A federal court this week struck down a controversial Internal Revenue Service “facts and circumstances” test for nonprofit tax-exempt status, calling it unconstitutionally vague and opening the door to major changes in how political speech by advocacy groups is regulated.
Judge Jia Cobb of the U.S. District Court for the District of Columbia ruled Tuesday that the IRS violated constitutional protections when it denied tax-exempt status to the conservative group Freedom Path using a vague and subjective multi-factor test. The ruling held that the agency’s “facts and circumstances” framework, an 11-part analysis derived from a 2004 IRS revenue ruling, fails to survive the heightened scrutiny required when government rules implicate First Amendment speech rights.
Freedom Path, a Texas-based nonprofit organization founded in 2011, applied for tax-exempt status under Section 501(c)(4) but was denied years later after an extended back-and-forth with the IRS. The organization sued, claiming the agency’s test was so unclear that it gave federal bureaucrats unfettered discretion to punish political speech.
In her 60-page opinion, Cobb, an appointee of former President Joe Biden, sided with the group on that key point.
“The Treasury regulation and IRS Revenue Ruling that the IRS applied in denying Freedom Path’s application transgress the heightened vagueness standard applicable to civil regulations… that affect speech covered by the First Amendment,” Cobb wrote.
The ruling marks a major win for Freedom Path after more than a decade of litigation and intensifies scrutiny of IRS standards that many conservatives say were weaponized against them in the wake of the former President Barack Obama-era IRS targeting scandal.
Attorneys from the firm Lex Politica represented Freedom Path in its case. Chris Gober, the firm’s CEO, told the Washington Examiner the decision vindicates concerns that IRS rules have been used to silence disfavored viewpoints.
After 11 years of litigating a case that started when Lois Lerner illegally targeted my conservative client, a federal court just struck down the IRS’s “Facts and Circumstances” test as unconstitutional. The court’s decision makes clear that the IRS can no longer weaponize…
— Chris Gober (@ChrisKGober) September 30, 2025
“This ruling is a victory not just for Freedom Path, but for every American who believes government bureaucrats shouldn’t be able to bully citizens into silence,” Gober posted on X.
Lerner-era scandal still reverberates
Freedom Path’s legal challenge stems from a 2011 application that quickly became entangled in the IRS’s broader crackdown on right-leaning nonprofit groups. During the same period, IRS official Lois Lerner publicly acknowledged the agency had targeted groups with conservative-sounding names, such as “Tea Party” and “Patriot,” for added scrutiny when reviewing tax-exempt applications.
“People don’t realize that the IRS is still using the exact same tests and mechanisms that they used to target conservatives back in 2010 and 2011,” Gober told Fox News in July. “A lot of those same bureaucrats are still there — and some have even been promoted.”
In Freedom Path’s case, the IRS demanded donor information and evaluated the group’s advertisements and mailers under the disputed test. Ultimately, it found that more than half of the organization’s spending amounted to political campaign intervention and denied its exemption, a determination the court has now rejected as constitutionally flawed.
Broader policy changes may follow
While the ruling applies directly to Freedom Path, the decision could have broader consequences for how nonprofit political advocacy is regulated. Gober said the case may pave the way for legislative or regulatory reforms that fundamentally reshape the campaign finance landscape, potentially even exceeding the reach of the Supreme Court’s 2010 ruling in Citizens United v. Federal Election Commission.
“This gives everybody all of the reasons in the world to open up the thought process on what are the rules governing nonprofits,” Gober said. “We can do it statutorily. We may be able to do it through a rulemaking.”
A long-standing appropriations rider passed by Congress in 2016 bars the IRS from issuing new regulations governing 501(c)(4) groups. But if lawmakers were to lift that ban, Gober suggested the IRS or Treasury could enact new guidance or Congress could revisit the statute itself.
He floated one potential outcome: recognizing that express advocacy, which involves urging voters to support or oppose candidates, might qualify as promoting “social welfare” under the original statute.
“If that did become the rule, then 501(c)(4)s and 501(c)(6)s would be able to engage in unlimited amounts of express advocacy,” he told the Washington Examiner. “All Super PACs would effectively just operate as 501(c)(4)s. If this becomes the new standard, it could actually have a bigger impact than even Citizens United, depending on how far they go with it.”
Court stops short of ordering new rule
Although the court struck down the existing test, it stopped short of ordering the IRS to create a new one. Judge Cobb noted that the 2016 appropriations rider still prevents the agency from issuing broad guidance on interpreting the statute governing 501(c)(4) groups.
The court encouraged the IRS and Freedom Path to work together on a solution. If they cannot agree, Cobb indicated she would seek further briefing.
Gober said the ruling should spur executive action.
“With this ruling, we’re hoping the Trump administration wakes up to what has occurred here,” he said. “We need leadership now to create a workable and constitutional solution.”
The Washington Examiner contacted the IRS for comment.