The decisions have major implications for tea party groups suing the IRS over the issue. IRS notches win in tea party cases

The IRS may have inadvertently figured out how to win its legal battles against aggrieved tea party groups: Give them what they wanted in the first place — tax-exempt status.

That was a major reason a Republican-appointed federal judge on Thursday threw out two lawsuits brought by more than 40 conservative groups seeking remedies for being singled out in the tea party targeting scandal, a victory for the IRS.


Judge Reggie Walton of the U.S. District Court of the District of Columbia dismissed almost all counts brought against the tax-collecting agency in two cases, ruling that both were essentially moot now that the IRS granted the groups their tax-exempt status that had been held up for years.

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Walton, a President George W. Bush-appointee, also said individual IRS officials could not be fined in their individual capacity for allowing such treatment because it could hurt future tax enforcement.

The ruling, which the groups could appeal, has serious implications for tea party groups suing the IRS, suggesting they may never receive compensation for the long waits they endured for a ruling on their status.

The inspector general report that ignited the targeting controversy last year found that applications sat in limbo for as long as several years and that the groups were asked inappropriate questions about their donors, political affiliations and random things like social media posts.

Republicans said they were outraged at Walton’s decision.

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“You get targeted and harassed for three years but, oh, because you finally get [tax-exempt status], the three years of harassment doesn’t mean anything?” asked Rep. Jim Jordan (R-Ohio), who heads a congressional subpanel investigating the controversy. “I find that argument lacking tremendously in light of what these people went through.”

But others said the agency needs to do more — not less — to scrutinize nonprofit groups that don’t follow the rules and over-engage in political activities. To obtain the status in question, political activity must not be the groups’ primary activity — a vague and difficult-to-administer test.

“Judge Walton got it right — there is no ongoing injury to these groups,” said Paul S. Ryan, senior counsel at the Campaign Legal Center, which backs tighter rules on political nonprofits. “The IRS needs to enforce tax law with respect to nonprofit political groups more aggressively.”

A furor erupted in May 2013, after a Treasury inspector general report blasted the IRS for using discriminatory labels to sort through applicants seeking tax-exempt status using terms like “tea party ” and “patriots."

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Soon after a raft of right-leaning organizations that applied for tax-exempt status sued the government. Some had had their applications put on hold for years; others were asked what were later ruled inappropriate questions about donors and political views during the application process.

The groups in their suits alleged that the IRS violated their First and Fifth Amendment rights with the inappropriate “be on the lookout” list that used words like tea party to hold up their applications. They sought monetary relief for their trouble as well as injunctive relief barring the IRS from discriminating against conservative groups ever again.

The agency has since changed its practices, including scrapping the lists.

When the suits at hand were filed, 22 of the groups had already received their tax-exempt status, five had dropped their applications altogether and just over a dozen were still waiting to hear from the IRS.

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Since then, the IRS had approved all but two, rendering much of the arguments moot, the judge said — and preventing him from considering the case.

“After the plaintiff initiated this case, its application to the IRS for tax-exempt status was approved by the IRS. The allegedly unconstitutional governmental conduct, which delayed the processing of the plaintiff’s tax exempt application and brought about this litigation, is no longer impacting the plaintiff,” Walton said in his decision to throw out True the Vote’s lawsuit against the IRS.

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His reasoning was similar in the second case, where 41 conservative groups banded together to sue the IRS for similar misconduct: “[T]he allegedly unconstitutional governmental conduct … is no longer impacting the plaintiffs. … Counts … are therefore moot.”

The conservative groups said they were flabbergasted.

“We are stunned by today’s judgment,” said Catherine Engelbrecht, who heads Trues the Vote, one of the groups that sued the government. “The Court acknowledges in its opinion that the IRS did in fact target True the Vote for our perceived political beliefs, but then it holds that neither the agency nor the individual IRS agents or officers are responsible for this unconstitutional conduct.”

The same judge in August rejected True the Vote’s bid for a court-appointed forensics expert to hunt Lerner’s lost emails, another blow to conservatives seeking outside experts to take the lead on the IRS investigation. Two years’ worth of the former head of the tax-exempt division’s emails were erased in a hard drive crash in 2011, the IRS says.

Walton did, however, demand the IRS within 14 days answer for two applications that have not yet been approved nor denied: applications for Patriots Educating Concerned Americans Now and Liberty Township Tea Party. But that footnote was the only part of the ruling that favored the conservative groups.

This suggests that only tea party cases that are awaiting tax exemptions could get reprieve.

Although the cases were considered moot, the judge still could have granted an injunction to explicitly prevent the IRS from targeting conservative groups, if he thought there was reason to believe that the agency could do it again someday.

True the Vote tried to argue that very point for continuing the case, but Walton waived it off.

He said, since the defendant is the government, “there is less concern about the recurrence of objectionable behavior.”

“[T]he Court is satisfied that there is no reasonable expectation that the alleged conduct will recur, as the defendants have not only suspended the conduct, but have also taken remedial measures to ensure that the conduct is not repeated,” he said, citing IRS documents on the steps they’ve taken to ensure targeting doesn’t happen again.

The IRS also won its argument protecting individual employees, including ex-IRS official Lois Lerner, from being personally fined for the way the groups were treated.

Citing older court cases, judge said the groups couldn’t receive monetary damages by suing individual IRS officials because of the chilling effect it would have on tax administration. He cited a previous case that found allowing such would “make the collection of taxes chaotic if a taxpayer could bypass the remedies provided by Congress simply by bringing a damage action against [IRS] employees.”

Kim Dixon contributed to this report