Professor Donald Tobin (Maryland) just filed an amicus brief in Freedom Path, Inc. v. IRS, where the D.C. district court determined that the IRS regulation regarding 501(c)(4) and the primary purpose standard are unconstitutionally vague. From the brief’s summary of argument:
In light of the Court’s decision that the regulations and rulings at issue are unconstitutionally vague, the Court should apply Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024), and interpret the plain language of 26 U.S.C. § 501(c)(4). Applying the plain language will allow enforcement of the statute without having to rely on regulations the Court found unconstitutionally vague. Instead, the Court can apply the statute’s clear language to address its vagueness concerns.
The statute requires that organizations be “operated exclusively” for the promotion of social welfare. The regulations interpreted “operated exclusively” to mean “primarily” engaged in social welfare. Absent Chevron deference to the agency’s interpretation, the clear language of the statute does not support defining “operated exclusively” as “primarily.”
The statutory language refers to “operated exclusively,” not merely “exclusively.” This distinction is significant because “operated exclusively” can be read slightly more broadly than the term “exclusively” standing alone. The phrase “operated exclusively” allows for some activity that is not a social welfare purpose as long as the operation or purpose of the organization remains exclusively social welfare. While the “operated exclusively” language cannot be interpreted to mean “primary,” it can be interpreted to allow an insubstantial amount of non-qualifying activity. This reading honors the statutory text while recognizing practical realities of organizational operations.
The IRS issued revenue rulings to help clarify the definition of political campaign intervention in the tax-exempt context. Because political campaign intervention activities do not meet the plain meaning of the term “social welfare,” the IRS has applied these factors to communications and activities by social welfare organizations. Social welfare is an activity designed for the common good of society and does not include activities that primarily benefit a specific individual or a small group of individuals. Campaign intervention necessarily benefits a particular candidate or candidates and is not within the meaning of the term social welfare. This understanding of the term social welfare is further supported by the fact that Congress created 26 U.S.C. § 527 specifically to provide an organizational home for political organizations. The creation of § 527 would not have been necessary if Congress believed campaign activity was a social welfare purpose. If campaign activity were a social welfare activity, organizations wishing to engage in campaign activity could simply have organized as § 501(c)(4) organizations, making § 527 superfluous.
A strict statutory interpretation of the word exclusively might lead to an interpretation disallowing all political campaign activity. The Court need not adopt such a strict definition of exclusively. Interpreting “operated exclusively” as allowing an insubstantial amount of activity, with that amount set at a percentage combined with a threshold amount, would remove any vagueness concerns and be consistent with the statutory language. This bright-line threshold provides the clarity necessary to avoid constitutional infirmity while remaining faithful to Congress’s intent that organizations be devoted exclusively to social welfare purposes, thus allowing only truly incidental non-exempt activities.
Once “operated exclusively” and “social welfare” are properly clarified according to their plain meaning, the Court can use the factors suggested by the IRS to determine whether particular communications fit the definition of social welfare. If the Court deems that test too vague even with the clarification of the “operated exclusively” language, the Court can alternatively use the election law definitions of express advocacy and its equivalent and electioneering communications broadly defined. Both of these standards are currently employed in campaign finance law and have been found not to raise vagueness concerns, providing a workable framework for identifying impermissible campaign intervention.
