The advocacy group Citizens for Responsibility and Ethics in Washington is continuing to press ahead with a lawsuit against the Internal Revenue Service to force it to reject tax exemptions from political groups, despite a high-profile scandal over improper screening of Tea Party and other conservative groups.

CREW filed a brief Friday in Gill v. Dep’t of the Treasury, responding to the IRS’s motion to dismiss the lawsuit for lack of standing.  The lawsuit, brought by CREW, former Illinois congressional candidate Dr. David Gill, and his campaign committee, challenges an IRS regulation allowing 501(c)(4) organizations to be “primarily engaged” in promoting social welfare, while the Tax Code dictates such groups be “operated exclusively” for social welfare purposes.

During the 2012 election cycle, Section 501(c)(4) groups relied on the tax regulation to pour nearly $255 million of anonymous money into elections, CREW contends. Dr. Gill was targeted by the American Action Network, which spent nearly $1.5 million to defeat him, primarily by producing advertisements that accused him of opposing Medicare. He subsequently learned the ads were funded in part by Aetna and PhRMA, most likely because Dr. Gill supports a single-payer national health care plan.

“The law is clear: 501(c)(4) groups are to be operated for the sole purpose of furthering the public good, not as vehicles to funnel millions of dollars from anonymous donors into misleading vicious campaign ads,” said CREW executive director Melanie Sloan in a statement. “For over 50 years this problem has been raised and ignored.  We hope our lawsuit will finally force the IRS to fix the regulation.”

The current IRS scandal directly stems from the improper regulation, CREW argues. While selective enforcement is inexcusable, the Treasury Inspector General for Tax Administration found agency employees were not provided with clear criteria to determine whether applicants are involved in an acceptable level of political activity.

“The real scandal at the IRS isn’t overly aggressive enforcement against 501(c)(4)s, it is under-enforcement,” said CREW. “In this post-Citizens United world, phony non-profits can’t be permitted to exploit our tax laws to allow wealthy donors and corporations to hide their political involvement. Unless courts or Congress force reforms, future problems are inevitable.”

Outgoing IRS Acting Commissioner Steven T. Miller testified before the House Ways and Means Committee in a hearing Friday. He admitted that the IRS had used “inappropriate” criteria for screening tax-exempt applications, but denied the IRS had done anything illegal. “What happened here is that foolish mistakes were made by people trying to be more efficient,” he said.

During the hearing, Rep. Lloyd Doggett, D-Texas, called upon the IRS and the Treasury Department to respond to CREW's request that the regulations governing tax-exempt organizations conform to the statute. "The statute that is in effect, has been in effect for decades and it requires that before there is tax-exempt status, as [MSNBC host] Mr. Lawrence O’Donnell, as the CREW group, the Citizens for Responsibility and Ethics in Washington, has pointed out in a petition, you are to be denied this status if you are not exclusively engaged in social welfare according to the statute, is that not correct? The statute is explicit," he said. "It uses the word 'exclusively.' The regulation the IRS adopted 30 or 40 years ago uses different language."

Treasury Inspector General for Tax Administration J. Russell George, responded, "Mr. Doggett, I have to demur. That’s a tax policy question and I’m not in a position ..."

"I’m not asking you for tax policy," said Doggett. "I’m just asking for a clear reading of the statute. And a clear reading of the statute that has been in place for decades and is in place today says that there should be a denial of tax-exempt status to any group that is not exclusively engaged in social welfare operations and it was only after a regulation adopted long ago, long before any of you were at the IRS, that changed exclusively to primarily, that there was any discretion for this section to be involved in this operation."

George responded, "Mr. Doggett, I do know that we have indicated that some clarification from those in the policy area of the Department of the Treasury might be needed in this area to help clarify again."

"Well, in April, Citizens for Responsibility and Ethics in Washington filed a petition with the Treasury Department and the IRS to address that," said Doggett. "If the clear wording of the statute, had been followed, we would not be having to deal today with selective enforcement. We wouldn’t have any problems with enforcement in this area at all. And I hope that that petition is honored and responded to promptly, as I believe you have fulfilled your responsibilities, Mr. George, as Inspector General. Thank you for your testimony and, Mr. Miller, thank you for yours and for stepping aside."