January 14, 1999 | Read Time: 2 minutes
A federal appeals court has ruled that the Internal Revenue Service was right to deny charity status to a group created to raise money for a private commission that studied ways to change the tax code.
The organization, the Fund for the Study of Economic Growth and Tax Reform, was started in 1995. It was the fund-raising arm of the National Commission on Economic Growth and Tax Reform, which was headed by Jack Kemp, the former Republican Vice-Presidential nominee.
The U.S. Court of Appeals for the District of Columbia Circuit said that it agreed with the I.R.S. and a lower court that the fund did not qualify as a charity because its primary purpose was to advocate for legislation. The revenue service had determined that because the fund’s primary activity was to provide money for the commission, the I.R.S. would consider the commission’s activities as those of the fund. The agency concluded that the chief work of the fund was promoting the repeal of the current tax code and the implementation of a flat tax.
In her ruling, Federal Circuit Judge Patricia M. Wald said, “While there is no bright line distinguishing an organization which advocates from an organization which engages in non-partisan analysis, study, or research — and we do not attempt to draw one here — we can in this case easily conclude that the district court did not clearly err in finding that the fund crossed over the line into advocacy.”
Judge Wald added that it appeared that the commission “had not set out to study tax reform generally.” Rather, she said, the panel apparently “assumed a conclusion — the preferability of a flat tax — and then tried to sell this conclusion both to Congress and the President, and to the public more broadly.”
The fund’s lawyer, William J. Lehrfeld, said that his client was unlikely to appeal the decision. But Mr. Lehrfeld said that the court’s ruling raises concerns for all non-profit public-policy groups that do research that ultimately winds up influencing legislation.
