A September 30, 2025 federal district court ruling marks another stop along Freedom Path’s extensive journey toward seeking approval of its tax-exempt status as a nonprofit social welfare organization under Section 501(c)(4) of the Internal Revenue Code. What has happened in this case, why is it relevant, and what lies ahead?
Fundamentally, a Section 501(c)(4) social welfare organization is defined under applicable tax law as “operated exclusively for the promotion of social welfare if it is 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.” To the extent a social welfare organization engages (as permitted, but only on a limited basis) any “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office,” significant tax lability may result under Section 527(f) of the Code.
Freedom Path’s tax-exemption efforts address in great depth the tension arising from nonprofits’ political communications and related activities. Under applicable tax law, Section 501(c)(3) organizations are strictly prohibited from engaging in political campaign activities and may engage in limited amounts of lobbying. Section 527 political action organizations (aka “PACs”) may only engage in political campaign activities. Section 501(c)(4) organizations exist in an amorphous middle ground – allowed to engage in unlimited lobbying but limited in allowable political campaign activities. Just how limited are Section 501(c)(4)s?
The following sections explain Freedom Path’s journey of more than ten years, how that question has been answered thus far, and key court ruling that the IRS test is unconstitutionally vague. This article then addresses what may lie further ahead for the Section 501(c)(4) legal standard when political communications are involved, particularly in light of the highly problematic 2016 Congressional prohibition on any IRS regulatory action in this legal area.
The Journey’s Beginning – Freedom Path’s Tax-Exemption Application
Freedom Path is a conservative nonprofit organization that engages in issue advocacy – that is, communications intended to educate people about a wide variety of public policy issues, which may involve political dimensions. In March 2011, Freedom Path applied to the IRS for recognition as a Section 501(c)(4) social welfare organization. Freedom Path then waited for nearly one full year, with no substantive response from the IRS.
In February 2012, Freedom Path reportedly received “voluminous and probing requests for additional information” from the IRS. Despite the IRS’s delayed processing and its extensive and overreaching requests for information, Freedom Path responded with comprehensive answers on June 3, 2012. The IRS then waited until February 2013 to follow up. In the meantime, the IRS allegedly disclosed Freedom Path’s confidential tax information to an investigative news organization called ProPublica, which then publicly disclosed it. The IRS questioning continued, including an offer of expedited processing in exchange for Freedom Path surrendering free speech rights connected to its politically tinged activities. Freedom Path declined.
In September 2013, two and a half years after Freedom Path’s initial application, the IRS notified Freedom Path that its speech was too political and therefore inconsistent with Section 501(c)(4) tax exemption status The IRS further rejected Freedom Path’s communications as constitutionally protected, under its “facts and circumstances” test for analyzing politically tinged issue advocacy, as contained in the IRS’s Revenue Ruling 2004-6. (See Addendum A, setting forth Revenue Ruling 2004-6 and related information.)
Freedom Path v. IRS: Prior Federal Litigation in Texas
In April 2014, Freedom Path sued the IRS and its officials in Texas federal district court. Freedom Path, Inc. v. Lois Lerner, et al. presented the question of whether the IRS’s “facts and circumstances” test for tax-exempt organizations’ advocacy speech is constitutional. In other words, was Freedom Path too political for Section 501(c)(4) social welfare status, based on its communications and related activities?
Freedom Path argued that this IRS test essentially amounts to “we know it when we see it,” with no single factor predominating and the entire analysis depending on a case-by-case approach. Exempt organizations must guess at whether the activity is political campaign activity or issue advocacy. As Freedom Path observed in its pleadings, “even the IRS has publicly acknowledged that the ‘facts and circumstances’ test is ambiguous and confusing.”
In making this arguments, Freedom Path relied heavily on the U.S. Supreme Court’s landmark cases of FEC v. Wisconsin Right to Life (2007) and Citizens United v. FEC (2010), contending that they dramatically altered the constitutional landscape for the permissibility of such amorphous tests. In Wisconsin Right to Life, the Court rejected an “open-ended rough-and tumble of factors, which invit[es] complex argument.” Instead, the Court directed that an objective constitutional test should be used to determine whether a communication constitutes issue advocacy or political campaign activity, based on whether “no reasonable interpretation could be made” other than as an appeal to vote for or against a specific candidate. As the Court expressed, “Where the First Amendment is implicated, the tie goes to the speaker, not the censor.”
Not surprisingly, the IRS disagreed with Freedom Path’s arguments. In its response brief, the IRS asserts that the IRS’s multi-factor test is indeed clear and objective enough that (a) persons have fair notice of the legal limits for issue advocacy communications, and (b) it is not susceptible to IRS abuse. In doing so, the IRS claimed the following constitutionally significant distinctions. First, the IRS noted that Wisconsin Right to Life involved criminal sanctions, whereby persons engaging impermissibly in electioneering activities could be held criminally liable. Second, the IRS claimed that its test does not prohibit any speech; rather “it merely aids in determining whether a tax might be owed for activity that Congress has chosen not to subsidize [through Section 501(c) of the Code].” The IRS further argued that in any event, the numerous factors in its test are sufficiently clear, discrete, and objective.
In July 2017, the Texas district court rejected Freedom Path’s challenge to the IRS’s multi-factor “facts and circumstances” test for a nonprofit’s politically tinged advocacy speech as not unconstitutionally too vague or otherwise legally problematic. In its ruling, the Texas court focused on Freedom Path’s motion as a “facial challenge” and not as “an applied” challenge. A facial challenge asserts the “facts and circumstances test” to be theoretically vague and otherwise constitutionally problematic, regardless of whom it applies. By contrast, an “as applied” challenge calls for evaluation of whether the test is unconstitutional specifically with regard to Freedom Path’s own circumstances (and thus is typically of more limited precedential value).
Within this limited framework, the court rejected Freedom Path’s arguments. The court determined instead that the IRS test adequately provides a person of ordinary intelligence with fair notice of prohibited active and otherwise does not allow for discriminatory enforcement. The court further rejected Freedom Path’s argument that the IRS’s “facts and circumstances” test invites unlawful viewpoint discrimination, which would allow the IRS to harass and delay disfavored groups (despite concern that exactly such delay and apparent harassment already occurred through Freedom Path’s lengthy odyssey with the IRS application process). The court also rebuffed Freedom Path’s argument that the IRS test allows improper subjective evaluation of an organization’s intent, timing of communications, and context of communications, as impermissible factors for determining whether the organization’s speech amounts to permissible issue advocacy or impermissible political campaign speech. In so ruling, the court accepted the government’s argument that a lower constitutional standard is acceptable within the present civil tax context, rather than a criminal context, without substantial interference with speech.
Freedom Path v. IRS: Federal Litigation Appeal
Freedom Path pressed onward, appealing to the Fifth Circuit Court of Appeals for a ruling on the constitutionality of the IRS’s “facts and circumstances” as contained in Revenue Ruling 2004-6 and as pivotal for its Section 501(c)(4) tax-exempt qualification. But in January 2019, the court rejected Freedom Path’s standing to make a “facial challenge” – that is, to seek a complete invalidation of the IRS’s “facts and circumstances” on constitutional grounds. As the court noted, Freedom Path and the IRS by that time had agreed to dismiss Freedom Path’s “as applied” challenge to the IRS’s facts and circumstances test, leaving that specific issue for another day. The court thus sidestepped the constitutional issue, concluding instead that Freedom Path’s alleged infringement of its free speech rights could not be directly traced to the text of Revenue Ruling 2004-6.
Back on remand, the IRS issued a final adverse determination letter in February 2020, rejecting Freedom Path’s Section 501(c)(4) tax-exempt qualification. Consistent with its prior actions, the IRS explicitly applied Revenue Ruling 2004-6’s facts and circumstances test and rejected Freedom Path’s constitutional objections. Freedom Path then sued the IRS in the federal district court for the District of Columbia, which is generally known as a highly influential federal court.
Freedom Path v. IRS: The D.C. Court’s Decision Not to Decide (Yet)
In Freedom Path’s new case, it sought the following relief: (a) judicial recognition that the IRS’ facts and circumstances test is invalid; (b) a declaration that the IRS test is constitutionally void for vagueness (both facially and as applied to its case); and (c) a declaration that the IRS test is constitutionally overbroad in violation of the First Amendment. In September 2025, five years later (!), the court issued a decision on Freedom Path’s and the IRS’s cross-motions for summary judgment – not providing relief but potentially providing a path forward for resolution of this still-unanswered question: is the IRS’ facts and circumstances test unconstitutional?
Too Vague: “Primary Activity” and “Political Campaign Activity”
In the court’s 60-page opinion, Judge Jia Cobb parsed through the statutory and regulatory framework for tax-exempt organizations, their potential political involvement and related legal limitations, and the convoluted tax history regarding Section 501(c)(4) organizations. As the court noted near the opinion’s outset:
An organization exempt under section 501(c)(4) may engage in some political activity, as long as such activity is not its ‘primary’ activity. . . The next question, of course, is what qualifies as the organization’s ‘primary’ activity. In context of 501(c)(4) organizations, no regulation or Revenue Ruling appears to address that action.
(Slip Op. at p. 6.)
As the court observed next, prior IRS Commissioner Koskinen once instructed that an organization’s “primary activity” is not political so long as it spends less than 49% of its funds on politics. (That benchmark has thus been used by some organizations as a guidepost for staying within Section 501(c)(4) tax boundaries.). The IRS later recognized that all would benefit from a clearer definition of the term “primary activity.” Various efforts followed up, but without any productive result. Notably, the IRS has relied on the Section 501(c)(3)’s application of this “primary activity” standard in terms of whether an organization is engaged in “more than insubstantial” activities. (Slip Op. at pp. 6-7, citing 26 C.F.R. § 1.501(c)(3)-1(c)(1)). Further, “according to the IRS, the bar for ‘more than insubstantial’ is significantly less than 49%, though it rejects the existence of any precise numerical threshold. (Slip Op. at 8.)
What is the definitive answer for a Section 501(c)(4) organization like Freedom Path? The court hashed through Revenue Ruling 2004-6 and its facts and circumstances test, as applied to Freedom Path and its somewhat tortured experience through the IRS and prior court case. Against that backdrop, the court first decided that the IRS applied its facts and circumstances test too vaguely and therefore transgressed applicable legal standards for such constitutionally protected speech. In doing so the court found applicable the heightened vagueness review standard for civil regulation of speech, including political speech, based on First Amendment protections. (Slip Op. at 20.).
Continuing on, the court determined that basic requirements of fair notice and explicit standards to prevent arbitrary and discriminatory enforcement apply strictly to speech as implicated here, particularly under the D.C. Court of Appeals’ Big Mama Rag v. U.S. 1980 court decision (addressing requisite tax specificity for “educational” and “charitable” within the Section 501(c)(3) context). Rejecting the IRS’s argument for a narrower interpretation regarding vagueness standards, the court agreed with applying Big Mama Rag and instead requiring “principled and objective application” that avoids potential viewpoint discrimination regarding speech. After extensive further legal analysis, the court concluded that the proper vagueness review includes consideration of regulatory clarity, subjective versus objective standards, and “any evidence of susceptibility to selective or viewpoint-discriminatory enforcement.” (Slip Op. at pp. 43-44.)
Engaging in such vagueness review, the court considered the key questions of whether “some” involvement in political campaign activity defeats social welfare tax-exempt qualification, such whether then 49% standard should apply (as measured by a nonprofit’s expenditures) or whether the “more than insubstantial” rubric should apply - collectively identified as the “Primary Activity” inquiry. Additionally, the court considered the applicability of Revenue Ruling 2004-6’s facts and circumstances test – identified as the “Political Campaign Activity” inquiry. As the court determined, “Both inquiries exhibit signs of impermissible vagueness. Taken together, they cross the line into unconstitutionality.” (Slip Op. at p. 46.)
The court persisted in its legal analysis for several pages. Among other things, it found that “Freedom Path does not know how much political campaign intervention is too much, and the IRS cannot even agree with itself on the answer. In fact, the IRS’s confusion runs deep.” (Slip Op. at pp. 47-48.). Such vagueness inherently allows for arbitrariness and fosters confusion. Further problematic, “when paired with the Political Activity inquiry,” that is per Revenue Ruling 2004-6, “the regulation’s vagueness problems mount. (Slip Op. at p. 48.) In sum, the facts and circumstances test is too unclear for legally satisfactory application – no “patterns, principles, or methods” for how to apply and balance the multiple factors. (Slip Op. at p. 49.). That is simply untenable.
Now What? More Briefing, But No IRS Guidance
The court thus held that Revenue Ruling 2004-6 and its accompanying tax regulation cannot pass the heightened vagueness review as applied to Freedom Path, but the court stopped short of holding them unconstitutional. (Slip Op. at pp. 52-53 and fn. 19.)
Next question: what standard applies for Section 501(c)(4) status? But then the court found a huge problem: no alternative legal standard exists for determining whether Freedom Path qualifies as a tax-exempt Section 501(c)(4) social welfare organization. The court indicated that it could remand the case to the IRS for determination of Section 501(c)(4) status in light of its judicial reasoning. However, “that would not work here due to an obscure congressional appropriations rider” that prohibits the U.S. Treasury Department and the IRS from updating its regulations and other standards regarding Section 501(c)(4). (Slip Op. at p. 59.). Under such legislation, and more specifically the 2016 Consolidated Appropriations Act, no federal funds may be used to "issue, revise, or finalize any regulation, revenue ruling, or other guidance . . . relating to the standard which is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4).” In other words, the IRS cannot fix the vagueness problem with its own standard as set forth in current Revenue Ruling 2004-6. That is a huge issue indeed.
So instead, the court decided that it “is left with no option but to decide the question of Freedom Path’s exempt status itself. Yet neither Party has yet given the Court a satisfying way to do so.” The court thus denied the parties’ motion on such legal matter and directed them to file renewed motions and briefing, “advancing interpretations of the Primary Activity inquiry and Political Activity inquiry that are (a) not unconstitutionally vague and appropriately rooted in the statutory and regulatory scheme, and constitutional principles, that govern this tax exemption in light of the Court’s findings in this opinion.” (Slip Op. at p. 60.). In other words, more legal homework on this tax exemption journey.
Legal Limbo for Now? Some Operational Recommendations
What does this lengthy court ruling portend for Freedom Path, the IRS, and others concerned with Section 501(c)(4) tax-exempt qualification (as new and currently operating organizations)? Perhaps most obviously, we must stay tuned for more! The parties’ briefs should dig deeply into constitutional and regulatory dynamics, vying for their respective positions and desired outcomes. Additionally, patience is warranted since this case may continue for several more years – possibly followed by an appeal to the very influential D.C. Court of Appeals and onward to the U.S. Supreme Court. It’s an incredibly important case for constitutional free speech safeguards amidst long-standing objections to the IRS test.
Prudentially speaking, organizations seeking or already holding Section 501(c)(4) status should avoid overly political communications and related activities – consistently as possible per Revenue Ruling 2004-6. In practice, that means refraining from using the 49% approach for political activities. Likewise, organization should consider carefully whether their political activities could exceed the “insubstantial” threshold. They may need to evaluate whether and to what extent activities amount to prohibited political activities or instead may constitute permissible issue advocacy and lobbying. Significantly, nonprofits that address politically sensitive issues thus need not be inexorably drawn into political dimensions. Rather, they can focus instead on the moral, spiritual, and intellectual aspects of such issues – as exemplified by innumerable Section 501(c)(3) organizations’ consistent practices. Such nonprofits focus on changing hearts and minds of the people they reach, transcending both politics and partisan stances and notwithstanding our society’s intensified politicization of so many issues.
Conscientious nonprofit leaders also should expect that the IRS’ unclear, somewhat subjective, and potentially viewpoint-discriminatory approach to Section 501(c)(4) status still applies. The IRS test has now been ruled as too vague to pass constitutional muster, but only as applied to Freedom Path and with nothing to replace it – yet.
Revenue Ruling 2004-6 requires that “[a]ll the facts and circumstances must be considered..."
Factors tending to show that a communication is a political campaign activity include, but are not limited to, the following:
a) The communication identifies a candidate for public office;
b) The timing of the communication coincides with an electoral campaign;
c) The communication targets voters in a particular election;
d) The communication identifies that candidate’s position on the public policy issue that is the subject of the communication;
e) The position of the candidate on the public policy issue has been raised as distinguishing the candidate from others in the campaign, either in the communication itself or in other public communications; and
f) The communication is not part of an ongoing series of substantially similar advocacy communications by the organization on the same issue.”
Factors tending to show that a communication is not a political campaign activity include, but are not limited to, the following:
a) The absence of any one or more of the factors listed in a) through f) above;
b) The communication identifies specific legislation, or a specific event outside the control of the organization, that the organization hopes to influence;
c) The timing of the communication coincides with a specific event outside the control of the organization that the organization hopes to influence, such as a legislative vote or other major legislative action (for example, a hearing before a legislative committee on the issue that is the subject of the communication);
d) The communication identifies the candidate solely as a government official who is in a position to act on the public policy issue in connection with the specific event (such as a legislator who is eligible to vote on the legislation); and
e) The communication identifies the candidate solely in the list of key or principal sponsors of the legislation that is the subject of the communication.”
A subsequent IRS ruling (Rev. Rul. 2007-41) provides a list of 21 scenarios with an accompanying analysis of whether the communications constitute political campaign activity or permissible issue advocacy.
