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Amid Media Matters Backlash, IRS Has Precedent for Stripping Tax-Exempt Status

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The IRS isn’t saying much about calls to investigate claims that Media Matters may be violating the terms of its tax-exempt status for waging “guerilla warfare and sabotage” against Fox News. But while the agency rarely revokes nonprofit status over political advocacy concerns, there is precedent for such punishment.

Those who charge Media Matters is running afoul of the rules point most commonly to a 1989 ruling in which an organization was stripped of its 501(c)3 designation because of ties to Republican entities. The organization, the American Campaign Academy, was set up to train people for careers in political campaigns. But the U.S. Tax Court found the Republican-backed group was generally training people to work on GOP campaigns — and ruled the academy served the private interest of GOP entities and candidates.

The case underscored a key distinction for nonprofits. They should serve the public, not private, interest. That rule was hammered home again in 1998 when a federal judge let the IRS strip a GOP-backed commission of its tax-exempt status. The judge determined the group, The Fund for the Study of Economic Growth and Tax Reform, was supporting a particular agenda and did not meet nonprofit criteria.

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