GOP-Leaning 503 (c)(4) Sues IRS

     DALLAS (CN) - The Internal Revenue Service engaged in "intentional and systematic" targeting of conservative groups seeking tax-exempt status, the Republican-affiliated Freedom Path Inc. claims in court.
     Dallas-based Freedom Path sued the IRS and Lois G. Lerner, the former director of the agency's Exempt Organizations Division, in Federal Court.
     Freedom Path claims its application for 503 (c)(4) tax-exempt status faced "additional and unconstitutional scrutiny" based on its policy positions.
     As a 501 (c)(4) "issue advocacy" group, Freedom Path can raise unlimited amounts of tax-exempt and need not disclose its donors. It has ties to the Republican Senatorial Committee, former Nevada Senator John Ensign and Utah Senator Orrin Hatch and their staff members or former staffers, according to factcheck.org.
     The lawsuit states: "Through an illegal scheme hatched and carried out by Internal Revenue Service officials acting under color of federal authority, a group of IRS employees pulled applications from conservative ideological organizations based upon their conservative names or policy positions, delayed processing those applications, and then made probing and unconstitutional requests for additional information.
     "The request for additional information received by plaintiff in February 2012, for example, attempted to force plaintiff to disclose the names of its donors and asked multiple other questions that a Treasury Inspector General for Tax Administration [TIGTA] report determined to be unnecessary to plaintiff's determination of tax-exempt status."
     As early as February 2010, the IRS began identifying for scrutiny tax-exempt applications from groups with the names including terms such as "Tea Party" and "Patriots," the complaint states.
     Freedom Works claims that a year later, the criteria expanded to target organizations with policy positions focused on government spending and constitutional education, among other things.
     TIGTA concluded that the IRS' criteria "gives the appearance that the IRS is not impartial in conducting its mission" and that it focuses too narrowly on the names and policy positions of organizations instead of tax-exempt laws and Treasury regulations, according to the lawsuit.
     The IRS later acknowledged targeting conservative groups for higher scrutiny, the complaint states, resulting in outrage from some in Congress and the public.
     "Following the onslaught of this congressional and media attention, defendant Lerner finally halted the issuance of further letters requesting additional information until new guidelines were developed and provided to those officials processing the applications of these conservative nonprofits," the complaint states. "Defendant Lerner did not, however, take any action at that time to ensure that the letter previously sent to plaintiff, which contained unconstitutional and inappropriately intrusive information, was retracted."
     Freedom Path claims that being targeted has dramatically affected it, resulting in lost donor support, use of resources to respond to the IRS' information requests and use of "considerable funds" on legal fees and public relations.
     Freedom Path claims the IRS illegally released its application to ProPublica, a New York-based investigative news organization.
     It claims that ProPublica published the information with an article "suggesting that plaintiff had engaged in illegal activities and/or misstated its activities on tax documents."
     The article was reposted on other media outlets, including The Washington Post and The Salt Lake Tribune, the complaint states.
     "Such suggestions are unfounded, but they are also the predictable result of news organizations being provided only a portion of the confidential tax return information that plaintiff provided to the IRS during the application process," the complaint states."
     Freedom Path claims the IRS used an unconstitutional "facts and circumstances" test to evaluate its activities. It says the test violates the U.S. Supreme Court's "clear guidelines" on issue advocacy and campaign speech.
     "The twenty plus factors that the IRS considers when attempting to apply its 'facts and circumstances' test are grossly indeterminate, and their application grossly imprecise, so that the IRS is more or less free to come to any conclusions it wishes with respect to a particular public communication," the complaint states. "As such, the IRS's 'facts and circumstances' test poses a severe restriction on speech that does not withstand constitutional scrutiny."
     IRS spokesman Clay Sanford declined to comment on the lawsuit Monday afternoon.
     Freedom Path seeks damages for violations of the First and Fifth Amendment and violations of the Administrative Procedure Act and Internal Revenue Service Code. It also seeks an injunction against use of the "facts and circumstances" test.
     It is represented by Orrin Harrison with Gruber Hurst in Dallas and Chris Gober with Gober Hilgers in Austin.