A federal district court has ruled that long-standing IRS standards for determining whether a social welfare organization has engaged in excessive political campaign activity are unconstitutionally vague. While the decision creates significant uncertainty for IRC § 501(c)(4) organizations, practitioners point to a few takeaways. (Freedom Path, Inc., 136 AFTR 2d 2025-XXXX, (DC Dist Col), 9/30/2025)
A History of Confusion and Controversy
The Freedom Path decision is the latest development in a long-running controversy over the rules governing political speech for organizations exempt under IRC § 501(c)(4). IRS guidance provides that these organizations must be operated “primarily” for the promotion of social welfare. The IRS has interpreted this to mean organizations can engage in some political campaign intervention, but that cannot be their “primary” activity.
Advocacy group Freedom Path applied for 501(c)(4) status in 2011. After a lengthy process, the IRS issued a final adverse determination letter in 2020. Freedom Path challenged that determination, arguing that the agency’s standards for deciding whether an activity is “primary” are “unconstitutionally vague.” The organization also challenged the IRS’ standard, under Rev Rul 2004-06, for determining whether an activity qualifies as political.
A 2013 Treasury Inspector General for Tax Administration (TIGTA) report, issued early in the Freedom Path case, found there was “confusion” at the IRS over 501(c)(4) application processing. TIGTA also found the IRS was using inappropriate criteria to single out groups for additional scrutiny “based upon their names or policy positions instead of indications of potential political campaign intervention.”
Vague Standards Invite Arbitrary Enforcement
In a September 30, 2025, decision, the U.S. District Court for the District of Columbia Judge Jia Cobb agreed that the IRS’ framework for judging 501(c)(4) eligibility is unconstitutionally vague under the heightened standard applied to regulations affecting First Amendment rights.
As far as the standard for determining a 501(c)(4)’s primary activity, Cobb noted that the IRS “has not promulgated any regulations or guidance.” However, “it has at times indicated that it is any activity that exceeds 49% of the organization’s overall activity” – while at other times forwarding a “more than insubstantial” test, said Cobb.
The IRS has relied on the facts-and-circumstances inquiry in Rev Rul 2004-06 to determine what constitutes political activity, noted Cobb. But she concluded that the agency has provided “no guidance as to how officials should weigh the factors against one another or how many it takes to reach the threshold for political campaign intervention.”
“Both inquiries exhibit signs of impermissible vagueness,” writes Cobb. “Taken together, they cross the line into unconstitutionality.”
“The IRS does not offer an alternative, non-vague interpretation of what constitutes political campaign intervention … or how much intervention is too much,” Cobb continued. What’s more, she said, the agency is barred under a long-standing congressional appropriations policy rider from formally issuing such standards.
Because a simple remand would be futile, Cobb ordered the parties to submit new briefing on workable, constitutional standards that can be applied to decide Freedom Path’s exempt status.
Practitioner Takeaways
Despite finding the IRS’ standards unconstitutional, Cobb left open the question of whether Freedom Path qualified for the requested 501(c)(4) tax exemption. What’s more, the decision leaves the broader landscape for social welfare organizations in a continued state of uncertainty.
“501(c)(4) organizations need clear guidelines to know whether their activities comply with the law,” Elias Law Group’s Katherine LaBeau stressed to Checkpoint. “The Freedom Path ruling has created a cloud of uncertainty for nonprofit organizations, exacerbated by Republicans in Congress who have forbidden the IRS from issuing guidance on this issue,” she added.
But there still are some takeaways for 501(c) organizations, say LaBeau and her colleague, Ezra Reese, in a recent post. They suggest the IRS’ forthcoming brief will make public the agency’s proposed new standards for 501(c)(4) exemption and for political activity.
“While these standards will not be binding for the IRS outside of this case or on any other organizations, they will nonetheless provide critical insight into current IRS thinking on these issues,” write LaBeau and Reese.
They predict that ultimately, the standards that “emerge” from the Freedom Path case “are likely to serve as informal guidance to the IRS on the amount and classification of 501(c)(4) political activity going forward.”
As far as immediate next steps, LaBeau and Reese draw attention to Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4). While organizations claiming 501(c)(4) status are not required to file Form 1024-A to be recognized as tax-exempt, they may wish to do so to have proof of their exemption via an IRS determination letter. And once an organization obtains an IRS determination letter, say LaBeau and Reese, it “may rely upon it indefinitely, absent a material change.”
“As we wait for new standards to emerge, we expect that many organizations will consider submitting IRS exemption applications in the coming months in an effort to obtain some degree of certainty regarding their planned political activities,” LaBeau told Checkpoint.
For more on tax-exempt organization determination letters, see Checkpoint’s Federal Tax Coordinator 2d ¶ T-10452.
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