The James Madison Center (the Center) filed two federal lawsuits on April 3 challenging the Internal Revenue Service (IRS) definition of "political intervention." In Christian Coalition of Florida v. USA, the Center charges that the Christian Coalition of Florida (CC-FL) was denied 501(c)(4) status by the IRS because the agency claimed CC-FL engaged in activities that constitute political intervention. In the second lawsuit, Catholic Answers and Karl Keating v. USA, the Center is assisting a 501(c)(3) organization that is challenging a fine imposed by the IRS after the agency determined two "e-letters" posted in 2004 were "political expenditures" that might have influenced the presidential election.

501(c)(3) tax-exempt organizations – charities, educational institutions, and religious organizations, including churches – are prohibited from participating or intervening in any political campaign on behalf of, or in opposition to, any candidate for public office. These organizations cannot endorse candidates, make donations to candidate campaigns, engage in political fundraising, distribute campaign-related statements, or become involved in any other activities that, directly or indirectly, may be beneficial or detrimental to any particular candidate. Activities that encourage people to vote for or against a particular candidate on the basis of nonpartisan criteria also violate the political campaign prohibition governing 501(c)(3) organizations. According to IRS Revenue Ruling 2007-41, "Whether an organization is participating or intervening, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office depends upon all of the facts and circumstances of each case."

According to a press release from the Center, "This vague IRS test has been exploited by some liberal groups to threaten and harass churches and other non-profits, causing many of them to be fearful of IRS retribution if they discussed moral or public policy issues. Non-profits have even shied away from legitimate grass roots lobbying activity in fear that it will be considered political intervention. As a result, the legitimate speech activities of many non-profits have been chilled and their free speech rights infringed."

In Catholic Answers, the IRS determined that the two "e-letters" posted by the group's president might have influenced the 2004 presidential election. The IRS assessed a tax on the 501(c)(3) organization for the blog entries and required that organization president Karl Keating reimburse Catholic Answers $900 for the expenditures incurred. Catholic Answers is demanding that this tax be repealed and calls on the court to rule that the group should reimburse Keating. Catholic Answers charges that the blog post was a discussion about who should receive Holy Communion and should not be considered political intervention.

In Christian Coalition of Florida v. USA, the group is challenging the IRS determination that the group is not a 501(c)(4) tax-exempt organization. The IRS claimed that the organization's newsletters, voter guides, and legislative scorecards constituted political intervention. According to the complaint, the IRS issued a final determination letter on July 31, 2008, stating the group does not qualify as a social welfare organization. "The IRS summarily concluded that CC-FL is engaged in activities that primarily constitute political intervention on behalf of or in opposition to candidates for public office. The letter fails to indicate how much political intervention is 'too much' and even concedes that CC-FL engages in 'extensive lobbying activities.'" The IRS has not defined how much of an activity constitutes "the primary activity" of an organization.

CC-FL claims that its newsletters, voter guides, and legislative scorecards are educational and do not expressly advocate the election or defeat of any candidate. Furthermore, CC-FL argues that 501(c)(4)s may engage in some partisan activity and that their work was not extensive enough to be their "primary activity."

Both cases argue that IRS rules are far too vague and restrict the First Amendment free speech rights of nonprofits. The groups want the IRS rules and regulations on "political intervention," and the agency's "facts and circumstances" test, to be ruled unconstitutional or "narrowly construed to only encompass speech which expressly advocates the election or defeat of a clearly identified candidate." This appears to be an attempt to move the IRS toward new rules as set forth after the U.S. Supreme Court case in Wisconsin Right to Life v. Federal Election Commission. In that case, the Court ruled that an ad can be considered express advocacy "only if the ad is susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate."

OMB Watch has also reported some inconsistencies with IRS enforcement on the ban on partisan activities by charities. In a report, OMB Watch noted, "For charities concerned with the policies of the government – whether their focus is on the environment, taxation, children’s welfare, or gun laws – the vagueness of the IRS 'facts and circumstances' criteria has left the line between acceptable policy advocacy and unlawful political intervention extremely hazy. Nonprofit leaders' confusion has intensified as the increasing cost of political campaigns has forced many legislators to double as candidates for much of their tenure in office."