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Citizens for Responsibility & Ethics in Washington v. United States Department of the Treasury

United States District Court, District of Columbia

February 27, 2014

CITIZENS FOR RESPONSIBILITY AND ETHICS IN WASHINGTON, Plaintiff,
v.
U.S. DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE, et al., Defendants

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[Copyrighted Material Omitted]

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For CITIZENS FOR RESPONSIBILITY AND ETHICS IN WASHINGTON, Plaintiff: Anne L. Weismann, LEAD ATTORNEY, CITIZENS FOR RESPONSIBILITY AND ETHICS IN WASHINGTON, Washington, DC.

For CHRISTOPHER VAN HOLLEN, JR., PUBLIC CITIZEN, INC., DEMOCRACY 21, Consol Plaintiffs: Scott Lawrence Nelson, LEAD ATTORNEY, PUBLIC CITIZEN LITIGATION GROUP, Washington, DC.

For CAMPAIGN LEGAL CENTER, Consol Plaintiff: Anne L. Weismann, LEAD ATTORNEY, CITIZENS FOR RESPONSIBILITY AND ETHICS IN WASHINGTON, Washington, DC; Scott Lawrence Nelson, LEAD ATTORNEY, PUBLIC CITIZEN LITIGATION GROUP, Washington, DC.

For U.S. DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE, DANIEL I. WERFEL, in his official capacity as Acting Commissioner, Internal Revenue Service, Defendants: Yonatan Gelblum, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Tax Division, Washington, DC.

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MEMORANDUM OPINION

JOHN D. BATES, United States District Judge.

Citizens for Responsibility and Ethics in Washington (" CREW" ) has brought this action against the Internal Revenue Service (" IRS" ) and the Acting Commissioner of the IRS. Under the Administrative Procedure Act and the Internal Revenue Code (" Tax Code" ), CREW challenges defendants' refusal to initiate a rulemaking procedure to address a perceived conflict between a provision of the Tax Code, 26 U.S.C. § 501(c)(4), and the IRS regulation that defines organizations entitled to a tax exemption under that provision. CREW requests that the Court declare defendants' refusal to grant CREW's rulemaking petition and to amend the IRS regulation to be arbitrary, capricious, and contrary to law; enjoin

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defendants from implementing the existing regulation; and issue a writ of mandamus compelling defendants to initiate a rulemaking procedure to revise the existing regulation. Presently before the Court is [9] defendants' motion to dismiss for lack of jurisdiction under Federal Rule of Civil Procedure 12(b)(1) on the ground that CREW lacks standing to bring this suit. Upon careful consideration of the motion and the parties' memoranda,[1] the applicable law, and the entire record, and for the reasons set forth below, the Court will grant defendants' motion.

BACKGROUND

Section 501(c)(4) of the Tax Code provides a tax exemption for organizations " not organized for profit but operated exclusively for the promotion of social welfare." 26 U.S.C. § 501(c)(4)(A) (emphasis added). The promotion of social welfare " does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office." Treas. Reg. § 1.501(c)(4)-1(a)(2)(ii); accord Rev. Rul. 81-95, 1981-1 C.B. 332. Organizations that qualify for a tax exemption under section 501(c)(4)--" 501(c)(4) organizations" --are not required to disclose the names of their donors to the public. Compl. ¶ 22 (citing 26 U.S.C. § 6104(b), (d)(3)). The IRS regulation promulgated to implement section 501(c)(4) defines the term " operated exclusively for the promotion of social welfare" to apply to organizations that are

primarily engaged in promoting in some way the common good and general welfare of the people of the community. An organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements.

Treas. Reg. § 1.501(c)(4)-1(a)(2)(i) (emphasis added). CREW alleges that, by defining " operated exclusively for the promotion of social welfare" in this manner, the regulation essentially substituted the word " primarily" for the statutory term " exclusively." Compl. ¶ 17. " Groups claiming § 501(c)(4) status have interpreted the 'primary activity' requirement to mean § 501(c)(4) organizations can spend up to 49 percent of their total expenditures in a tax year on campaign activities without such campaign activities constituting the 'primary' activity of the organization." Id. ¶ 21. CREW asserts that, " [o]n information and belief, the IRS is aware of this interpretation," id., and IRS policy directives support this interpretation, id. ¶ 19; Rev. Rul. 81-95, 1981-1 C.B. 332 (stating that " an organization may carry on lawful political activities and remain exempt under section 501(c)(4) as long as it is primarily engaged in activities that promote social welfare" ). As a result, organizations that are " primarily engaged" in social welfare can file under section 501(c)(4) and keep their donor information private, even if they are participating in political campaigns. Id. ¶ ¶ 19, 22.

CREW is a non-profit, non-partisan corporation organized under section 501(c)(3) of the Tax Code. Id. ¶ 5. " CREW is committed to protecting the rights of citizens to be informed about the activities of government officials, ensuring the integrity of government officials, and protecting the integrity of our political system against corruption." Id. " To advance its mission," CREW " disseminate[s] information to the public about public officials," with an emphasis

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on " examining and exposing special interests that have influenced our elections and elected officials." Id. ¶ 6. CREW contends that its efforts to fulfill its mission are hindered when individuals and entities can keep their identities private. Id. ¶ ¶ 7, 10. Because CREW does not have access to the donor information for 501(c)(4) organizations that participate in political campaigns, it " must spend time and money attempting to ascertain the source of the contributions ...


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