The Charity Commission is facing a challenge over the way it handled a complaint about The Atlantic Bridge, a charity founded by the defence secretary, Liam Fox, to foster the relationship between the UK and the US.
The commission recently completed a regulatory case report that told the charity its "current activities must cease immediately" because it promoted a political policy closely associated with the Conservatives.
But the complainant, Stephen Newton, a political blogger, said the commission should have opened a statutory inquiry, which would have allowed it to inspect documents and records, instead of using the less formal regulatory process, which depended on the cooperation of the charity.
His challenge comes as the commission continues to reduce the number of statutory inquiries. It has published 13 inquiry reports this year so far; in 2004, it opened 341.
Newton's solicitors, Taylor Hampton, have written to the commission about The Atlantic Bridge, asking it to "remedy its failings" in the case or face a judicial review.
The letter says regulatory inquiries are "not an appropriate mechanism for investigating allegations that might amount to fraud or tax evasion". It also suggests that a move towards regulatory inquiries is "damaging the reputation of charities as a whole".
It alleges that The Atlantic Bridge contravened charity tax laws by offering trips to the US in return for donations, which "should have resulted in thorough investigation and any consequential criminal charges".
Since it was established in 1997, the members of The Atlantic Bridge's advisory board have included the Chancellor, George Osborne, and the foreign secretary, William Hague.
Adam Werritty, executive director of The Atlantic Bridge, declined to comment. A commission spokeswoman said it had responded by "setting out the framework within which the commission undertakes and carries out investigations".