wrote in the DLC Update that passing a balanced budget in Congress "with Democratic support is crucial to the future of our Party." Def.'s Mot., Ex. 8 at 1. That statement further noted that, otherwise, "much of the ground we have gained since 1992 achieving political parity with the Republicans will be rapidly lost as we once again get labeled as 'tax and spend' liberals unfit to guard taxpayers' money." Id. Additionally, in the January/February 1998 DLC magazine The New Democrat, From authored an essay known as the "Political Memo," in which he remarked that "the best way for Democrats to further our enduring values in the Information Age is to [sic--"promote"] New Democrat ideas and govern as New Democrats." Def.'s Mot., Ex. 2 at 2. President From wrote similar statements in other issues of the magazine. See, e.g., Def.'s Mot., Ex. 3 at 1 ("We began the decade hoping to end the Democratic Party's losing streak in presidential politics. We end it . . . with our sights set on returning a transformed Democratic Party to its rightful place as the majority party in American politics."). The DLC magazines Blueprint and New Democrat, however, were available to every member of Congress. Pl.'s Mot., Ex. B. at 185--86.
President From made several speeches delivering similar messages. Some of his comments relayed efforts to shift the Democratic Party's policies closer to the DLC's policies. For example, in October 1997, at the DLC Annual Conference, From remarked on "the state of the New Democrat movement," and stated that "we've begun to reclaim the Democratic Party from the hard left and move it back into the vital center of American politics." David A. Hubbert Decl., Ex. 112 at 1. President From also noted that this shift could help Democrats at the polls. For example, in April 1998, at the Democratic Nucleus Club in Phoenix, Arizona, From remarked that the DLC's founders formed the DLC to redefine the Democratic party-something they believed "was essential to reversing our party's fortunes in presidential elections and building a New Democratic majority in national politics." Hubbert Decl., Ex. 114 at 1. And on June 13, 1999, at the Jefferson-Jackson Dinner in Boise, Idaho, From issued the following remarks:
With a young governor from Arkansas and a freshman senator from Tennessee, we formed the Democratic Leadership Council. We believed that if we held firmly to the first principles of the Democratic Party, but furthered those principles with fresh ideas and modern means; if we built a modern, centrist, progressive Democratic Party that tackles America's most difficult challenges with bold and innovative ideas, the American people would once again turn to us for national leadership.
That is what we did, and that is what they did. We built the New Democrat movement, and the American people responded.
Hubbert Decl., Ex. 117 at 1. President From also emphasized that the DLC's policies were generally designed to help Democrats, not Republicans. For example, at the July 1999 National Convention, From noted that the New Democrat agenda "has been so successful that the Republicans are trying to parrot our politics." Hubbert Decl., Ex. 118 at 2. President From further stated, "After all we went through, we're ...