Demanding Disclosure from Dark Money Nonprofits (Freedom Path v. IRS)

Section 501(c)(4) of the Internal Revenue Code (IRC) grants tax-exempt status to nonprofits organized and operated “exclusively for the promotion of social welfare.” Despite this unambiguous requirement, the IRS has long permitted 501(c)(4) groups to engage in political campaign activity, so long as election spending isn’t their “primary” purpose. The IRS’ standards for determining the amount of permissible election spending by 501(c)(4) groups have been inconsistent and unclear — with the IRS at times suggesting the answer is as high as nearly half of an organization’s total expenditures.

This case involves a long-running dispute between the nonprofit Freedom Path, Inc. and the IRS over whether Freedom Path’s extensive electoral activities, including a major spending campaign on a Utah senatorial reelection campaign in 2012, disqualify it from 501(c)(4) status.

In the fall of 2025, a D.C. federal district court ruled that the IRS’ standards for determining 501(c)(4) eligibility were unconstitutionally vague and ordered the parties to submit new standards “appropriately rooted in the statutory and regulatory scheme, and constitutional principles.”

That invitation provides a significant opportunity to correct a major cause of the dark money problem in American elections. As Campaign Legal Center (CLC) argues in our brief with CREW, 501(c)(4) groups have spent billions on federal elections since 2010 while shielding their donors from public view. This flood of “dark money” undermines the disclosure requirements that form the backbone of federal campaign finance law, and it deprives voters of information essential to evaluating political messages and detecting corruption.  

The IRS bears significant responsibility for this crisis. Although section 501(c)(4) requires qualifying organizations to operate “exclusively” for social welfare, the IRS has interpreted this mandate to permit significant political activity — paving the way for these organizations to devote as much as 49% of their expenditures on election-related spending.  

CLC’s brief urges the court to enforce the statute as written: A genuine social welfare organization must operate exclusively — not just primarily or substantially — for social welfare. Groups that want to spend money on elections have a transparent alternative Congress already created —  section 527 political organizations, which are subject to disclosure requirements. There is no legal basis for allowing 501(c)(4)s to do what 527s do while avoiding the accountability that comes with it.  

The brief also addresses how courts should determine what kinds of electoral spending count against a 501(c)(4)’s tax-exempt status. Freedom Path argues for a narrow test that would allow groups to spend freely on election advertising while keeping their donors secret. Campaign Legal Center urges the court to apply a broader standard, already upheld by multiple courts, that captures the full range of communications designed to influence elections. 

What’s at Stake?

If the court adopts a standard that permits 501(c)(4)s to continue engaging in significant political spending, the dark money problem will persist and likely worsen. Nearly $2 billion in dark money flowed through the 2024 election cycle alone, the most in U.S. history, with hundreds of millions spent by 501(c)(4) groups whose donors remain hidden from the public.

However, if the court enforces the statute’s plain meaning, it could mark an important course correction — closing a loophole that the IRS created through decades of regulatory drift and restoring the transparency that voters are entitled to when powerful interests seek to shape their elections. The stakes extend well beyond this one case since the standard the court sets could affect whether Americans can learn who is funding efforts to influence their votes.