On-Demand Webinar

Keeping Internal Controls In Check During a Pandemic

Guidance on how to adjust and maintain strong internal controls.

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Church leaders must work vigilantly to prevent the embezzlement of church funds, and sound internal controls are an ongoing—and critical—part of that prevention.

With Covid-19, churches now approach worship services, donations, and administrative tasks differently. In light of those changes, what internal controls need to be reviewed or changed?

Church Law & Tax Vice President and Publisher Rob Toal is joined by CPA and Church Law & Tax Senior Editorial Advisor Vonna Laue to directly address this question for church leaders.

Overview:

  • Purpose and objectives of Internal Controls
  • Control problems in the church
  • Fraud Triangle
  • Risk assessment
  • Internal control systems

Download the presentation slides here.

Additional answers to your questions

During this webinar, attendees submitted a number of questions. We weren’t able to answer all the questions during the event, and therefore we’re providing answers to you in this PDF. CPA Vonna Laue—along with our editors—gathered your unanswered questions and provided links to existing content that addresses the topic or answered your question directly.

Applying for PPP Loan Forgiveness

The latest instructions to help ensure the maximum amount of your church’s loan converts to a nontaxable grant.

Update: CARES Act section 1106(i) specifically excludes any amount of PPP loan forgiveness from inclusion in taxable income, including unrelated business taxable income. Accordingly, a church or other nonprofit organization that receives full or partial PPP loan forgiveness is not required to report the loan forgiveness amount as taxable income on Form 990-T.

One of the most valuable features of the CARES Act’s Paycheck Protection Program (PPP) loans is the ability for employers with 500 or fewer employees, including nonprofits and churches, to apply to have its loan forgiven, in full or in part, essentially converting the forgiven portion into a nontaxable grant if certain criteria are met.

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) into law. This new statute amends several key criteria of the CARES Act, including:

  • Extending the Covered Period during which forgivable costs must be accumulated from 8 weeks to 24 weeks, while leaving open the option of selecting an 8-week covered period for loans issued before June 5, 2020.
  • Increasing the minimum loan maturity period to 5 years for loans issued on or after June 5, 2020, and permitting borrowers who received a loan prior to June 5, 2020, to negotiate a mutually agreeable extension of the maturity date.
  • Extending the deferment of loan payments to the date on which the loan forgiveness amount is remitted by the US Small Business Administration (SBA) to the lender or the date that is 10 months after the termination of the Covered Period if a PPP Loan Forgiveness Application is not submitted during this 10-month period.

Since the passage of the PPP Flexibility Act, the SBA has released 4 new interim final rules (IFRs), 2 new versions of the PPP Loan Forgiveness Application, and 1 new FAQ, with more FAQs anticipated. These publications are all available on the SBA’s Paycheck Protection Program webpage.

This article provides a comprehensive look at PPP loan forgiveness, including changes arising from the enactment of the PPP Flexibility Act and subsequent SBA guidance.

Applying for loan forgiveness with your lender

PPP loan forgiveness is accomplished by completing SBA Form 3508 or SBA Form 3508EZ and submitting it to the lender servicing your PPP loan at the time of application. You can also use an equivalent substitute form or application provided by the lender, if available.

Loan forgiveness is determined by reference to several key factors that are discussed in greater detail below, including:

  • The Covered Period, including the Alternate Payroll Covered Period
  • Payroll costs
  • Non-payroll costs, including mortgage interest, rent, and utilities
  • The timing of includible payroll and non-payroll costs
  • The required percentage of payroll costs
  • The salary and wage reduction amount
  • The full-time equivalent (FTE) reduction quotient
  • The FTE reduction safe harbors

This article will describe each of these factors before discussing the loan forgiveness application process and the two different forms.

The Covered Period

The CARES Act, as originally enacted, created an 8-week (56-day) Covered Period that the SBA determined begins on the date PPP loans are first disbursed to the borrower. The PPP Flexibility Act extended this 8-week period to a new Covered Period of 24 weeks (168 days) that similarly begins on the date PPP loans are first disbursed to the borrower. However, for borrowers whose loan was issued prior to June 5, 2020, the PPP Flexibility Act permits the borrower to elect either the original 8-week Covered Period or the new 24-week Covered Period.

Change in law. The PPP Flexibility Act extends the Covered Period from 8 weeks to 24 weeks. For loans issued prior to June 5, 2020, the borrower may elect to use either period.

The extension of the Covered Period from 8 weeks to 24 weeks will greatly increase the ability of many borrowers to aggregate forgivable costs without scrambling to include amounts for which there is limited guidance.

Alternative Payroll Covered Period

In the Loan Forgiveness IFR, the SBA created an Alternative Payroll Covered Period (APCP) intended to align with a borrower’s payroll cycle. As originally defined, the APCP begins on the first day of the first payroll period that begins after the commencement of the Covered Period and extends 55 days for a total of 56 days (8 weeks). The Amended Loan Forgiveness IFR allows the APCP to also extend 167 days, for a total of 168 days (24 weeks). A borrower with a biweekly or more frequent payroll cycle is permitted to choose the APCP.

Example. Maple Grove Church uses a biweekly payroll schedule (every-other-week). The church’s standard Covered Period begins on June 1, 2020, the date its PPP loan was disbursed. The first day of the church’s first payroll cycle that begins after June 1, 2020, is Sunday, June 7, 2020. Maple Grove Church may elect to use an 8-week APCP that commences on June 7 and ends on Saturday, August 1, 2020 (56 days) or a 24-week APCP that commences on Sunday, June 7, 2020, and ends on Saturday, November 21, 2020.

Can a Covered Period of less than 24 weeks be used?

The Revised Loan Forgiveness IFR provides that a borrower may apply for loan forgiveness before the end of the Covered Period (either the 8-week or 24-week Covered Period) if the borrower has used all of the loan proceeds for which it is requesting forgiveness. However, if the borrower applies for loan forgiveness before the end of the selected Covered Period and has reduced the salary or wage of any worker by more than 25 percent, then the borrower must compute the salary and wage reduction amount based on the full 8- or 24-week Covered Period.

As a practical matter, if a borrower is not eligible for the reduction in level of business operations safe harbor discussed below, it is unlikely it will make sense to file for loan forgiveness before December 31, 2020. Future FAQs published by the SBA may address this question more fully.

Payroll costs

As described in the First Interim Final Rule, qualifying payroll costs consist of a variety of items, including:

  • Compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation;
  • Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
  • Payment for vacation, parental, family, medical, or sick leave;
  • Allowance for separation or dismissal;
  • Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement;
  • Payment of state and local taxes assessed on employee compensation; and
  • For an independent contractor or sole proprietor who separately applied for a PPP loan, wages, commissions, income, or net earnings from self-employment or similar compensation.

Allowable payroll costs do not include:

  • Payments by an employer to independent contractors (in FAQ 15, the SBA made it clear that because independent contractors may apply for their own PPP loan, they are not includible in an employer’s PPP payroll costs for loan application purposes or for the purpose of loan forgiveness);
  • Salary and wages paid to an employee in excess of $100,000 computed on an annualized basis;
  • Wages paid to employees under the Expanded Family Medical Leave Act and Emergency Paid Sick Leave Acts (both contained within the Families First Coronavirus Response Act (FFCRA)) for which the employer receives the credits provided by the FFCRA;
  • The employer’s share of FICA and Medicare taxes; and
  • Payroll costs related to employees whose principal place of residence is not in the United States.

A few words of explanation are useful here. In the First Interim Final Rule, the SBA set out a requirement that at least 75 percent of the loan proceeds must be used for payroll costs. In practice, as shown on the original PPP Loan Forgiveness Application, the intent is that at least 75 percent of the costs submitted for forgiveness (i.e., the combined total of payroll and non-payroll costs) must be payroll costs, even if this amount is less than the total of the loan proceeds. The PPP Flexibility Act revised the 75 percent threshold to 60 percent.

Change in law. To achieve 100 percent loan forgiveness, the PPP Flexibility Act reduced the amount that must be expended on payroll costs from 75 percent to 60 percent.

Second, FAQ 32, published on April 24, 2020, clarified that all cash compensation is includible in payroll costs, including a “housing stipend or allowance.” Based on this FAQ, it is clear that a minister’s housing allowance is includible in payroll costs for both the purpose of the PPP loan application and the PPP Loan Forgiveness Application.

Third, the definition of payroll costs for the purpose of applying for a PPP loan is identical to the definition of payroll costs for the purpose of applying for PPP loan forgiveness. While the SBA has not specifically addressed the question of whether payroll costs omitted during the loan application process may nonetheless be included in payroll costs submitted for loan forgiveness, it does not appear that this omission will be a barrier to including such otherwise eligible payroll costs in your church’s loan forgiveness calculation.

Example. If your PPP loan application did not include the minister’s housing allowance, there is nothing (yet) in the PPP Loan Forgiveness Application that would preclude you from including the minister’s housing allowance in the payroll costs submitted for forgiveness.

Fourth, the PPP Loan Forgiveness Application instructions clarify that the exclusion of salary and wages paid in excess of $100,000 on an annualized basis means the maximum amount of salary and wages that can be included for an individual employee for the 8-week Covered Period is $15,385 ($100,000 ÷ 52 × 8 = $15,385). If an employer uses the 24-week Covered Period, the maximum amount of salary and wages that can be included for an individual employee for the 24-week Covered Period is $46,154 ($100,000 ÷ 52 × 24 = $46,154). This limit only applies to salary and wages. It does not apply to an employee’s allocable share of group health care benefits and retirement benefits.

Fifth, in FAQ 16, the SBA clarified that payroll costs begin with gross wages and are not reduced for an employee’s federal income tax withheld or an employee’s share of FICA and Medicare tax (payroll taxes). However, the FAQ makes it clear that the employer share of payroll taxes is not includible in payroll costs.

Sixth, the Loan Forgiveness IFR clarified that bonuses and hazard pay are includible in payroll costs as salary and wages. In addition, wage payments to furloughed employees are includible in payroll costs, even if paid to employees who are not providing services. Note that the $100,000 annualized limit on salary and wages applies to these payments.

Also note that an additional salary or wage payment made during the Covered Period for hours worked during the Covered Period for the purpose of restoring a cut in an employee’s pay rate, or for the purpose of paying an employee for hours they did not work due to a reduction in work hours, should be includible in eligible payroll costs. The basis for this conclusion is that a principal purpose of the PPP loan program is to keep employees employed at their full pay rate for their regularly scheduled number of work hours.

Seventh, the SBA has yet to address the scope of benefits that qualify as group health care coverage. From the quoted text above it is clear this includes employer-paid premiums for group health insurance. It is likely the term includes employer-paid premiums for group vision and dental insurance plans to the extent they are separate policies from a group health insurance plan.

However, it is unclear how employer payments to the following plans are treated:

  • Qualified Small Employer Health Reimbursement Arrangements;
  • Individual Coverage Health Reimbursement Arrangements;
  • Excepted Benefit Health Reimbursement Arrangements; and
  • Health Savings Accounts.

Eighth, it is clear that employer costs related to a self-insured health plan are includible. However, the SBA has not provided guidance regarding how these costs are to be computed.

Ninth, it is clear that “state and local taxes assessed on compensation of employees” include state unemployment tax. In the absence of guidance to the contrary, it is likely this provision includes state programs such as California’s Employment Training Tax (ETT). New York’s disability insurance premium may be includible if it is incurred and paid during the Covered Period. However, New York’s paid family benefit amount may be paid by an employer or the employee and it is not clear if it is a tax. Therefore, it is likely not includible. Finally, workers’ compensation insurance is not a tax assessed on employee compensation. Therefore, in the absence of guidance it to the contrary, it is unlikely to be an includible expense.

Tenth, not all employee benefits are includible payroll costs. Employer-paid group term life insurance, disability insurance, gym memberships, and other similar benefits are not includible payroll costs.

Non-payroll costs

The CARES Act specified three different categories of non-payroll costs which may be forgiven:

  • Mortgage interest;
  • Rent; and
  • Utilities

Mortgage interest

The Loan Forgiveness IFR states that mortgage loan interest on any business mortgage obligation—whether for real estate or personal property—is includible so long as the mortgage itself was in place on February 15, 2020. Only interest is includible, not the principal payment portion of a mortgage payment or any prepayment of principal or interest. In addition to interest on real property mortgages, interest on personal property mortgages (e.g., a loan for the purchase of an automobile, office equipment, or manufacturing equipment) is includible. Note that to be eligible for inclusion in forgivable expenditures, the mortgage or other loan must be an obligation of the applicant.

The SBA has yet to release guidance regarding mortgages or construction loans in existence on February 15, 2020, that were subsequently refinanced or converted to permanent mortgages after February 15, 2020.

Rent

Rent is includible so long as the rental agreement was in place on February 15, 2020. This includes rent on real property and rent paid for the rental of equipment. The SBA has yet to provide clarity as to whether payments for certain services billed by a landlord along with rent (e.g., property insurance) and sales tax are includible. Note that to be eligible for inclusion in forgivable expenditures, the lease agreement giving rise to the rent payment must be an obligation of the applicant.

While the SBA has not addressed this specific question, it is our belief that rent must be paid to a third party. It would be an aggressive position to treat an internal allocation that is characterized as “rent” (such as between a church and the church’s preschool program that is not a separate legal entity) as rent for purposes of both a PPP loan application and an application for PPP loan forgiveness.

Utilities

Payments for the following utilities are included in forgivable PPP loan expenses:

  • Electricity;
  • Gas;
  • Water;
  • Transportation;
  • Telephone (this should include cell phone contracts arranged by your church); and
  • Internet service.

The utility service must have been in place on February 15, 2020. The SBA has yet to provide a definition of what is includible in transportation costs. Further, the SBA has not stated whether sewer service, trash collection, cell phone allowances for bring-your-own-device programs, or allowances for home internet service supporting work-from-home environments are allowable expenses.

Payments for church parsonage utilities have not been addressed in specific SBA guidance. It would appear that a reasonable argument could be made that these utilities are either part of the cash compensation paid to a minister (in which case they would count as payroll costs in satisfying the 60 percent payroll cost threshold) or as the payment of utilities on church property.

The timing of includible payroll costs

The Loan Forgiveness IFR states that “[i]n general, payroll costs paid or incurred during the eight consecutive week (56 days) covered period are eligible for forgiveness.” (Emphasis added.) The Revised Loan Forgiveness IFR clarifies that this rule extends to the 24-week Covered Period or, if elected, the 8-week Covered Period. In addition, the instructions to Line 1 of the application state that the applicant should enter “total eligible payroll costs incurred or paid during the Covered Period or the Alternative Payroll Covered Period.” (Emphasis added.)

The Loan Forgiveness IFR further states that “[p]ayroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction.” This means that payroll is paid on the date when it is paid to employees and not on the date that funds are remitted to a payroll processing firm. In addition, “[p]ayroll costs are considered incurred on the day that the employee’s pay is earned.” This appears to be a reference to the employee having actually worked on that day. If a borrower pays employees who are not actually performing services (e.g., a borrower continues to pay furloughed employees), then payroll costs are incurred based on the schedule established by the borrower. This will typically be each day the employee would have performed work had the employee not been furloughed or otherwise not called in to perform services.

Based on this explanation of the rule, payroll costs paid during the Covered Period or the APCP are includible, regardless of when the payroll costs are incurred.

Example. Harbor Light Ministries received its PPP loan funds on April 28, 2020. Harbor Light pays its employees semimonthly (twice each month), on the 15th of the month and on the last day of the month. Harbor Light’s April 30 payroll is fully includible in its forgivable payroll costs as payroll costs paid during Harbor Light’s Covered Period, despite the fact that most of the payroll was incurred prior to April 28, 2020.

Example. Castle Heights Youth Services received its PPP loan funds on May 5, 2020. Castle Heights pays its employees biweekly (every-other-week). Castle Heights’ next biweekly payroll after May 5, 2020, was May 8, 2020. Hourly employees paid during this payroll were paid for the biweekly period of April 18, 2020, through May 1, 2020. Salaried employees were paid for the biweekly period of April 25, 2020, through May 8, 2020. The full amount of the May 8, 2020, payroll is includible in Castle Heights’s forgivable payroll costs, notwithstanding the fact that none of the hourly employee payroll costs were incurred during the Covered Period.

The Loan Forgiveness IFR also states that payroll costs incurred during the Covered Period, but not paid until the first regularly scheduled payroll after the Covered Period, are includible.

Example. Harbor Light Ministries received its PPP loan funds on April 28, 2020. Accordingly, the last day of Harbor Light’s 24-week Covered Period is October 12, 2020. Payroll costs incurred between October 1, 2020, and October 12, 2020, are includible as forgivable payroll costs if they are paid with the October 15, 2020, semimonthly payroll.

Example. Castle Heights Youth Services received its PPP loan funds on May 5, 2020. The last day of Castle Heights’s 24-week Covered Period is October 19, 2020. Castle Heights’s first biweekly payroll after October 19, 2020, is payable on October 23, 2020. Hourly employees paid during this payroll will be paid for the bi-weekly period of October 3, 2020, through October 16, 2020. Salaried employees will be paid for the bi-weekly period of October 10, 2020, through October 23, 2020. The full amount of hourly employee payroll costs were incurred on or before October 19 and are therefore includible in forgivable payroll costs. However, with respect to the salaried employees, only the payroll costs incurred between October 10, 2020, and October 19, 2020, and paid on October 23, 2020, are includible in forgivable payroll costs.

The timing of includible non-payroll costs

The Loan Forgiveness IFR states that non-payroll costs are includible in forgivable costs if they are either paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if that date is after the Covered Period. Based on this statement of the rule, non-payroll costs paid during the Covered Period are includible even if incurred before the Covered Period.

Example. Hillcrest Community Church’s 24-week Covered Period begins on June 1, 2020, and ends on November 15, 2020. Hillcrest pays its May, June, July, August, September, and October electricity bills during the Covered Period. Hillcrest pays its November 2020 electricity bill on the next regular billing date, December 10, 2020. Hillcrest can include the full amount of the May through October bills in its forgivable non-payroll costs, notwithstanding the fact that no portion of the May electricity bill was incurred during the Covered Period. The portion of the November bill that covers November 1, 2020, through November 15, 2020, is includible because it was paid on the next regular billing date after the end of the Covered Period.

While the ability to pay on the next regular billing date will assist in some cases, it does not address amounts that are paid in advance. For example, rent is generally paid in advance. As the rule is worded, a tenant that pays a quarterly rent payment in advance on April 1 and whose 8-week Covered Period begins and ends within the second calendar quarter (i.e., April 1–June 30) would not meet the condition of incurring the expense within the Covered Period and paying for those incurred expenses on the next regularly scheduled billing date (i.e., July 1). However, the extension of the Covered Period to 24 weeks means the July 1 and October 1 payments would be includible.

How is the 60-percent payroll cost rule applied?

As previously noted, to help determine the amount of the loan that can be forgiven (and turned into a nontaxable grant), the PPP Flexibility Act reduced the required percentage spent by recipients on payroll costs from 75 percent to 60 percent. The PPP Loan Forgiveness Application mechanically applies this rule at Line 10 by dividing the total payroll costs reported on Line 1 by 0.60 (60 percent). The resulting amount is then compared to (a) the PPP loan amount and (b) the sum of payroll costs (adjusted by the salary/wage reduction amount and headcount reduction factor) and non-payroll costs. The smallest of these three amounts then becomes the loan forgiveness amount.

The bottom line is that a borrower must spend at least 60 percent of its total PPP loan forgiveness includible expenditures on payroll.

Example. Assume the following:

PPP loan amount

$100,000

Total payroll costs (before adjustments for salary/wage reduction or headcount adjustment factor)

$57,500

Dollar amount of salary/wage reduction and headcount adjustment factor

$10,000

Non-payroll costs

$40,000

The three amounts to compare are:

PPP loan amount

$100,000

Total payroll costs ÷ 0.60

$95,833

Total forgivable payroll costs and non-payroll costs less salary/wage reduction and headcount adjustment factor

$97,500

The smallest of the three amounts is $95,833. Therefore, this is the loan forgiveness amount.

Note. It is clear from the Revised Loan Forgiveness IFR and the PPP Loan Forgiveness Application Instructions that a failure to use at least 60 percent of your loan proceeds for payroll costs will not result in the total forfeiture of loan forgiveness. It will only reduce the amount that will be forgiven.

The salary and wage reduction amount

The Salary and Wage Reduction Amount (SWRA) considers whether an employee’s weekly salary or hourly wage during the Covered Period declined by more than 25 percent when compared to the period beginning on January 1, 2020, and ending on March 31, 2020 (the most recent full calendar quarter before the Covered Period).

For the purpose of this computation, exclude any employee who received more than $100,000 in wages or salary on an annualized basis during any pay period in 2019. Since this exclusionary rule applies to wages or salary, it appears that bonuses or other similar supplemental earnings may be excluded when determining the applicability of this rule.

For reference, the table below shows the amount of gross wages or salary that equates to $100,000 on an annualized basis:

Pay Period Frequency

Amount

Monthly

$8,333.33

Semimonthly

$4,166.67

Biweekly

$3,846.15

Weekly

$1,923.08

The SWRA computation first looks at whether an employee’s rate of pay has decreased by more than 25 Percent. If an employee’s rate of pay has changed by more than 25 percent, then the computation converts the amount of the decrease into a dollar amount.

Example. Consider the following employee roster and methods and rates of pay.

Employee

Method of Pay

Average Rate of Pay

Covered Period

Prior Calendar Qtr

Change in Rate of Pay

John

Salary

$1,058/week

$1,481/week

(28.57%)

Sue

Salary

$1,635/week

$1,731/week

(5.56%

Ellen

Salary

$1,250/week

$1,250/week

0.00%

Mary

Hourly

$17.50/hour

$27.50/hour

(36.36%)

Bill

Hourly

$22.00/hour

$25.00/hour

(12.00%)

Steve

Hourly

$23.00/hour

$23.00/hour

0.00%

In this simple example, Sue, Ellen, Bill, and Steve experienced a decrease in average annual salary or hourly wage of less than 25 percent. Therefore, they do not contribute toward any salary and wage reduction amount. John and Mary, however, each suffered a greater than 25 percent decrease in their salary or hourly wage. Therefore, the next portion of the calculation must be performed.

In conclusion, the total salary reduction amount in this example is $1,269 + $3,005, or $4,274.

Note that the instructions do not provide guidance on the following relevant points:

  • How is the average weekly salary or hourly wage computed for an employee who is hired during the first quarter?
  • What is the effect on the computation of an employee’s average weekly salary or hourly wage when an employee is hired, furloughed, laid off, or terminated, with or without cause, during the Covered Period?

Change in law. The Revised Loan Forgiveness IFR clarifies that if a borrower does not use the 8-week Covered Period and applies for forgiveness before the end of the 24-week Covered Period, the borrower must account for the salary and wage reduction for the full 24-week Covered Period.

Example. A borrower reduced the weekly salary of an employee from $1,000 per week to $700 per week. Seventy-five percent of the employee’s weekly salary is $750 per week. Subtracting $700 from $750 results in $50. Multiplying $50 by 24 results in a salary and wage reduction amount of $1,200. This amount is used regardless of whether the borrower applies for loan forgiveness before the end of the 24-week period or waits to apply for loan forgiveness until after the conclusion of the 24-week period.

The full-time equivalent reduction quotient

The full-time equivalent reduction quotient (FTERQ) is an adjustment to the loan forgiveness amount. A careful reading of CARES Act section 1106(d)(2)(A) validates that the PPP Loan Forgiveness Application correctly applies the FTERQ to both payroll costs and non-payroll costs. The FTERQ is computed on Schedule A using Lines 11 through 13.

The FTERQ is computed by dividing the total average FTEs during the Covered Period by the total average FTEs during a reference period. The quotient may never be greater than 1.0. A borrower may choose between up to three different reference periods:

  1. February 15, 2019, to June 30, 2019 (a period of approximately 19 weeks);
  2. January 1, 2020, to February 29, 2020 (a period of approximately 9 weeks); or
  3. (For seasonal employers only) any 12-week consecutive period between May 1, 2019, and September 15, 2019.

Example. Assume the following FTE headcounts:

During the Covered Period: 30.2

During the period of February 15, 2019, to June 30, 2019: 29.3

During the period of January 1, 2020, to February 29, 2020: 31.5

Using the February 15, 2019, to June 30, 2019, measurement period, the FTERQ is 30.2 ÷ 29.3 = 1.03, which by rule converts to 1.0.

Using the January 1, 2020, to February 29, 2020, measurement period, FTERQ is 30.2 ÷ 31.5 = 0.9587.

Because you have the choice of measurement periods, you would choose the February 15, 2019, to June 30, 2019, measurement period, as this period results in no reduction in the loan forgiveness amount.

Computing FTEs

The Loan Forgiveness IFR provides the following process for computing FTEs:

  1. For each employee, determine the number of hours paid each week during the period for which FTEs are being computed.
  2. For each employee, compute the average number of hours paid per week during the relevant period.
  3. For each employee, divide the amount from Step 2 by 40, rounding the result to the nearest tenth. The result should not be greater than 1. An employee who works on average more than 40 hours per week can never count as more than one employee.
  4. Sum the amounts computed in Step 3.

Note that this computation looks at the number of hours for which an employee is paid. Accordingly, in the circumstance where an employee was kept on the payroll but was not performing services, they are included in the FTE computation based on the number of hours the borrower chose to pay them.

The instructions provide a simplified method for completing the FTE calculation. In this version, an employee working at least 40 hours a week counts as 1 FTE, and an employee working less than 40 hours a week counts as 0.5 FTE. If this simplified method is selected, it must be used for all FTE calculations.

If the number of employees in each category has been stable across all time periods, the simplified method should produce a comparable result that will not negatively affect the outcome of the various tests. However, if there is more than an insignificant amount of movement between employees working 40 or more hours per week and employees working fewer than 40 hours a week, you should avoid the simplified method.

Example. Assume an employer with 7 employees. John, Sue, Ellen, and Sally are salaried employees who each work 40 hours per week. Mary is an hourly employee who works 40 hours a week while Bill and Steve are hourly employees who work less than 40 hours per week. Bill’s hours are steady while Steve’s vary from week to week. During the Covered Period, the hours worked for all 7 employees are as follows:

In this example, there are seven employees, but this converts to six FTEs for the Covered Period.

FTEs may need to be computed for up to five periods:

  1. The Covered Period or, if elected, the Alternative Payroll Covered Period;
  2. The reference period selected;
  3. The payroll period that includes February 15, 2020;
  4. The period February 15, 2020, through April 26, 2020; and
  5. June 30, 2020.

These computations may be performed by a payroll service provider.

Full-time equivalent reduction quotient relief in certain cases

The Revised Loan Forgiveness IFR clarifies that an employer can include a terminated employee in its FTE headcount if the employer:

(a) Makes a good-faith written offer to rehire an employee who was employed on February 15, 2020;

(b) Maintains a written record of the employee’s decision to reject the rehire offer;

(c) Informs the applicable state unemployment insurance office of any employee’s rejected rehire offer within 30 days of the employee’s rejection of the offer; and

(d) Maintains a written record of the employer’s inability to hire a similarly qualified individual by December 31, 2020.

Change in law. A version of this exemption was previously published in the Loan Forgiveness IFR. The SBA has determined that the PPP Flexibility Act overrode the original rule. This new rule requires that the employer not only make a good-faith written offer to rehire an employee, but also must maintain a written record of the employer’s efforts to hire a similarly qualified individual. In addition, the employer must report the rejection of an offer to the state unemployment insurance office.

In addition to the statutory exemption permitting the inclusion of certain terminated employees in FTE headcount computation, the instructions provide for FTERQ relief in four additional instances:

  1. Where an employer makes a good-faith written offer to restore any reduction in hours at the same salary or wages during the Covered Period or the APCP and the employee rejects the offer;
  2. Where an employee is terminated for cause;
  3. Where an employee voluntarily resigns (presumably this includes retirement); and
  4. Where an employee voluntarily requests and receives a reduction in hours.

The nature of the relief is that you are permitted to include these employees in your FTE headcount for the Covered Period. However, if you replace an employee described in items 1 through 4, you are not allowed to include them in this FTE adjustment (because this would mean the position represented by the otherwise excepted employee would be double-counted).

Notably missing from this list is the normal annual temporary cessation of operations by a seasonal employer, preschool, or school.

The full-time equivalent reduction quotient safe harbors

The CARES Act and the PPP Flexibility Act each created a safe harbor from the FTERQ. The CARES Act’s safe harbor relies on the restoration of staffing to the February 15, 2020, level by December 31, 2020. The PPP Flexibility Act’s safe harbor considers the borrower’s ability or inability to maintain its pre-pandemic level of operation in light of various mandates and recommendations of government agencies in response to the pandemic.

This section will examine each safe harbor.

FTE Restoration Safe Harbor

The CARES Act provides a safe harbor for employers who decreased their FTE headcounts at the outset of the COVID-19 pandemic and then restore their headcounts by December 31, 2020. Your church is eligible for this safe harbor if two conditions are met:

  1. You had a decrease in its FTE headcount during the period of February 15, 2020, through April 26, 2020; and
  2. Your headcount on December 31, 2020, is greater than—or equal to—your headcount on February 15, 2020.

Change in law. The PPP Flexibility Act changed the date for computing the FTE Restoration Safe Harbor from June 30, 2020, to December 31, 2020.

To calculate your eligibility for the FTE Restoration Safe Harbor, complete the following steps:

Step 1. Compute your FTE headcount for the payroll period that included February 15, 2020.

Step 2. Compute your FTE headcount for the period of February 15, 2020, through April 26, 2020.

Step 3. If your FTE headcount in Step 1 is greater than your FTE headcount in Step 2, then there was a reduction in your FTE headcount and you must demonstrate that you restored your FTE headcount by December 31, 2020, to avoid a reduction in loan forgiveness. Therefore, proceed to Step 4.

Step 4. Compute your FTE headcount at December 31, 2020. If your FTE headcount at December 31, 2020, is greater than—or equal to—your FTE headcount in Step 1, then you are eligible for the FTE Restoration Safe Harbor and your loan forgiveness amount will not be reduced.

Example.

Step 1. Your FTE headcount for the payroll period that includes February 15, 2020, is 30.2.

Step 2. Your FTE headcount for the 10-week period between February 15, 2020, and April 26, 2020, is 27.6.

Step 3. Because your FTE headcount in Step 2, 27.6, is less than your FTE headcount in Step 1, 30.2, you must go to Step 4 and compute your FTE headcount at June 30, 2020.

Step 4. Your FTE headcount at June 30, 2020, is 30.3. Because 30.3 is greater than the Step 1 FTE headcount of 30.2, you are eligible for the FTE Reduction Safe Harbor and your loan forgiveness amount is not reduced.

The reduction in level of business operations safe harbor

The PPP Flexibility Act added a new, more expansive, safe harbor that will provide many organizations with an exemption from the application of the FTERQ. This safe harbor applies when the organization is able to document in good faith that it is unable to return to the same level of business activity that it was operating at before February 15, 2020, due to compliance with requirements or guidance related to the maintenance of standards for sanitation, social distancing, or any other worker- or customer-safety requirement related to COVID-19 published by one of these entities during the period of March 1, 2020, through December 31, 2020:

  • The US Secretary of Health and Human Services (HHS);
  • The Director of the Centers of Disease Control and Prevention (CDC); or
  • The Occupational Safety and Health Administration (OSHA).

In the Revised Loan Forgiveness IFR, the SBA clarified that a triggering event for this safe harbor includes a local government order, pursuant to CDC guidelines, to shut down all nonessential businesses. The SBA has extended this to both a direct reduction in business activity and an indirect reduction in business activity. This seems to clearly imply that even an essential business that remained open in the face of a local government order, but which experienced a decrease in business activity, should be able to take advantage of this safe harbor. Note also that the rule does not specify the degree to which the business activity must have decreased to take advantage of the safe harbor.

To take advantage of the reduction in operating activity safe harbor, your good-faith documentation must include a copy of the applicable government agency requirements or guidance, or both, which will usually be documented in the local government order, and a copy of appropriate financial records showing the decline in activity. These appropriate financial records should demonstrate a decline in persons served, products sold, or other similar business operating activity measures.

Note. If a borrower is eligible for the reduction in operating activity level safe harbor, the requirement to compute FTEs for any period is eliminated.

The Loan Forgiveness Application

As mentioned earlier, the SBA has now provided two different versions of its PPP Loan Forgiveness Application. The applications are available on the Treasury Department PPP Loan webpage. Form 3508EZ is a short-form application that may be used when specific criteria described below are met. Form 3508, PPP Loan Forgiveness Application, is the long-form application and must be used when Form 3508EZ cannot be used. Lenders are permitted to develop their own substitute versions of these forms.

Note. The SBA has published detailed instructions for SBA Form 3508 and SBA Form 3508EZ.

Overview of Form 3508, the PPP Loan Forgiveness Application

The application consists of:

  • A core form (PPP Loan Forgiveness Calculation Form) that summarizes the component parts of the forgiveness calculation;
  • Certifications;
  • A Schedule A that computes the payroll costs net of reductions;
  • A Schedule A Worksheet that is used to compute FTEs and the Salary/Wage Reduction amount; and
  • A Borrower Demographic Form.

Only the core form and Schedule A are required to be filed. The Borrower Demographic Form is optional and does not appear applicable to nonprofit organizations.

Overview of the EZ PPP Loan Forgiveness Application, Form 3508EZ

The EZ version of the application consists of:

  • A simplified core form (PPP Loan Forgiveness Calculation Form) that summarizes the component parts of the forgiveness calculation;
  • Certifications; and
  • A Borrower Demographic Form.

Eligibility to use Form 3508EZ

Form 3508EZ may be used in three specific situations that are outlined in the Instructions to Form 3508EZ. These situations are discussed below.

Situation 1
In this situation, the borrower is an individual who is:

  • Self-employed;
  • An independent contractor; or
  • A sole proprietor

In addition, the borrower had no employees at the time he or she submitted a PPP loan application and did not include any employee salaries in the computation of average monthly payroll in arriving at his or her PPP loan amount.

Situation 2
In this situation, the borrower must meet two conditions. First, the borrower must not have reduced the wages of any employee by more than 25 percent during the Covered Period or the APCP compared to the first calendar quarter of 2020. For the purpose of this condition, exclude from consideration any employee paid more than an annualized rate of $100,000 during any pay period during 2019.

Second, the borrower must not have reduced the number of employees or the average paid hours of employees between January 1, 2020, and the end of the Covered Period or APCP. For the purpose of this condition, ignore any reductions arising from an inability to rehire individuals who were employees on February 15, 2020, if the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also, ignore reductions in an employee’s hours that the borrower offered to restore and the employee refused.

Many borrowers who weathered the Covered Period with minimal or no changes in rates of pay and no changes in staffing will find this situation applicable. In addition, borrowers who were able to rehire or replace staff before the end of the Covered Period may find this situation applicable. However, for borrowers who are relying on the exemption for employees who rejected an offer of reemployment, this situation is unlikely to be applicable.

Situation 3
In this situation, the borrower must meet two conditions. First, the borrower must not have reduced the wages of any employee by more than 25 percent during the Covered Period or the APCP compared to the first calendar quarter of 2020. For the purpose of this condition, exclude from consideration any employee paid more than an annualized rate of $100,000 during any pay period during 2019.

Second, during the Covered Period, the borrower was unable to operate at the same level of business activity as the borrower was able to operate at prior to February 15, 2020, due to its compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020, by HHS, the DC, or OSHA, related to the maintenance of standards of sanitation, social distancing, or any other worker- or customer-safety requirement related to COVID-19.

This situation has the broadest applicability, as it forgoes any requirement to maintain staffing levels for borrowers who can meet the substantiation requirements of the reduction in level of business operations safe harbor.

Certifications

As with the PPP Loan Application, the PPP Loan Forgiveness Application includes several certifications. Certifications common to both Form 3508 and 3508EZ include:

  • That the dollar amount for which loan forgiveness is being requested:
    • Was used for eligible expenses;
    • Takes into account applicable deductions for any decrease in FTE headcount and/or salary and wage reductions (Form 3508 only);
    • Includes payroll costs equal to at least 60 percent of the amount of loan forgiveness requested; and
    • In the case of any owner-employee, self-employed individual, or general partner, does not include more than 24 weeks’ worth of 2019 compensation.
  • That the applicant understands that the federal government may pursue recovery of loan amounts and/or pursue civil or criminal fraud charges if the applicant knowingly used PPP loan funds for unauthorized purposes.
  • That the applicant has accurately verified the payments for the eligible payroll and non-payroll costs for which the applicant is requesting forgiveness.
  • That the information contained in the PPP Loan Forgiveness Application and all supporting documentation and forms is true and correct in all material respects. Further, the applicant understands that knowingly making a false statement to obtain forgiveness of a PPP loan is punishable under the law by fines and/or imprisonment. (Depending on the federal statute violated, the fine may range from a fine of not more than $5,000 to a fine of not more than $1 million and the term of imprisonment may range from a term of two years to a term of 30 years).
  • That tax documents the applicant submitted to the lender are consistent with those the applicant has or will submit to the Internal Revenue Service (IRS) and/or a state tax or workforce agency. This certification also serves as permission for the lender to share these documents with the SBA.
  • That the applicant understands, acknowledges, and agrees that the SBA may request additional information for the purposes of evaluating the applicant’s eligibility for both the PPP loan and for loan forgiveness. Further, a failure to provide additional information requested by the SBA may result in a determination that the applicant was ineligible for the PPP loan or a denial of loan forgiveness.

Form 3508 requires the following additional certifications:

  • That the dollar amount for which loan forgiveness is being requested takes into account applicable deductions for any decrease in FTE headcount and/or salary and wage reductions.
  • If applicable, that the borrower is eligible for the reduction in level of business operations safe harbor.

Form 3508EZ requires the following additional certifications:

  • The applicant did not reduce salaries or hourly wages by more than 25 percent for any employee during the Covered Period or the APCP compared to the period between January 1, 2020, and March 31, 2020. For purposes of this certification, the term “employee” includes only those employees who did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.
  • If applicable, the applicant did not reduce the number of employees between January 1, 2020, and the end of the Covered Period, other than due to an inability to rehire the employees because they rejected an offer of reemployment and the applicant was unable to hire similarly qualified employees by December 31, 2020, and any reductions in employees’ hours that the applicant offered to restore were refused.
  • If applicable, that the borrower is eligible for the reduction in level of business operations safe harbor.

There are a few takeaways from reviewing these certifications.

First, the focus is largely on the completeness and accuracy of the information supplied both on the face of the application and in supporting documentation.

Second, while the references to fines and civil or criminal fraud charges should be taken to heart, they are standard terms and should not make an applicant fearful.

Third, while in FAQ 46 the SBA created a safe harbor around the good-faith necessity certification in the PPP loan application for loans with original principal amounts of less than $2 million, the SBA has reserved the right to review loan eligibility in conjunction with the loan forgiveness application for other reasons. Among the eligibility rules the SBA could review during the forgiveness process are:

Review of PPP Loan Forgiveness Applications by the lender

Lenders are the gatekeepers of the PPP Loan Forgiveness Application process. They are charged with reviewing PPP Loan Forgiveness Applications and making the initial determination of a borrower’s eligibility for loan forgiveness. Accordingly, many decisions regarding the application of the PPP loan forgiveness guidance will be at the discretion of lenders.

The Revised Loan Forgiveness IFR requires that a lender’s review of the loan forgiveness application include the following steps:

  1. Confirmation that the borrower has completed the required certifications in the loan forgiveness application;
  2. Confirmation that the borrower has supplied all required documentation specified in the loan forgiveness application instructions that is needed to aid in verifying the borrower’s payroll and non-payroll costs;
  3. Confirmation of the borrower’s calculations on the loan forgiveness application, including the computation of cash compensation, noncash compensation, and compensation to owners as shown on Schedule A of the loan forgiveness application and non-payroll costs shown on the face of the loan forgiveness application; and
  4. Confirmation that the borrower correctly performed the division of payroll costs shown on Line 1 of the loan forgiveness application by 60 percent, as required on Line 10 of the loan forgiveness application.

If the borrower submits the EZ version of the loan forgiveness calculation, these steps are simply adjusted to reflect the different layout of the form.

The Revised Loan Forgiveness IFR clearly states that the accurate calculation of the loan forgiveness amount is the responsibility of the borrower and not the lender. Further, the borrower must attest to the accuracy of the information presented and the calculations shown on the loan forgiveness application. However, lenders are responsible for performing a good-faith review, in a reasonable time, of the borrower’s calculations and the supporting documentation presented. The lender is permitted to perform a minimal review of calculations based on a report prepared by a recognized third-party payroll provider.

While an application should not be accepted by a lender if it contains calculation errors or there is a material lack of substantiation in the submitted supporting documentation, lenders are encouraged to work with borrowers to resolve these deficiencies rather than simply deny forgiveness, in full or in part. Moreover, a lender is permitted to accept the borrower’s attestation, without further independent verification, that the borrower accurately verified the payments for eligible costs.

A lender is permitted 60 days after the receipt of a completed loan forgiveness application to render a decision as to the borrower’s eligibility for full or partial loan forgiveness. This decision is issued to the SBA. When issuing its decision, the lender must forward to the SBA the borrower’s completed loan forgiveness application; however, it does not appear the supporting documentation is forwarded.

If the lender denies any loan forgiveness, a procedure exists for the borrower to appeal this decision.

Other application matters

What about Economic Injury Disaster Loan advances?

The CARES Act specifies that the PPP loan forgiveness amount is reduced by any amount of an Economic Injury Disaster Loan (EIDL) advance a borrower receives. The PPP Loan Forgiveness Application addresses this by capturing the amount of the EIDL advance and the EIDL application number assigned when the advance was obtained. But the instructions then include this cryptic statement, “If applicable, SBA will deduct EIDL Advance Amounts from the forgiveness amount remitted to the Lender.” Accordingly, if you enter an EIDL advance amount on your loan application, expect that the actual amount of your loan forgiveness will be reduced by the amount of your EIDL advance.

What happens if a PPP loan is not fully forgiven?

There are three options if a PPP loan is not fully forgiven. First, the borrower may appeal the lender’s denial of full forgiveness to the SBA. Second, the borrower can choose to repay the unforgiven part in full. There is no prepayment penalty, although interest will be due at the annualized rate of 1 percent on the unforgiven balance from the date the loan disbursed until the date the unforgiven portion of the loan is paid. Contact the lender servicing the loan for a loan payoff amount. Third, the borrower can choose to pay the unforgiven portion back over the remaining life of the loan.

Required documentation

The instructions to the PPP Loan Forgiveness Application include a detailed list of documentation that should be gathered in support of the PPP loan forgiveness application. The instructions clarify documentation that must be submitted with the loan application, along with documentation that should be maintained by the applicant but is not required to be submitted. Significantly, applicants are instructed to maintain this documentation for a period of “six years after the date the loan is forgiven or repaid in full.” In addition, the documents are to be made available upon request to an authorized SBA representative or a representative of the SBA’s Office of Inspector General.

Affiliate relationships

The application requires organizations that, together with their affiliates, received PPP loans in the aggregate with an original principal balance of more than $2 million to check a box. Presumably this means that an affiliate whose own original principal balance is less than $2 million must check this box if it is a member of an affiliate group that borrowed more than $2 million in the aggregate.

Note that in its Second Interim Final Rule (second IFR), published in the Federal Register on April 15, 2020, the SBA addressed the application of the affiliation rules to faith-based organizations. The SBA acknowledged “that the organizational structure of faith-based entities may itself be a matter of significant religious concern” and that US Supreme Court precedents guarantee to faith-based organizations “the ‘power to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine’” (citing Kedroff v. St. Nicholas Cathedral of Russian Orthodox Church in N. Am., 344 U.S. 94, 116 (1952)).

In addition, the Religious Freedom Restoration Act, together with Supreme Court precedents, prevent the government from substantially burdening the exercise of religion without a compelling governmental interest. The SBA has determined that applying the SBA affiliation rules to faith-based organizations would impose a substantial burden without a compelling governmental interest.

For this reason, the affiliation rules:

. . . do not apply to the relationship of any church, convention or association of churches, or other faith-based organization or entity to any other person, group, organization, or entity that is based on a sincere religious teaching or belief or otherwise constitutes a part of the exercise of religion. This includes any relationship to a parent or subsidiary and other applicable aspects of organizational structure or form.

However, to avoid the application of the affiliation rules, a faith-based borrower must make a “reasonable, good-faith interpretation” that the affiliation rules should not apply to a given relationship because the relationship is “based on a sincere religious teaching or belief” or in some manner “constitutes a part of the exercise of religion.” The application of this standard to a church, or an association or convention of churches or their integrated auxiliaries, is likely to be more straightforward than its application to parachurch ministries.

Other PPP Flexibility Act changes

In addition to the changes previously discussed, the PPP Flexibility Act changed the minimum loan maturity and the duration of loan deferral.

Minimum loan maturity

The CARES Act specified a maximum loan maturity of not more than 10 years. In its First Interim Rule, the SBA announced a loan maturity of two years would apply to each PPP loan. The PPP Flexibility Act sets the minimum loan maturity of PPP loans issued after June 5, 2020, to five years. In addition, the PPP Flexibility Act explicitly allows for borrowers and lenders to renegotiate the loan maturity of loans issued prior to June 5, 2020.

PPP loan deferral

The CARES Act specified a loan deferral period of not less than six months and not more than one year. Exercising its regulatory discretion, the SBA determined that a deferral period of six months would apply to each PPP loan. During this deferral period, payments of principal, interest, and fees would be deferred. However, interest would accrue pending loan forgiveness.

The PPP Flexibility Act statutorily changed termination of the loan deferral period to the date on which the loan forgiveness amount is remitted to the lender by the SBA. However, the PPP Flexibility Act requires that if a borrower fails to submit a PPP Loan Forgiveness Application within 10 months after the end of the Covered Period, the borrower must begin to make loan payments.

Ted R. Batson Jr. is a CPA and tax attorney, and serves as a partner and Professional Practice Leader – Tax for CapinCrouse LLP, a national CPA and consulting firm. He speaks and teaches frequently for national conferences and organizations on exempt organization and charitable giving matters. He is an advisor at large for Church Law & Tax.

Brent Baumann is a Senior Manager in CapinCrouse’s Denver office, where he works with audit, accounting, and advisory clients. He has over 15 years of experience providing services and expertise to financial statement, internal control, internal audit, and information technology audit and advisory clients.

IRS Updates Group Exemption Procedure

New guidance with specific application to denominations and churches covered by the group ruling.

The Internal Revenue Service (IRS) has issued a notice with substantial changes to the group tax-exemption procedures. These changes are significant to denominations that have a group ruling and churches that are covered by the ruling.

What is a group exemption and why is it helpful?

The IRS sometimes recognizes a group of organizations as tax-exempt if they are affiliated with a central organization—such as a denomination covered by the group ruling. This avoids the need for each of the organizations to apply for exemption individually. A group exemption letter has the same effect as an individual exemption letter except that it applies to more than one organization.

Group exemptions are an administrative convenience for both the IRS and organizations with many affiliated organizations. Subordinates in a group exemption do not have to file, and the IRS does not have to process separate applications for exemption. Consequently, subordinates do not receive individual exemption letters.

Exempt organizations that have, or plan to have, related organizations that are very similar to each other may apply for a group exemption. Groups of organizations with group exemption letters have a “head” or main organization, referred to as a central organization. The central organization generally supervises or controls many affiliates, called subordinate organizations. The subordinate organizations typically have similar structures, purposes, and activities.

To qualify for a group exemption, the central organization and its subordinates must have a defined relationship. Subordinates must be:

  • Affiliated with the central organization;
  • Subject to the central organization’s general supervision or control; and
  • Exempt under the same paragraph of IRC 501(c), though not necessarily the paragraph under which the central organization is exempt.

Background

In 1980, the IRS issued Revenue Procedure 80-27, which sets forth the rules for obtaining a group exemption. Basically, the central organization submits a letter to the IRS on behalf of itself and its subordinates. The letter includes:

a. Information verifying the existence of the required relationship;

b. A sample copy of a uniform governing instrument (such as a charter, trust indenture or articles of association) adopted by the subordinates;

c. A detailed description of the subordinates’ purposes and activities including the sources of receipts and the nature of expenditures;

d. An affirmation by a principal officer that, to the best of the officer’s knowledge, the subordinates’ purposes and activities are as stated in (b) and (c) above;

e. A statement that each subordinate to be included in the group exemption letter has furnished written authorization to the central organization;

f. A list of subordinates to be included in the group exemption letter to which the IRS has issued an outstanding ruling or determination letter relating to exemption;

g. If the application for a group exemption letter involves IRC 501(c)(3), an affirmation to the effect that, to the best of the officer’s knowledge and belief, no subordinate to be included in the group exemption letter is a private foundation as defined in IRC 509(a);

h. For each subordinate that is a school claiming exemption under IRC 501(c)(3), the information required by Revenue Procedure 75-50.

i. A list of the names, mailing addresses (including ZIP Code), actual addresses (if different) and employer identification numbers of subordinates to be included in the group exemption letter. A current directory of subordinates may be furnished in lieu of the list if it includes the required information and if the subordinates not to be included in the group exemption letter are identified.

Upon receipt of a request for group exemption, the IRS first determines whether the central organization and the existing subordinates qualify for tax exemption. Once the IRS grants the exemption, the central organization is responsible for ensuring that its current subordinates continue to qualify to be exempt; verifying that any new subordinates are exempt; and updating the IRS annually of new subordinates, subordinates no longer to be included, and subordinates that have changed their names or addresses.

Annual updates must contain:

a. Information about changes in purposes, character or method of operation of subordinates included in the group exemption letter.

b. Lists of:

1. Subordinates that have changed their names or addresses during the year;

2. Subordinates no longer to be included in the group exemption letter because they have ceased to exist, disaffiliated or withdrawn their authorization to the central organization; and

3. Subordinates to be added to the group exemption letter because they are newly organized or affiliated or have newly authorized the central organization to include them. Each list must show the names, mailing address (including ZIP Codes), actual address (if different) and employer identification numbers of the affected subordinates. An annotated directory of subordinates will not be accepted for this purpose. If none of these changes occurred, the central organization must submit a statement to that effect.

c. The same information about new subordinates that was required in the initial request. If a new subordinate does not differ in any material respects from the subordinates included in the original request, however, a statement to this effect may be submitted in lieu of detailed information.

With limited exceptions, churches and denominations covered by the group ruling are subject to the same general requirements on group rulings as other organizations. However, churches are not required to file annual updates notifying the IRS of changes in the composition of the group.

Currently, there are more than 4,300 group exemptions covering some 500,000 subordinate organizations. These statistics do not include church group exemptions because they are not required to file annual information reports with the IRS regarding additions and deletions of subordinate organizations from their group exemp­tions. Some church group exemptions cover thousands and even tens of thousands of subordinate organizations. The IRS Advisory Committee on Tax Exempt and Government Entities (ACT) estimates that there are 100,000 to 150,000 churches covered by group exemp­tions.

IRS Publication released in 2019 on group exemptions

IRS Publication 4573 (2019) provides the following helpful clarifications:

How do I verify that an organization is included as a subordinate in a group exemption ruling?

The central organization that holds a group exemption (rather than the IRS) determines which organizations are included as subordinates under its group exemption ruling. Therefore, you can verify that an organization is a subordinate under a group exemption ruling by consulting the official subordinate listing approved by the central organization or by contacting the central organization directly. You may use either method to verify that an organization is a subordinate under a group exemption ruling.

How do donors verify that contributions are deductible under Section 170 with respect to a subordinate organization in a Section 501(c)(3) group exemption ruling?

Subordinate units that are included in group exemption letters are not listed separately in Tax Exempt Organization Search (Publication 78 data). Donors should obtain a copy of the group exemption letter from the central organization. The central organization’s listing in Tax Exempt Organization Search will indicate that contributions to its subordinate organizations covered by the group exemption ruling are also deductible, even though most subordinate organizations are not separately listed in Tax Exempt Organization Search or on the Exempt Organizations Business Master File. Donors should then verify with the central organization, by either of the methods indicated above, whether the particular subordinate is included in the central organization’s group ruling. The subordinate organization need not itself be listed in Tax Exempt Organization Search or on the EO Business Master File. Donors may rely on central organization verification about deductibility of contributions to subordinates covered in a Section 501(c)(3) group exemption ruling.

These two provisions explained above, which were also contained in the prior version of Publication 4573 (2006), are of immense help to churches responding to requests for “proof” of their exempt status.

Requests for proof of exempt status come from a variety of sources, including banks, state and local government agencies, the postal service, and the IRS. In the past, the IRS mailed each central organization a list of its subordinate organizations for verification and return. As of January 1, 2019, the IRS stopped providing these lists to central organizations since, as the IRS explained, the provision of such lists was not required and imposed a significant administrative burden upon it. This makes the above two clarifications in IRS Publication 4573 of critical importance since central organizations no longer have an annual letter from the IRS that can be used to verify the exempt status of its subordinates.

IRS Notice 2020-36 contains substantial changes

In May of 2020, the IRS released Notice 2020-36, which contains substantial changes to the group exemption procedure set forth in Revenue Procedure 80-27. Among the changes and clarifications:

  • A central organization must have at least five subordinate organizations to obtain a group exemption letter and at least one subordinate organization to maintain the group exemption letter thereafter.
  • A central organization may maintain only one group exemption letter.
  • Retains the exception to the Supplemental Group Ruling Information (SGRI) filing requirement originally included in IRS Publication 4573 for central organizations that are churches or conventions or associations of churches. More specifically, a central organization that is a church or a convention or association of churches may, but is not required to, submit the SGRI.
  • A subordinate organization is subject to the central organization’s general supervision if the central organization: (a) annually obtains, reviews, and retains information on the subordinate organization’s finances, activities, and compliance with annual filing requirements, and (b) transmits written information to (or otherwise educates) the subordinate organization about the requirements to maintain tax-exempt status under the appropriate paragraph of § 501(c), including annual filing requirements.
  • A subordinate organization is subject to the central organization’s control if: (a) The central organization appoints a majority of the subordinate organization’s officers, directors, or trustees; or (b) A majority of the subordinate organization’s officers, directors, or trustees are officers, directors, or trustees of the central organization.
  • The descriptions of “general supervision” and “control” apply only for purposes of “this proposed revenue procedure and § 1.6033-2(d) of the Treasury Regulations (relating to group returns).” This is a significant clarification since it will make it less likely that plaintiffs will succeed in holding churches and denominational agencies liable for the liabilities of subordinates on the basis of the requirement in the group exemption procedure that the central organization exercises “general supervision and control” over them.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

How Thorough Is Our Background Screening Program?

Proper screening costs very little but increases safety a great deal.

Use the following checklist to gauge how your church is doing at screening employees and volunteers.

Download a PDF version of this checklist.

We’d like to think that all people seeking to work or volunteer for a ministry are honest, ethical, and inherently trustworthy. Unfortunately, they’re not. They’re human, just like us. That’s why it’s so important for every church to conduct thorough background screens before filling any position—paid or volunteer. Use these tips to help your ministry implement an effective screening program.

Before Saying “You’re Hired!”

  • Fill in the blanks. Have prospective workers complete a written application form. This step may seem obvious, but many churches have informal hiring practices. A written application provides information that can be used to conduct reference checks and an interview.
  • Obtain asking rights. Your application form should include a liability release, signed by the applicant, giving you permission to contact references and obtain any criminal records. It also should release from liability the person being asked to provide information.
  • Check references. Contact all individuals, former employers, and organizations listed in the application. Learning what others say about an individual’s past performance and conduct is a vital part of the screening process.
  • Have a talk. Once you’ve narrowed the field to a few top candidates, it’s time for an interview. You’ll get a better sense of whether the applicant will be a good fit for your ministry when you meet in person.

After a Great Interview

  • Look for criminal records. Some states mandate criminal records checks for certain employees, such as teachers, childcare workers, and others in high-risk settings. It’s a good practice to conduct a criminal records check on all paid and volunteer staff, even ministers, before putting them to work.
  • Choose a reputable screening provider. The results you’ll get from a “free” or bargain criminal records search may be worth what you paid. Hire a screening company that uses county court records to verify database information, searches past locations where a person has lived, uncovers alternate or false names, and helps you to comply with state and federal laws.
  • Evaluate the results. Finding a criminal conviction may not be enough to disqualify someone from a church position. You’ll need to evaluate the severity of the offense, how long ago it happened, and whether it pertains to the position being filled. An attorney could help you with this analysis.

Are We Prepared for a Sexual Misconduct Allegation?

Use this checklist to help prepare for a sexual harassment allegation in your church.

Sexual harassment occurs in all kinds of work settings. While we may think it’s more prevalent in secular businesses and organizations, the church is not immune to incidents of sexual misconduct among ministry workers. Use the following checklist to gauge how proactive your church is at preventing sexual misconduct and how prepared it is to respond to an allegation of sexual harassment.

Download a PDF version of this checklist.

The legal definition of sexual harassment is when the terms, conditions, or privileges of employment are determined on the basis of sex. The two recognized forms of sexual harassment are (1) when an employee is subjected to unwelcome advances and submission is explicitly or implicitly made a condition of employment, and (2) when the employer (directly or through agents) creates an intimidating, hostile, or offensive work environment.

The following are some simple steps you can take to help educate and equip your church body to prevent sexual harassment in your congregation.

Create a Safe Environment

Be vocal. Let your staff and congregation know that you take harassment seriously. Those who work at and attend the church should feel safe if they need to come forward with an accusation of sexual harassment.

Define policies. If there aren’t currently policies in place concerning sexual harassment in your church, create them. The church must be prepared if an allegation surfaces. Putting your staff and volunteers through a sexual ethics course may also prevent harassment at your church.

Keep a Safe Environment

Practice accountability. One way to keep your staff accountable is to monitor overtime hours, an individual’s declining performance, increased absences, inability to concentrate, or changes in his/her work habits.

Check your insurance. Make sure your church insurance covers employment-related claims, such as a sexual harassment claim.

Address allegation. When an allegation surfaces at your church, remove the accused from contact with the claimant during the investigation. The claimant should also be offered pastoral assistance, including counseling. Contact your insurer, attorney, and governing church bodies so they can further advise you on your next steps.

Do We Know When to Hire an Attorney?

Take this True/False quiz to find out.

The church usually begins looking for an attorney only when it is confronted with a crisis—such as being served with a lawsuit. However, the need for an attorney’s advice actually arises during the planning stages of any activity or event. Take the following quiz to test if you know when it’s time to hire an attorney. The answer key is at the end of the article.

Download a PDF version of this checklist.

Answer Key: (1) F (2) T (3) T (4) F (5) T (6) T (7) T (8) T (9) T (10) T

Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.

Tracking Faith-Based Legal Challenges to Pandemic Orders

How federal courts nationwide addressed faith-based legal challenges to pandemic orders set by state and local governments.

Last Reviewed: April 6, 2021


Editor’s note: Church Law & Tax stopped ongoing updates of this article in July 2020, after the first of three decisions issued by the US Supreme Court began to reshape religious liberty challenges brought against pandemic-related restrictions. For a review of those three decisions and others made by the Supreme Court since then, see “The Sacred and the Secular: Assessing US Supreme Court Rulings on Pandemic Restrictions.”

Church Law & Tax will continue to monitor decisions related to this issue across the country.

The COVID-19 (coronavirus) pandemic has prompted many state governments to impose public-gathering and reopening restrictions in an attempt to slow the spread of the illness. The restrictions, in turn, have prompted lawsuits by various plaintiffs, including prison inmates, abortion clinics, erotic nightclubs, political candidates, and churches.

Many plaintiffs have won judicial relief for activities entitled to constitutional protection. Churches, which receive considerable protections under the First Amendment of the US Constitution, have experienced mixed results in dozens of cases.

Churches got off to a good start in Case #1 (below), the judge ruling that, “if beer is essential, so is Easter.” Church plaintiffs in the three subsequent cases promptly lost, though. Other faith-based organizations (FBOs) are filing cases as well. Overall, they are losing more than winning.

Most church-related cases have occurred in federal courts and most have turned on the US Supreme Court’s modern precedents interpreting the Free Exercise Clause of the First Amendment.

Losses in court have consequences: FBO members and missions suffer, as do the communities they serve. Moreover, adverse court rulings establish precedent that lasts decades and can hinder religious exercise rights both now and for years to come.

With this in mind, this article summarizes these cases with an aim to provide practical and legal guidance to help churches steward their resources well.

What’s transpired so far

One key assessment in these cases is the extent of risk posed by religious gatherings in relation to COVID-19’s spread. While stories and studies have noted outbreaks from religious services, such outbreaks largely occurred before American society fully understood COVID-19’s threat. An underlying question in these cases is whether houses of worship will act responsibly when they meet.

States have varied in their public-gathering restrictions affecting churches. As of Case #21, decided on May 16, 2020, the following 15 states “exempted religious gatherings from any attendance limitations during this pandemic”: Arizona, Arkansas, Colorado, Florida, Georgia, Michigan, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, and West Virginia.

In Case #21, in which the court granted a church relief from North Carolina’s restrictions, the state “failed to cite any peer-reviewed study showing that religious interactions in those 15 states have accelerated the spread of COVID-19 in any manner distinguishable from non-religious interactions.” The judge added that, “common sense suggests [worshipers] have every incentive to behave safely and responsibly whether working indoors, shopping indoors, or worshiping indoors.”

The other 35 states have imposed limitations ranging from banning all religious gatherings to delaying church reopenings. All such limitations are changing constantly in response to fluid “conditions on the ground.”

Another key assessment in these cases involves the definition of religious discrimination, and what does—or doesn’t—trigger protections for churches. What secular activities should be considered comparable to religious activities? Should churches be compared to schools, theaters, and other assemblies? Or should they be compared to any secular activities that gather people in close quarters? And what sort of intent must be proven with respect to the state’s treatment of churches? Religious bigotry? Or merely the intent to treat differently, such as labeling certain businesses and activities “essential” and others (including churches) as “nonessential”?

As shown below, most courts have found worship services to be unlike, and thus riskier than, secular activities like shopping, traveling, or business meetings. But other courts have disagreed, as has the US Government.

On April 14, 2020, the US Department of Justice (DOJ) began filing court statements in support of houses of worship. On May 19, 2020, the DOJ sent a letter warning California’s governor to “treat religious activities equally with comparable nonreligious activities.” On May 22, 2020, President Donald Trump warned all governors to treat all FBOs as “essential,” and the US Centers for Disease Control and Prevention (CDC) released reopening guidance for FBOs.

Where things are heading

FBOs have not always helped their own cause. Judges have sharply rebuked the public safety behavior and/or the litigation tactics of the FBO at issue in some cases, including Case #19. The resulting precedents have proven damaging.

All federal cases start in trial courts called district courts, where each case is presided over by a single district judge. His or her decision governs the case at hand but has little precedential value. It can be considered for its persuasive value but it has no binding force, even within the same judicial district.

When a district judge’s decision gets appealed, it goes to the US courts of appeals for the circuit where the case is located. Each such appeals court has certain legal authority over the states within its circuit. Each appeal is decided by a panel of three appeals judges called circuit judges. Majority decisions of a panel speak for all circuit judges on the court and are highly precedential. The core rationale of a panel is binding precedent for all district judges within the circuit and even for all circuit judges within the circuit unless a majority of all its judges decide to overrule it. The core rationale also serves as persuasive precedent elsewhere.

The first two appeals court cases in this article came from a panel of the US Court of Appeals for the Sixth Circuit (covering Michigan, Ohio, Kentucky, and Tennessee). In early May, that panel ruled for a Kentucky church in Cases #9 and #16, granting injunctions pending appeal and explaining its rationale in detail. Its core rationale is now binding precedent in those four states and persuasive precedent elsewhere.

On May 16, 2020, in Case #22, a panel of the Seventh Circuit (covering Illinois, Indiana, and Wisconsin), without citing Cases #9 or #16, came to the opposite conclusion. In a one-paragraph order, the panel said an Illinois church had not shown a “sufficient likelihood of success on the merits to warrant the extraordinary relief of an injunction pending appeal.” Such injunctions can last until the full resolution of an appeal—often a year-long process.

On May 22, two more circuits ruled. In Case #26, a panel of the Ninth Circuit, which covers the westernmost states, rebuffed a California church. That same day, in Case #27, a panel of the Fifth Circuit, which covers Texas, Louisiana, and Mississippi, provided a Mississippi church with relief from restrictions until the district judge rules. One of the circuit judges wrote:

The [church] was burned to the ground earlier this week. Graffiti spray-painted in the church parking lot sneered, “Bet you Stay home Now YOU HYPOKRITS.” . . . One might expect a city to express sympathy or outrage (or both) when a neighborhood house of worship is set ablaze. One would be mistaken.

The churches in Cases #22 and #26 petitioned the US Supreme Court. On May 29, 2020, the Court rebuffed both churches. See Cases #29 and #30. Although the Court’s brief orders in both cases offer little guidance, the unfavorable concurring opinion of Chief Justice Roberts in Case #30 is being cited by many lower courts to support rulings against churches.

The case summaries below provide further details on how key facts, arguments, and rationale have shaped the varying outcomes of church-related cases. By monitoring these cases closely, church leaders and their attorneys can discern key issues and make more informed decisions on reopening or filing their own legal challenges.

Case #1: On Fire Christian Center v. Fischer (W.D.Ky. (Sixth Circuit) April 11, 2020)

While preparing for Easter, On Fire Christian Center faced prosecution in Kentucky for holding services, even in-car “drive-in” services in its parking lot. It sought a temporary restraining order (TRO) from a federal district court. The case landed with US District Judge Justin Walker, who has since been nominated and confirmed for a seat on the US Court of Appeals for the DC Circuit.

The church said it was being treated unfairly by Louisville Mayor Greg Fischer. The mayor’s restrictions allowed many secular establishments, including liquor stores, to host unlimited cars in their parking lots and offer drive-through services, as well as in-store services for patrons. “We are not allowing churches to gather either in person or in any kind of drive-through capacity,” the mayor said publicly a few days before Easter.

Judge Walker acknowledged the COVID-19 crisis and US Supreme Court precedent instructing courts to give great deference to public officials during public health crises. At the same time, he emphasized “religious liberty’s importance to our nation’s story, identity, and Constitution.” Applying the Free Exercise Clause, he concluded that “Louisville may not ban its citizens from worshiping—or, in the relative safety of their cars, from worshiping together.”

The key for Walker was the differential treatment of church and secular activities. According to the city, “essential activities include driving through a liquor store’s pick-up window, parking in a liquor store’s parking lot, or walking into a liquor store where other customers are shopping.” Yet, the church was prohibited from similar activities, leading Walker to observe, “if beer is essential, so is Easter.” Walker ruled that the city’s differential treatment was “violating the Free Exercise Clause beyond all question.” This was so, he said, regardless of the city’s motives:

When Louisville prohibits religious activity while permitting non-religious activities, its choice must undergo the most rigorous of scrutiny. . . . Nothing in this Opinion should be read to impugn the Mayor’s motives or his faith. . . . But when considering the rights guaranteed by the Free Exercise Clause, it doesn’t matter that the government burdening the religious practices of others consists entirely of the pure-hearted, if the law it enacts in fact singles out a religious practice for special burdens.

In so holding, Judge Walker applied two Supreme Court cases interpreting the Free Exercise Clause, Employment Division v. Smith, 494 U.S. 872 (1990) and Church of the Lukumi Babalu Aye v. City of Hialeah, 503 U.S. 935 (1992). This Smith/Lukumi standard—which will govern Free Exercise analyses in all of these pandemic-related cases—permits government actions that burden religion so long as they meet two interrelated requirements: religious neutrality and general applicability. But this standard condemns government actions that do not, such as those that discriminate against religious activities.

Thus, as Judge Walker wrote, “the Free Exercise Clause remains [a] bulwark against discrimination toward people of faith.” But discrimination means different things to different judges. For Judge Walker, unjustified differential treatment was enough.

The city also violated the state Religious Freedom Restoration Act (RFRA), Judge Walker ruled. This statute prohibits Kentucky state and local officials from “substantially burdening” religion unless they prove by “clear and convincing evidence” that they have a “compelling” state interest in imposing the burden and have used the “least restrictive means” in doing so. Finding the RFRA analysis to be comparable to his “strict scrutiny analysis in the constitutional context,” Judge Walker determined the city’s actions also violated the state’s RFRA.

Author’s Note: In response to the Smith case, a near-unanimous Congress in 1993 passed the federal Religious Freedom Restoration Act (RFRA). Ever since a 1997 US Supreme Court decision, however, the federal RFRA has applied only to the federal government, and not to state or local governments. Since then, 21 states have enacted state RFRAs to limit the actions of their state and local governments: Alabama, Arizona, Arkansas, Connecticut, Florida, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, and Virginia. Learn more about the laws of these states, plus relevant religious liberty court decisions in other states, through this new 50-state survey of religious freedom laws from Church Law & Tax.

Case #2: Davis v. Berke (E.D.Tenn. (Sixth Circuit) April 17, 2020)

On April 17, 2020, US District Judge Curtis Collier denied a TRO to a Chattanooga parishioner who claimed Mayor Andrew Berke’s order prohibited him from attending in-person services at his church and drive-in services at another church. This parishioner brought his case pro se (without a lawyer), and Judge Collier dismissed it for failure to follow basic procedures.

In his opinion, Judge Collier only addressed Judge Walker’s decision in a footnote:

Without [specific] facts as to the dispute before this Court, the Court cannot determine whether the same result is warranted here as was reached in On Fire. In addition, as discussed above, Plaintiff has not satisfied the procedural requirements that allow the issuance of the type of ex parte temporary restraining order the On Fire court issued.

Case #3: Legacy Church v. Kunkel (D.N.M. (Tenth Circuit) April 17, 2020)

On April 17, 2020, US District Judge James Browning denied a TRO to this “mega church” in New Mexico. The church challenged an order by state health official Kathyleen Kunkel that prohibited “gathering five people or more in a connected space.” The church said its big facility enabled it to comply strictly with health protocols while hosting the few parishioners seeking in-person worship. If the number of in-person parishioners increased, the church committed “to turn parishioners away and direct them to view church services online.” It claimed constitutional harm, mainly under the Free Exercise Clause.

Judge Browning was skeptical of the church’s arguments. He cited Jacobson v. Massachusetts, 197 U.S. 11, a 1905 decision by the US Supreme Court that allowed Massachusetts to infringe upon constitutional rights during its smallpox response. Judge Browning also cited a 2020 decision by the US Court of Appeals for the Fifth Circuit in In re Abbott, which relied on Jacobson to allow Texas to infringe upon abortion rights during its COVID-19 response. Like most COVID-19 cases, Judge Browning’s citations to Abbott and Jacobson led to deferring to state pandemic responses in all but the clearest cases of constitutional harm. To prevail, claimants must prove a violation of their rights “beyond all question”—a minimal constitutional standard for a state to meet.

Using this standard, Judge Browning analyzed the Free Exercise claim under Smith/Lukumi, as Judge Walker did in On Fire (see Case #1). However, in this case Judge Browning found no discrimination, including “no evidence of animus against Christianity in particular or against religion in general.”

Judge Browning did not find Judge Walker’s analysis or conclusion in Case #1 persuasive. Judge Browning distinguished this case, which involved in-person services, from Case #1, which involved drive-in services. There was also no mention of New Mexico’s state RFRA in Judge Browning’s decision, suggesting the state RFRA was not argued by the plaintiffs.

Case #4: Maryville Baptist Church v. Beshear (W.D.Ky. (Sixth Circuit) April 18, 2020)

On April 18, 2020, US District Judge David Hale, a peer of Judge Walker in the same judicial district, considered a case similar to On Fire (Case #1). In this case, Maryville Baptist challenged Kentucky Governor Andrew Beshear’s ban on faith-based mass gatherings and sought a TRO that would allow both drive-in and in-person services so long as the church met all health requirements applicable to secular gatherings.

Judge Hale ruled against the church in a short opinion. Providing little analysis, he rejected all claims, including ones based on the Free Exercise Clause and the state’s RFRA, both of which require strict judicial scrutiny in certain instances. Strict scrutiny, the highest standard a court can apply, usually proves fatal to a government’s case. To trigger strict scrutiny for constitutional claims, claimants usually must show some form of discrimination exists under a state law or action. To trigger strict scrutiny for a RFRA claim, claimants must show a neutral law of general applicability, either on its face or in its application, places a substantial burden on their religious exercise. Whenever strict scrutiny is triggered, courts require government officials to prove they have a compelling interest for their law or action, and they used the least restrictive means (narrow tailoring) to implement that law or action—a daunting test.

On May 2, 2020, Judge Hale was reversed by the Sixth Circuit in Case #9 below.

Case #5: First Baptist Church v. Kelly (D.Kan. (Tenth Circuit) April 18, 2020)

On April 18, 2020, US District Judge John Broomes ruled for two Baptist churches after Kansas Governor Laura Kelly rejected their requests “to hold in-person worship services provided the congregants follow rigorous . . . safety protocols applicable to similar secular facilities.”

In granting the TRO, Judge Broomes incorporated an extensive list of safety protocols offered by the churches. The list is a useful example of steps churches may want to incorporate in future reopening plans. While Judge Broomes did not cite On Fire (Case #1), he ruled consistently with it.

Kelly’s orders “operate as a wholesale prohibition against assembling for religious services anywhere in the state by more than ten congregants,” he wrote. Thus, the “orders will likely impact the majority of churches and religious groups in Kansas [and thus] sweep far beyond the incidental effect on religious activity excused” by the Supreme Court in Smith and Lukumi (see Case #1). The orders “expressly target religious gatherings on a broad scale and are, therefore, not facially neutral,” he said. They also were not generally applicable due to exceptions for a “multitude of activities that appear comparable” to church services “in terms of health risks.”

Judge Broomes acknowledged Governor Kelly “has immense and sobering responsibility to act quickly to protect the lives of Kansans from a deadly epidemic.”

But Judge Broomes focused on the ways the state’s orders still treated religion differently, which he concluded was impermissible. He stated:

[Kelly] has not argued that mass gatherings at churches pose unique health risks that do not arise in mass gatherings at airports, offices, and production facilities. Yet the exemption for religious activities has been eliminated while it remains for a multitude of activities that appear comparable in terms of health risks. . . . [T]he most reasonable inference from this disparate treatment is that . . . religious activity was targeted for stricter treatment due to the nature of the activity involved, rather than because such gatherings pose unique health risks that mass gatherings at commercial and other facilities do not, or because the risks at religious gatherings uniquely cannot be adequately mitigated with safety protocols (emphasis added).

Thus, Judge Broomes found the orders lacking both religious neutrality and general applicability. Both shortcomings amounted to differing treatment or other religious discrimination. He wrote:

Plaintiffs [the churches] can likely show that the broad prohibition against in-person religious services of more than ten congregants is not narrowly tailored to achieve the stated public health goals where the comparable secular gatherings are subjected to much less restrictive conditions. . . . Plaintiffs have shown [moreover], that they are willing to abide by protocols that have been determined by the Governor to be adequate to protect the lives of Kansans in the context of other mass gatherings. . . . [A]llowing Plaintiffs to gather for worship with the safety protocols similar to those applicable to other essential function mass gatherings is consistent with the interest in protecting public health.

Case #6: Gish v. Newsom (C.D.Cal. (Ninth Circuit) April 23, 2020)

On April 23, 2020, US District Judge Jesus Bernal denied a TRO to parishioners seeking relief from the orders of California Governor Gavin Newsom and two local officials that prevented the parishioners from engaging “in religious services, practices, or activities at which the [CDC’s] social distancing guidelines are followed.”

The orders were highly restrictive. The state’s order was a stay-at-home order. One local order prohibited “all public or private gatherings . . . including, but not limited to an auditorium, . . . church, . . . or any other indoor or outdoor space used for any non-essential purpose including, but not limited to . . . church . . . .’” The other local order allowed “faith based services that are provided through streaming or other technology, while individuals remain in their homes, but does not allow individuals to leave their home for . . . drive-up services . . . .”

Judge Bernal said the orders easily survived the “minimal scrutiny” required by Jacobson/Abbott (see Case #3). He said they also would “survive traditional constitutional analysis,” since they “likely do not impermissibly infringe on Plaintiffs’ constitutional rights.”

Judge Bernal decided the orders were religion-neutral as well as generally applicable. Unlike in Cases #1 and #5, the differential treatment of religious activity was not enough for Judge Bernal. He searched for evidence that officials had sought to discriminate. Finding none, he applied minimal judicial scrutiny, which only requires a government to have a “rational basis” for its laws or actions (a modest judicial standard that is almost always met).

His decision largely turned on his view of risk. He acknowledged the orders did not include “secular activities that may also contribute to the spread of COVID-19 because they allow grocery stores, fast food restaurants, and marijuana dispensaries” to remain open. “But these are all essential services,” he said, concluding as follows:

If the state applies the same rules to in-person religious gatherings as it does to grocery stores, people will get sick and die from attending religious gatherings just as they are dying from working in grocery stores. Moreover, because the risk of transmission increases with every out-of-home contact, it is necessary to suspend non-essential activities so that essential functions can be less dangerous.

Case #7: First Pentecostal Church v. Holly Springs, Miss. (N.D.Miss. (Fifth Circuit) Apr 24, 2020)

On April 24, 2020, US District Judge Michael Mills delayed ruling on a TRO and instead urged the Mississippi-based parties to compromise.

He contrasted this case with another church case on his docket, in which Greenville, a nearby city, repealed its restrictive order affecting churches before the court ruled on it. “The unreasonable (and likely unconstitutional) nature of [the] original order [of Greenville] was tacitly acknowledged by the [City], which has since replaced it with one which specifically allows drive-in services, so long as the vehicles’ windows are raised.” He suggested a compromise might also work for this case.

Case #8: Lighthouse Fellowship Church v. Northam (E.D.Va. (Fourth Circuit) May 1, 2020)

On May 1, 2020, US District Judge Arenda Wright Allen denied a TRO to a church seeking relief from a ten-person limit on social gatherings ordered by Virginia Governor Ralph Northam. The church is a small congregation focused on “socioeconomically disadvantaged” persons and others “trying to put their lives together, who do not have the resources to watch worship services over the Internet.” On April 5, 2020, Pastor “Kevin Wilson, was issued a criminal citation and summons because of [a] sixteen-person worship service [even though] these 16 people were separated by more than six feet in the 225-seat sanctuary.”

Judge Allen rejected all church claims based on the First Amendment. Regarding the Free Exercise claim under Smith/Lukumi (see Case #1), she examined the “Governor’s motives in drafting these Orders” and found a “strong inference at this stage that the Orders were not drafted with any discriminatory intent or religious animosity.”

Allen never warmed to the church’s asserted need for gatherings of more than ten people. “The Court agrees that practicing one’s religion and obtaining spiritual guidance are essential for some people. Plaintiff is capable of practicing its religion in small-group form, through methods other than physical gathering, and in safe combinations of these options.”

Allen also rejected the claim under Virginia’s RFRA. With a strict scrutiny standard similar to Kentucky’s (Cases #1 and #4), Virginia’s RFRA prohibits a Virginia government from “substantially burdening a person’s free exercise of religion,” unless it proves by “clear and convincing evidence” that the “application of the burden to the person is (i) essential to further a compelling governmental interest and (ii) the least restrictive means of furthering that [interest].” It also defines exercise of religion broadly by reference to the US and Virginia Constitutions and the Virginia religious freedom act authored by Thomas Jefferson, and defines substantial burden broadly as any government action that “inhibit[s] or curtail[s] religiously motivated practice.”

Judge Allen found no substantial burden to trigger strict scrutiny of the state’s actions (see Case #4):

[T]he statute is not so broad that any incidental burden on a person or group’s ability to engage in a religiously motivated practice, no matter how small, is a violation of the statute. . . . The alleged harms to Plaintiff include the temporary inability to host in-person religious worship services in groups larger than ten. Assuming [for the sake of argument] that this restriction raises constitutional concerns, those concerns do not outweigh the severe harm [of not enforcing the governor’s] Orders. . . . Even if the public has a profound interest in people worshipping together . . . in a manner consistent with their conscience, the public has a greater interest in saving human life (citations and internal punctuation omitted).

Allen never cited key state court precedent, which on matters of state law is binding on federal judges. Specifically, she never considered a 1985 Virginia Supreme Court decision, which says: “The constitutional guarantees of religious freedom have no deeper roots than in Virginia, where they originated, and nowhere have they been more scrupulously observed.”

On May 3, 2020, the US Department of Justice (DOJ) filed a Statement of Interest with Judge Allen. It supported the church’s request for an injunction pending appeal—to put the Orders on hold until the Fourth Circuit makes a ruling. On behalf of the “United States,” DOJ argued:

[T]he church has set forth a strong case that the Orders, by exempting other activities permitting similar opportunities for in-person gatherings of more than ten individuals, while at the same time prohibiting churches from gathering in groups of more than ten [infringed] the church’s free exercise of religion. Unless [Virginia] can prove that its disparate treatment of religious gatherings is justified by a compelling reason and is pursued through the least restrictive means, this disparate treatment violates the Free Exercise Clause, and the Orders may not be enforced against the church.

Case #9: Maryville Baptist Church v. Beshear (Sixth Circuit (three-judge panel) May 2, 2020)

Author’s Note: Due to this decision’s precedential value, it merits longer treatment here. Doing so will help set up explanations for nearly all remaining cases, including this panel’s later decision in this same case. For all excerpts below, citations are omitted for readability.

On May 2, 2020, the US Court of Appeals for the Sixth Circuit (covering Kentucky, Tennessee, Ohio, and Michigan) issued the first circuit decision in these cases. A panel consisting of Circuit Judges Jeffrey Sutton, David McKeague, and John Nalbandian reviewed the decision of District Judge David Hale in Case #4. Hale had upheld the mass-gatherings orders of Kentucky Governor Andy Beshear that effectively banned worship services, whether “drive-in” or “in-person.”

On Easter Sunday, police came to the church, informed attendees they were violating criminal laws, and recorded all their license plates “whether they had participated in a drive-in or in-person service.” The church subsequently filed suit in district court, asserting claims under the Kentucky RFRA and the US Constitution. Judge Hale rejected these claims (Case #4). But the panel unanimously reversed Judge Hale’s decision and issued an injunction pending appeal, finding the church was “likely to succeed on its state and federal claims.” The panel made many key points.

First, analyzing the RFRA claim, the panel found the state’s orders had imposed a substantial burden on the church. After noting that Kentucky’s RFRA parallels all state and federal RFRAs, all of which impose strict scrutiny “on laws that burden sincerely motivated religious practices,” the panel ruled that the orders “prohibiting religious gatherings, enforced by police officers . . . amount to a significant burden on worship gatherings.”

Second, using the strict scrutiny standard, the panel found the compelling interest in public safety was not pursued with the least restrictive means. It noted the “orders permit uninterrupted functioning of typical office environments, which presumably includes business meetings,” then asked:

How are in-person meetings with social distancing any different from drive-in church services with social distancing? Kentucky permits the meetings and bans the services, even though the open-air services would seem to present a lower health risk. The orders likewise permit parking in parking lots with no limit on the number of cars or the length of time they are there so long as they are not listening to a church service. On the same Easter Sunday [when congregants committed crimes] by sitting in their cars in a parking lot, hundreds of cars were parked in grocery store parking lots less than a mile [away]. The orders permit big-lot parking for secular purposes, just not for religious purposes. All in all, the Governor did not narrowly tailor the order’s impact on religious exercise.

Third, the panel said the orders also likely violated the federal Free Exercise Clause under the Smith/Lukumi standard (see Cases #1 and #5). As the panel noted, “a generally applicable law that incidentally burdens religious practices usually will be upheld [while] a law that discriminates against religious practices usually will be invalidated unless the law is justified by a compelling interest and is narrowly tailored to advance that interest.” (See also Cases #1, #3, #4, and #5.) Observing that “[d]iscriminatory laws come in many forms,” the panel said:

As a rule of thumb, the more exceptions to a prohibition, the less likely it will count as a generally applicable, non-discriminatory law [and the more likely it will be] the antithesis of a neutral and generally applicable policy and just the kind of state action that must run the gauntlet of strict scrutiny.

Fourth, the panel analyzed the orders for general applicability (nondiscrimination). They had “several potential hallmarks of discrimination,” the panel noted, including prohibiting “faith-based mass gatherings by name.” But “this does not suffice by itself to show that the Governor singled out faith groups for disparate treatment.” Rather, according to the panel:

The real question goes to exceptions. . . . The orders allow life-sustaining operations and don’t include worship services in that definition. And many of the serial exemptions for secular activities pose comparable public health risks to worship services. For example: The exception for life-sustaining businesses allows law firms, laundromats, liquor stores, and gun shops to continue to operate so long as they follow social-distancing and other health-related precautions. But the orders do not permit soul-sustaining group services of faith organizations, even if the groups adhere to all the public health guidelines required of essential services and even when they meet outdoors.

The panel emphasized that it didn’t “doubt the Governor’s sincerity in trying to do his level best to lessen the spread of the virus [and] protect [the] citizens.” But good motives were beside the point, since “restrictions inexplicably applied to one group and exempted from another do little to further these goals and do much to burden religious freedom.”

The panel then examined the key factors for general applicability that have been decisive—one way or the other—in nearly all of these cases nationwide. It observed:

[If] the same precautions are taken, why is it safe to wait in a car for a liquor store to open but dangerous to wait in a car to hear morning prayers? Why can someone safely walk down a grocery store aisle but not a pew [aisle]? And why can someone safely interact with a brave deliverywoman but not with a stoic minister?

The state “has no good answers,” the panel said. “While the law may take periodic naps during a pandemic, we will not let it sleep through one.” Regarding the “Zoom service” option:

[W]ho is to say that every member of the congregation has access to the necessary technology to make that work? Or to say that every member of the congregation must see it as an adequate substitute for what it means when two or three gather in my Name.

The panel noted many of the professionals, such as lawyers, accountants, and laundromat workers whose jobs receive exemptions are also the ones who will attend worship services. The panel continued:

[Kentucky suggests the reason for these] people to be in the same area—intentional worship—distinguishes them from groups of people in a parking lot or a retail store or an airport or some other place where the orders allow many people to be. We doubt that the reason a group of people go to one place has anything to do with it. Risks of contagion turn on social interaction in close quarters; the virus does not care why they are there.

Given this reality, why “permit people who practice social distancing and good hygiene in one place but not another?” the panel asked. “If the problem is numbers, and risks that grow with greater numbers, then there is a straightforward remedy: limit the number of people who can attend a service at one time.”

Still, the panel worried about risks of in-person worship and thus issued only a narrow injunction for “drive-in services” as the appeal continued. (It expanded its injunction to in-person services in Case #16.)

Finally, the panel signaled its intent that its decision here be fully precedential. Thus, to the extent its rationale fits the facts of similar cases, it will bind all lower courts in Kentucky, Michigan, Ohio, and Tennessee; it will bind the Sixth Circuit itself unless a majority of the full 16-judge court overrules it; and its logic will be considered by courts nationwide.

Case #10: Cassell v. Snyders (N.D.Ill. (Seventh Circuit) May 3, 2020)

On May 3, 2020, US District Judge John Lee denied a TRO to Pastor Stephen Cassell of Beloved Church against stay-at-home orders issued by Illinois Governor J.B. Pritzker and enforced by Sheriff David Snyders. At issue was Pritzker’s latest order, which recognized “the free exercise of religion as an essential activity” and allowed worshipers to engage in it “so long as they comply with Social Distancing Requirements and refrain from gatherings of more than ten people.”

Judge Lee considered the Free Exercise claim under Smith/Lukumi (see Case #1). “This case is different,” he said. “For one, nothing in the record suggests that Governor Pritzker has a history of animus towards religion or religious people, and Plaintiffs do not argue otherwise.”

Judge Lee also considered the Sixth Circuit’s decision in Case #9, but distinguished it in two ways. First, unlike Kentucky, which prohibited “both drive-in and in-person worship services,” Illinois now allowed drive-in services. Second, unlike Kentucky, which apparently prohibited all in-person services, Illinois permitted religious gatherings of up to ten people.

Judge Lee concluded by quoting Case #9: “If the problem is numbers, and risks that grow with greater numbers, then there is a straightforward remedy: limit the number of people who can attend a service at one time.” That, he said, “is exactly [what] Pritzker’s latest order does.”

The state RFRA claim also was unlikely to prevail, Judge Lee said. “Assuming” a substantial burden on the church, he cited its size, configuration, and practical limitations in finding no less restrictive means available. “While permitting the Beloved Church to hold in-person services with its full congregation might be less [restrictive], it would not advance the [state’s] interest in curtailing COVID-19 to the same degree as the ten-person limit.” Thus, he concluded “that no equally effective but less restrictive alternatives are available under these circumstances.”

Case #11: Cross-Culture Christian Ctr. v. Newsom (E.D.Cal. (Ninth Circuit) May 4, 2020)

On May 4, 2020, US District Judge John Mendez denied a TRO to a California church seeking relief from stay-at-home orders of Governor Gavin Newsom and local authorities. These orders prohibited “all non-essential gatherings.” Since Cross-Culture Christian Center “continued to hold in-person services” in the building of Bethel Open Bible Church, local authorities posted a notice on the building that “non-essential use of the facility was a public nuisance.” Their order said “in-person services” were prohibited and that violations were “punishable by fine and/or imprisonment.” However, the order said that “Bethel Open Bible Church [could] continue to operate its child-care facility ‘consistent with the order of the State Public Health Officer.’”

This case centered on the federal Free Exercise Clause since California has no RFRA. Judge Mendez cited Smith/Lukumi and recent church rulings nationwide—mostly those against churches. Like Cases #3, #8, and #10, Judge Mendez emphasized the lack of “animus toward religion” in finding no discrimination. But a bigger blow to the church was his reliance on Judge Hale’s decision in Case #4 without noting it was reversed.

Judge Mendez never cited Case #9. While a precedent of the Sixth Circuit is not binding in the Ninth Circuit, it’s still a vital enough appellate precedent that he would be expected to follow it or provide good reason not to follow it. Regardless, when a judge cites a case that was reversed or overruled, such as Case #4 here, he or she must note that crucial fact (if aware of it).

Case #12: Roberts v. Neace (E.D.Ky. (Sixth Circuit) May 4, 2020)

On May 4, 2020, in a case related to Cases #4 and #9, but arising in Kentucky’s Eastern District, US District Judge William Bertelsman denied a TRO to Maryville Baptist parishioners against County Attorney Robert Neace. Two parishioners alleged “the ban on mass gatherings as applied to in-person church attendance” violated their constitutional “right to freedom of religion,” but evidently did not assert a claim under the Kentucky RFRA. One parishioner also alleged the “restrictions on out-of-state travel,” which prevented him “from travelling to Ohio and Indiana for a variety of personal reasons,” violated his constitutional right to travel.

As to the federal constitutional claims, Judge Bertelsman ruled in favor of the right to travel, preventing enforcement of the out-of-state travel ban. But he ruled against the right to religious freedom, framing the issue as follows: “Does the mass gathering ban have the effect of preventing plaintiffs who comply with it from attending in-person church services? Yes. Does the ban do so because the gatherings are faith-based? No.”

Like Case #11, Judge Bertelsman relied on the reversed decision in Case #4. He noted that Judge Hale had been “overruled” in Case #9, but only “in part,” quoting the Sixth Circuit’s ruling that it was “inclined not to extend the injunction to in-person services at this point.” As a result, Bertelsman ruled: “Had the [Sixth Circuit] felt that such a broader injunction was warranted, it was within its power to so order. [I thus do] not find that opinion to control the outcome here.” (Bertelsman was reversed by the Sixth Circuit in Case #16 below.)

While the state RFRA was not asserted in this case, Judge Bertelsman went out of his way to address it. He said he agreed with Judge Hale’s RFRA analysis, which indicated the claims here would fail even under the “more demanding compelling interest test” of Kentucky’s RFRA.

Author’s Note: In volunteering his view of a RFRA claim, Judge Bertelsman adopted Judge Hale’s view without any apparent counterargument by the church. It’s important for parties to assert and fully argue all winnable claims in religious freedom cases, which usually means including a state RFRA when one exists.

Case #13: Tabernacle Baptist Church v. Beshear (E.D.Ky. (Sixth Circuit) May 8, 2020)

On May 8, 2020, US District Judge Gregory Van Tatenhove granted a TRO for in-person services after reviewing the decisions of his Kentucky colleagues in Cases #1, #4, and #12.

Judge Van Tatenhove’s preview of the case was broad:

Does [our Constitution] mean something different because society is desperate for a cure or prescription? Simply put, that is the question presented here. [The church] wants to gather for corporate worship. They want to freely exercise their deeply held religious belief about what it means to be a faithful Christian. For them, it is essential [but the governor] has put a stop to that. He can do that, but he must have a compelling reason [and] despite an honest motive, it does not appear . . . that reason exists.

But his legal analysis was brief. He noted that, while the Sixth Circuit left open the issue of in-person services in Case #9, it clearly suggested what was coming. Regardless, the Sixth Circuit’s Smith/Lukumi Free Exercise analysis was binding precedent here:

The restrictions [the] Sixth Circuit criticized as ‘inexplicably applied to one group and exempted from another’ are the same restrictions Tabernacle challenges today. And, as the Sixth Circuit recognized, ‘many of the serial exemptions for secular activities pose comparable public health risks to worship services.’ The prohibition on mass gatherings is not narrowly tailored as required . . . . There is ample scientific evidence that COVID-19 is exceptionally contagious. But evidence that the risk of contagion is heightened in a religious setting any more than a secular one is lacking (citations omitted).

Thus, in his view, if “social distancing is good enough for Home Depot and Kroger, it is good enough for in-person religious services which, unlike the foregoing, benefit from constitutional protection.” In fact, even if “viewed through the state-friendly lens” of Jacobson/Abbott (see Case #3), the judge said Kentucky’s prohibition on religious services was “beyond what was reasonably required for the safety of the public.” Having thus fully accepted the church’s Free Exercise claim, he declined to address the state RFRA and other claims.

Case #14: Maryville Baptist Church v. Beshear (W.D.Ky. (Sixth Circuit) May 8, 2020)

On May 8, 2020, the same day Judge Van Tatenhove ruled in favor of in-person services in Case #13, his Kentucky colleague Judge David Hale did the same and for the same reason: the result was required by Case #9. In Case #9, the Sixth Circuit reversed Judge Hale’s decision in Case #4 regarding drive-in services while returning it to Judge Hale to reconsider as to in-person services. The binding rationale of Case #9 left Judge Hale little wiggle room.

Invoking a strict scrutiny standard (see Case #4), Judge Hale upheld the church’s RFRA claim, since the governor presented no evidence that “there was no other, less restrictive, way to achieve” his goals. Hale also upheld the constitutional claim. “Unlike this Court, the Sixth Circuit read the mass-gatherings ban as discriminatory and thus subject to strict scrutiny [and as already explained], the Governor has offered little to show that the orders were narrowly tailored.”

Case #15: Calvary Chapel v. Mills (D.Maine (First Circuit) May 9, 2020)

On May 9, 2020, US District Judge Nancy Torresen refused a TRO against Governor Janet Mills of Maine, where churches remained “free to conduct drive-in services, online programs, and in-person assemblies of up to ten people.” Maine has no RFRA.

Analyzing the federal constitutional claims, Judge Torresen indicated her intent to follow the “majority of courts that have considered similar executive orders in other states.” Those courts, she said, “concluded that a state does not violate the Free Exercise Clause when it limits in-person religious services to ten people, at least as long as the state permits drive-in services.”

Judge Torresen first applied the state-friendly test of Jacobson/Abbott (see Case #3). After citing most of the state-friendly decisions discussed above, including Cases #3, #6, #8, #10, and #11, she said “Maine’s Gathering Orders are likely to survive this test too.” She also upheld the orders under the Smith/Lukumi Free Exercise test (see Cases #1, #5, and #9), as described below.

Regarding neutrality, Judge Torresen noted that a “pattern of animosity” can prove discrimination. But she focused mostly on comparable scenarios (comps), noting that in “other parts of the country, houses of worship have been linked to the spread of COVID-19.” Thus, in her view:

Gatherings in houses of worship present a greater risk to the public health than shopping at a grocery store or other retail outlet. Shoppers, particularly in the current environment, enter a store, gather the items they need as quickly as possible, check out, and promptly leave. . . . Several other courts have distinguished churches from places where individuals shop . . . . (citations and internal punctuation omitted).

Regarding general applicability, Judge Torresen disregarded exemptions for large gatherings at “businesses and other non-religious entities.” She did so for the same reason she rejected comps for neutrality purposes: “[T]hese exempted entities do not foster the same type of assembly as the entities—both religious and secular—that are subject to the Gathering Orders [such as schools,] movie theaters, concert halls, sports venues, synagogues, mosques, and churches.”

Thus, Judge Torresen ruled the orders imposed burdens “equally on all types of conduct that are likely to spread COVID-19.” She did not acknowledge that houses of worship enjoy religious freedom protections that theaters, concert halls, and sport venues do not.

Judge Torresen only addressed the church-friendly Kentucky cases in a footnote. There, she distinguished—and thus rejected—Cases #1 and #9 as focused on “drive-in” services, and Cases #13 and #14 as involving state orders “different” from Maine’s order since Kentucky’s orders banned all religious gatherings. She did not discuss the religion-friendly analysis of the Kentucky cases or others (e.g., Case #5), which compared worship to secular gatherings more broadly.

Case #16: Roberts v. Neace (Sixth Circuit (three-judge panel) May 9, 2020)

On May 9, 2020, the US Court of Appeals for the Sixth Circuit issued a second unanimous decision by the same panel. In Case #9, the panel issued an injunction pending appeal as to the drive-in services but declined to “to extend the injunction to in-person services at [that] point.” In this second decision, it finished the job, relying substantially on its analysis in Case #9.

This time, the panel omitted any discussion of the state RFRA. Instead, it focused solely on the Free Exercise Clause using Smith/Lukumi, which turns on discrimination. Observing that “[f]aith-based discrimination can come in many forms,” the panel focused on comparison of church activities to “the four pages of exceptions in the orders, and the kinds of group activities allowed.” Citing other circuits, it said: “We have plenty of company in ruling that at some point a proliferation of unexplained exceptions turns a generally applicable law into a discriminatory one.”

Significantly, the panel articulated the rule for religious discrimination as follows:

Nor does it make a difference that faith-based bigotry did not motivate the orders. The constitutional benchmark is ‘government neutrality,’ not ‘governmental avoidance of bigotry.’ A law is not neutral and generally applicable unless there is ‘neutrality between religion and non-religion.’ And a law can reveal a lack of neutrality by protecting secular activities more than comparable religious ones (citations omitted).

Finding discrimination by Kentucky, the court applied the strict scrutiny standard (see Case #4), focusing on whether the state used the least-restrictive means:

There are plenty of less restrictive ways to address these public-health issues. Why not insist that the congregants adhere to social-distancing and other health requirements and leave it at that—just as the Governor has done for comparable secular activities? Or perhaps cap the number of congregants coming together at one time? If the [state] trusts its people to innovate around a crisis in their professional lives, surely it can trust the same people to do the same things in the exercise of their faith.

The court issued an injunction pending appeal, explaining:

All this preliminary injunction does is allow people—often the same people—to seek spiritual relief subject to the same precautions as when they seek employment, groceries, laundry, firearms, and liquor. . . . [T]he unexplained breadth of the ban on religious services, together with its haven for numerous secular exceptions, cannot co-exist with a society that places religious freedom in a place of honor in the . . . First Amendment.

Author’s Note: As explained in this article’s introduction, precedent comes in many forms. On issues of federal law, the highest comes from the US Supreme Court, followed by the twelve federal circuits. When two or more circuits agree on a principle, it gains weight. When the principle is authored by a judge who is a noted expert in the field, it gains weight. In this case, in framing “religious bigotry” as a distraction, the Sixth Circuit cited a Tenth Circuit decision (authored by a noted expert in religious freedom) that said the intent required to prove religious discrimination “is merely the intent to treat differently.” This understanding is now the position of the US Government in support of churches in these cases. See Case #8.

Case #17: Hawse v. Page (E.D.Mo. (Eighth Circuit) May 11, 2020)

On May 11, 2020, US District Judge Ronnie White dismissed most of the parishioners’ claims against St. Louis County Executive Sam Page. The parishioners, acting pro se (without a lawyer), challenged an order “banning religious services attended by more than 10 persons.”

They asserted the usual claims. But like the pro se parishioners in Case #2, they failed to meet basic requirements. Their Complaint failed to allege how the TRO they sought would provide the relief they sought. Among its deficiencies, the Complaint did not allege that the parishioners’ churches would even “be holding gatherings in excess of 10 people [if not] for the Order.”

Judge White thus dismissed all but one of their claims “without prejudice,” meaning the parishioners could amend their Complaint to try to correct its deficiencies.

Case #18: Elim Romanian Pentecostal v. Pritzker (N.D.Ill. (Seventh Circuit) May 13, 2020)

On May 13, 2020, US District Judge Robert Gettleman denied a TRO against Illinois Governor J.B. Pritzker’s order limiting “religious gatherings to ten persons.” The order here is the same one reviewed by Judge John Lee of the same judicial district in Case #10.

The previous week, the church requested a TRO to allow its Sunday services. Citing a lack of time to consider the TRO, Judge Gettleman denied it. Yet, the church “elected to disobey [my ruling] and hold services at its church with more than the allotted ten persons.” Moreover, the “church’s YouTube channel” had a “live recording from last Sunday’s service that was [nearly two hours] long, with virtually no one in the congregation or clergy wearing a face covering.”

Judge Gettleman addressed the Free Exercise claim. First, he gave it the minimal level of judicial scrutiny established by Jacobson/Abbott (see Case #3), concluding the church had “a less than negligible chance of success.” He also gave it a traditional Free Exercise review under Smith/Lukumi (see Cases #1, #5, #9, and #16), leaning heavily on his district colleague’s analysis in Case #10:

Gatherings at places of worship pose higher risks of infection than gatherings at businesses. . . . As noted in [Case #10], the Order has nothing to do with suppressing religion and everything to do with reducing infections and saving lives. There is no evidence that [the governor] has a history of animus toward religion.

Judge Gettleman rejected all other constitutional claims as well. “Nor do plaintiffs have even a negligible [chance] of success on their Free Speech and Assembly claim.” He never mentioned the state RFRA, which evidently was not claimed by the church.

In parting words, Judge Gettleman said the church’s “request for an injunction, and their blatant refusal to follow the mandates of the [governor’s] Order are both ill-founded and selfish.”

Nowhere did Judge Gettleman mention any of the above cases that came to contrary conclusions, including the Sixth Circuit’s decisions in Cases #9 and #16.

Case #19: First Pentecostal Church v. Holly Springs, Miss. (N.D.Miss. (Fifth Circuit) May 14, 2020)

On May 14, 2020, in a sequel to Case #7, US District Judge Michael Mills issued another order, this one serving as a stark warning to churches to behave responsibly regarding how they handle both public safety and their legal matter.

After Judge Mills’ prior order, the city “moved expeditiously to amend its ordinance to allow the very sort of drive-in services which plaintiff itself indicated in its TRO motion were acceptable.” He had “hoped (and expected) that the City’s actions would resolve this matter.” They did not.

Judge Mills sharply criticized the church’s tactics. He said the church “seems determined to push the legal envelope [to include] holding indoor church services which, as discussed below, both state and local officials have very strongly discouraged.” He then explained how the church was “proceeding in an excessively reckless and cavalier manner” in this litigation:

[I saw] a youtube video [of church] members staging a mass visit to Walmart [where a church member concludes that,] “we told them we were coming to Walmart to prove a point, and we proved our point.” Thus [church members] apparently were comfortable in subjecting actual shoppers with potential exposure to a deadly virus merely to make a point in this litigation. . . . [I consider the visit] to have been highly reckless in light of the ongoing pandemic, and [I] frankly suspect[] that [church] members regard this [case] as a game of sorts and enjoy the publicity attendant to it. . . . [I am] also troubled by plaintiff’s evident lack of a plan to safely hold services . . . .

Judge Mills also was troubled by the church’s “habit in this litigation of taking the time to carefully prepare briefs . . . and then demanding an immediate ruling . . . with opposing counsel left to make hurried arguments in a telephonic hearing.” This was a “fundamentally unfair process,” the judge said, indicating he “will no longer tolerate it.” He continued:

[If I believe] that granting this particular [church] the injunction it seeks would unduly endanger the lives of Holly Springs residents, then [I] will not issue that injunction, regardless of [my] views on the broader legal issues in this case. At that point, plaintiff may seek a more receptive audience at the Fifth Circuit, if it so desires. . . . [I am] confident that plaintiff’s members will suffer no undue harm by continuing to hold drive-in services pending a [further ruling].

Those “broader legal issues” may favor the church, Judge Mills said. If the governor “clarifies that a complete ban on indoor church services exists . . . then it appears that a long shadow will be cast on that ban by” Case #16. Despite his “serious reservations about whether . . . the Sixth Circuit adequately appreciated the unique dangers arising from the typical church service,” Judge Mills conceded that Case #16 “clearly represents significant authority in this context.”

(Days later, the church was destroyed by arson, as explained by the Fifth Circuit in Case #27.)

Case #20: Spell v. Edwards (M.D.La. (Fifth Circuit) May 15, 2020)

On May 15, 2020, US District Judge Brian Jackson denied a TRO to Pastor Mark Spell of Life Tabernacle Church against Louisiana Governor John Bel Edwards’s orders “restricting the gathering of more than ten people in a single space at a single time.”

Pastor Spell said the congregation’s “religious beliefs require them to assemble for church in person,” and that he had a “duty to lay hands on the sick and pray for them,” all of which, “along with holy communion and the love offering, would lose meaning absent a public gathering.” He said the orders were “discriminatory and disparately applied” since they allowed other “similarly situated non-religious businesses” to remain open to “crowds larger than 10 people.”

The governor responded that “the transient, in-and-out nature of consumer interaction with businesses . . . are markedly different from the extended, more densely packed environments of churches.” He also said the church’s case should be dismissed as “moot” (pointless) since his latest order permitted “churches and other faith-based organizations . . . to hold indoor services with up to 25% capacity of total occupancy as determined by the State Fire Marshal.”

Despite possible mootness, Judge Jackson analyzed the claims. But he did so without citing any of the church-friendly cases above. He first deferred to the governor under the state-friendly test of Jacobson/Abbott. Alternatively, he found the order to be neutral, under Smith/Lukumi, saying it restricted “religious and non-religious gatherings to the exact same extent and degree.” He implied the church was enjoying substantial freedom since it could hold indoor services “for smaller numbers of congregants” and “outdoor services with as many congregants” as it liked.

While many pandemic cases cite the Firth Circuit’s Abbott decision as precedent for temporary restrictions on constitutional rights, Abbott was binding here on Judge Jackson because he serves in the Fifth Circuit (covering Louisiana, Texas, and Mississippi).

Case #21: Berean Baptist Church v. Cooper (E.D.N.C. (Fourth Circuit) May 16, 2020)

On May 16, 2020, US District Judge James Dever granted TRO relief from North Carolina Governor Roy Cooper’s orders designed to have all gatherings of 10 or more people “take place outdoors unless impossible.” For worshipers to meet indoors, they had to be prepared to explain to a sheriff that it was “impossible to worship outside.”

Since North Carolina has no state RFRA, this case centered on the Free Exercise Clause. Judge Dever initially expressed “grave concerns” whether the Free Exercise Clause even allowed state officials to assess if a church “correctly determined that their religious beliefs dictated the need to have more than 10 people inside to worship.” Then he considered if differential treatment between secular and religious activities amounted to discrimination under Smith/Lukumi.

For comparison, Judge Dever focused on “those who operate or gather and wait at an airport, bus, or train terminal, a medical facility, a shopping [center], WalMart, Lowes,” or other business:

[All they] must do to comply [is to] to ensure that people “follow . . . Social Distancing . . . as much as possible, and they circulate within the space so that there is no sustained contact between people.” Not so for religious entities or worshipers [since a sheriff] has the power to decide whether [they have] met the “no-more-than-10-inside-unless-impossible” requirement . . . . These glaring inconsistencies between the treatment of religious entities and individuals and non-religious entities and individuals take [the order] outside the “safe harbor for generally applicable laws” (citations omitted).

The judge also pointed out the way the state’s orders inconsistently treated funerals by allowing 50 people to gather. “The Governor’s counsel could not explain why the Governor trusts those who run funerals to have 50 people inside to attend the funeral, but only trusts religious entities and individuals to have 10 people inside to worship.”

Judge Dever used Case #16’s discrimination standard: “The constitutional benchmark is governmental neutrality; not governmental avoidance of bigotry.” Indeed, the “Free Exercise Clause protects religious observers against unequal treatment,” he said, quoting Lukumi.

Then, he compared North Carolina’s response to that of 15 other states—Pennsylvania, West Virginia, Ohio, Michigan, North Dakota, South Dakota, Utah, Colorado, Arizona, Texas, Arkansas, Tennessee, South Carolina, Georgia, and Florida. These 15 “Governors trusted the people of their states and exempted religious gatherings from any attendance limitations during this pandemic,” he said, whereas “[our] Governor has failed to cite any peer-reviewed study showing that religious interactions in those 15 states have accelerated the spread of COVID-19 in any manner distinguishable from non-religious interactions.”

In conclusion, he said he “trusts worshipers and their leaders to look after one another and society while exercising their free exercise rights just as they and their fellow citizens (whether religious or not) do when engaged in non-religious activities.”

Case #22: Elim Romanian Pentecostal v. Pritzker (Seventh Circuit (three-judge panel) May 16, 2020)

On May 16, 2020, a panel of the Seventh Circuit (covering Wisconsin, Illinois, and Indiana) reviewed Case #18 by District Judge Robert Gettleman. The panel, which included Circuit Judges Frank Easterbrook, Michael Kanne, and David Hamilton, unanimously reached an opposite conclusion to the three-judge panels of the Sixth Circuit who decided Cases #9 and #16—without citing them or engaging in comparably full legal analysis. In a one-paragraph order, the Seventh Circuit panel said its “preliminary review of this appeal” indicated the church had “not shown a sufficient likelihood of success on the merits to warrant the extraordinary relief of an injunction pending appeal.” It explained:

Governor Pritzker’s Executive Order 2020-32 responds to an extraordinary public health emergency. See generally Jacobson v. Massachusetts, 197 U.S. 11 (1905). The Executive Order does not discriminate against religious activities, nor does it show hostility toward religion. It appears instead to impose neutral and generally applicable rules, as in Employment Division v. Smith, 494 U.S. 872 (1990). The Executive Order’s temporary numerical restrictions on public gatherings apply not only to worship services but also to the most comparable types of secular gatherings, such as concerts, lectures, theatrical performances, or choir practices, in which groups of people gather together for extended periods, especially where speech and singing feature prominently and raise risks of transmitting the COVID-19 virus. Worship services do not seem comparable to secular activities permitted under the Executive Order, such as shopping, in which people do not congregate or remain for extended periods.

Finally, the panel noted that, based on “sovereign immunity” principles (discussed below in Case #25), the church was not entitled to injunctive relief against the governor in federal court on the basis of state law—the Illinois RFRA. The church appealed to the US Supreme Court. See Case #29.

Case #23: Antietam Battlefield KOA v. Hogan (D.Md. (Fourth Circuit) May 20, 2020)

On May 20, 2020, US District Judge Catherine Blake denied a TRO against Maryland Governor Larry Hogan’s pandemic orders, including his latest order, which “still prohibits gatherings of over ten people [but] allows indoor religious services at 50% capacity.” The many plaintiffs in this case included secular businesses, such as campgrounds, as well as “religious leaders whose ability to hold [in-person] religious services has been affected by the orders.”

Judge Blake noted the latest order was more permissive, allowing “in-person religious services at half-capacity,” which might render the religious claims moot (pointless) since they were based on the more-restrictive nature of the now-replaced prior orders. But the claims remained alive, she ruled, since the “Governor could amend the executive order to again include religious gatherings in the ban on gatherings of ten or more people.” She turned to the Free Exercise claim, since Maryland has no RFRA.

Like so many judges above, Judge Blake invoked the minimal review of Jacobson/Abbott (see Cases #3, #6, #13, #15, #18, #20, #22), which requires constitutional claims to be proven “beyond all question” during public crises.

Judge Blake performed a careful Smith/Lukumi analysis of the Free Exercise claim. She analyzed the precedents most relevant to this case, including every case opposed to her conclusions (Cases #1, #5, #9, #13, #16, and #21). After distinguishing those cases, she found the governor’s order nondiscriminatory and thus rejected the church’s claim.

With this case and Cases #8 and #21, three district courts within the Fourth Circuit have come to conflicting conclusions that now await resolution by that circuit’s court of appeals.

Case #24: Cameron v. Beshear (E.D.Ky. (Sixth Circuit) May 21, 2020)

On May 21, 2020, US District Judge Gregory Van Tatenhove dismissed Kentucky Attorney General Daniel Cameron’s challenge to Governor Andy Beshear’s restrictions on interstate travel. Van Tatenhove, who ruled for a church in Case #13, outlined this separate case as follows: After his colleague Judge Bertelsman ruled the travel order unconstitutional in Case #12, the governor changed the order from mandatory (prohibiting travel and requiring quarantine) to permissive (any person entering Kentucky “with the intent to stay is asked to self-quarantine” for fourteen days). The amended order was “designed to conform with” Case #12.

The Attorney General said his lawsuit should not be dismissed as moot. He said the governor had not yet “conceded the unconstitutionality of the original Travel Orders,” and could “indefinitely evade judicial review by revoking and re-imposing the unconstitutional restriction at will.”

Judge Van Tatenhove disagreed, finding “no reason to believe the Governor will re-impose the previous Travel Orders.” Citing the many legal challenges to the governor’s pandemic orders (Cases #1, #4, #9, #12, #13, #14, and #16), the judge said it had “never been alleged that the Governor issued the executive orders for any reason other than to protect Kentuckians from the threat of the virus.” Having thus demonstrated his good faith, “it seems unlikely the Governor will re-issue the old constitutionally infirm Travel Orders,” the judge concluded.

Case #25: Lighthouse Fellowship Church v. Northam (E.D.Va. (Fourth Circuit) May 21, 2020)

On May 21, 2020, US District Judge Arenda Wright Allen—who in Case #8 denied a TRO to a Virginia church seeking relief from Governor Northam’s ten-person limit—denied an injunction pending appeal. Judge Allen noted new developments but remained persuaded the church was “unlikely to succeed on the merits” of its claims. She also agreed with Northam’s additional arguments for rejection of the lawsuit based on “sovereign immunity” and “abstention.”

Regarding immunity, Judge Allen ruled that the Eleventh Amendment to the US Constitution barred this federal suit against the governor for two reasons. First, as to the church’s federal claims, the governor technically was not a relevant official for “enforcing” his orders against the church. Second, as to the state RFRA claim, that statute did not unambiguously waive immunity and thus subject state officials to suit in federal court—meaning the suit belonged in state court. (While such defenses remain available against state RFRAs, many states have opted not to raise such defenses but instead defend their restrictions based on their legal merit.)

Regarding abstention, Allen said a federal court needed to abstain and defer to the preexisting state litigation involving the same parties and issues: here, the state prosecution of Pastor Wilson in this case for holding a service in violation of the governor’s orders.

Case #26: South Bay United Pentecostal Church v. Newsom (Ninth Circuit (three-judge panel) May 22, 2020)

On May 22, 2020, the US Court of Appeals for the Ninth Circuit became the second circuit court to rule in these cases. The panel included Circuit Judges Barry Silverman, Jacqueline Nguyen, and Daniel Collins. As in Cases #6 and #11, a church challenged California Governor Gavin Newsom’s stay-at-home orders under the Free Exercise Clause.

After District Judge Cynthia Bashant denied a TRO in an oral ruling, the church requested “injunctive relief permitting them to hold in-person religious services during the pendency of this appeal.” Judge Bashant denied that request and the case proceeded to the appeals court.

The panel majority issued a terse order. With just one paragraph of legal analysis that quoted two phrases from Lukumi, the majority denied the injunction for the same reason as Judge Bashant: the church had not shown a sufficient likelihood of success on their claims.

Circuit Judge Collins wrote a lengthy dissenting opinion, offering insights.

First, Judge Collins rejected the Jacobson/Abbott standard (see Cases #3 and #23). He rejected Abbott’s conclusion that “Jacobson instructs that all constitutional rights may be reasonably restricted to combat a public health emergency.” He denied that Jacobson gives Newsom “the power to restrict any and all constitutional rights, as long as he has acted in good faith and has some factual basis for his edicts.” He said Jacobson was focused on a specific type of constitutional claim. Thus, its “deferential standard of review” would be relevant only if the church “were asserting a comparable . . . claim, but they are not.” Under Jacobson, he said, a crisis may justify temporary constraints only within traditional constitutional limits.

Judge Collins argued the case should “be evaluated under the traditional Lukumi framework” as presented in Case #16. As to neutrality, he said the state’s four-stage Reopening Plan “undeniably discriminate[s] on its face against religious conduct” because churches cannot reopen until the third stage. He rejected the state’s defense that it “had not acted out of antipathy towards religion,” since the “constitutional benchmark is government neutrality, not government avoidance of bigotry.” As to general applicability, he said the “highly reticulated patchwork [or] amalgam of rules” was the “very antithesis of a generally applicable” law. The state categorically prohibited “in-person religious services—merely because they are religious services,” he said, “even if they follow the same” guidelines as nonreligious entities. “This is, by definition, not a generally applicable regulation.” Applying strict scrutiny, he concluded the church was “highly likely to succeed on the merits of their Free Exercise Clause claim.”

No judge on the panel cited the US DOJ’s May 19, 2020 warning to Newsom to “treat religious activities equally with comparable nonreligious activities” (citing Case #16), President Trump’s May 22, 2020, warning to all governors to treat all houses of worship as “essential,” or the CDC’s reopening guidance issued on May 22, 2020, for FBOs. The church appealed to the US Supreme Court. See Case #30.

Case #27: First Pentecostal Church v. City of Holly Springs, Miss. (Fifth Circuit (three-judge panel) May 22, 2020)

On May 22, 2020, a unanimous panel of the US Court of Appeals for the Fifth Circuit (covering Texas, Louisiana, Mississippi) treated the delay by Judge Michael Mills in Case #19 as a “denial of an injunction implied from [his choice] not to rule in an expedited fashion.” The panel included Circuit Judges Patrick Higginbotham, Leslie Southwick, and Don Willett.

In a one-page order, the panel reversed and issued an injunction protecting the church from the city’s orders until Judge Mills could rule on the merits of the case. Meanwhile, the church agreed to satisfy “the requirements entitling similarly situated businesses and operations to reopen.”

The panel’s issuance of an injunction necessarily meant it saw potential success for the church. But the panel did not discuss the merits of the case or the tragic events after Judge Mills’s Case #19 decision, when an arsonist destroyed the church’s building. In a concurring opinion, Circuit Judge Willett discussed both issues:

The [Church] was burned to the ground earlier this week. Graffiti spray-painted in the church parking lot sneered, “Bet you Stay home Now YOU HYPOKRITS.” . . . One might expect a city to express sympathy or outrage (or both) when a neighborhood house of worship is set ablaze. One would be mistaken. Rather than condemn the crime’s depravity, the City seized advantage . . . . [When the congregants] leave their homes on Sundays, they are not going to church; they are the church. The church is not the building. . . . I concur in [granting] injunctive relief. Singling out houses of worship—and only houses of worship, it seems—cannot possibly be squared with the First Amendment. Given the Church’s pledge “to incorporate the public health guidelines applicable to other entities,” why can its members be trusted to adhere to social-distancing in a secular setting (a gym) but not in a sacred one (a church)? Their sanctuary may be destroyed (for now), but when congregants congregate this Sunday . . . they will come together knowing that a church is not a building you go to but a family you belong to.

Author’s Note: While the terse orders in Cases #22, #26, and #27 add little guidance, they forecast how those panels may eventually rule. They also create more conflict among circuits and between the judiciary and President Trump, pushing these cases toward the Supreme Court—which granted review of Cases #22 and #26. See Cases #29 and #30 below regarding how the Supreme Court ruled.

Case #28: Lawrence v. Colorado (D.Colo. (Tenth Circuit) April 19, 2020)

In an April 19, 2020, decision—made available in legal databases only in late May—US District Judge Daniel Domenico denied TRO relief to a pro se plaintiff Michael Lawrence from Colorado’s stay-at-home orders. “The main focus of Mr. Lawrence’s legal complaints is on his inability to attend Mass in person, and the attendant inability to take Communion and otherwise participate in the ceremonies and communal celebration of his religion.”

Colorado has no RFRA, but it did not matter here. Judge Domenico cited Cases #1, #3, and #5 and the Jacobson/Abbott standard, but dismissed the Free Exercise claim mainly for other reasons.

First, the injury was caused not by the stay-at-home orders but by the earlier decision of “Catholic bishops . . . that they were canceling in-person Mass.” Thus, “an injunction against those orders would not force the Church to provide public Mass and Communion.” Second, the requested remedy was too broad. “Mr. Lawrence seeks a sweeping injunction that bars enforcement of [the orders] in their entirety, rather than discrete aspects of the orders, such as those challenged in cases like” Case #1 and Case #5.

Case #29: Elim Romanian Pentecostal v. Pritzker (US Supreme Court May 29, 2020)

Late on May 29, 2020, the US Supreme Court refused to intervene in Case #22. All nine justices participated, including Chief Justice John Roberts and, in order of seniority, Justices Clarence Thomas, Ruth Bader Ginsburg, Stephen Breyer, Samuel Alito, Sonia Sotomayor, Elena Kagan, Neil Gorsuch, and Brett Kavanagh. The Court’s unanimous order provides, in its entirety:

The application for injunctive relief presented to Justice Kavanaugh and by him referred to the Court is denied. The Illinois Department of Public Health issued new guidance on May 28. The denial is without prejudice to Applicants filing a new motion for appropriate relief if circumstances warrant.

Thus, without saying so explicitly, the Court seemed to agree with Illinois Governor J.B. Pritzker’s main arguments. First, the restrictions the church was appealing were scheduled to end this very day, thus rendering the case moot (for now). Second, the test for obtaining emergency relief in this preliminary litigation posture, especially where that relief would have a nationwide effect in a rapidly changing crisis, was virtually unreachable for the church.

The church argued that Pritzker, who did not loosen restrictions until he was summoned to the Supreme Court, could just as easily impose new restrictions. The Court seemed to deal with that argument by allowing the church to file “a new motion . . . if circumstances warrant.”

Case #30: South Bay United Pentecostal Church v. Newsom (US Supreme Court May 29, 2020)

Editor’s Note: Church Law & Tax Senior Editor Richard R. Hammar also examined the US Supreme Court’s decision in South Bay United Pentecostal Church v. Newsom , and provides takeaways for church leaders in this article.

Also on May 29, 2020, hours after its decision in Case #29, the US Supreme Court also refused to intervene in Case #26. At issue now were California’s newly relaxed restrictions on places of worship that limited “worship services to 25% of building capacity or 100 attendees, whichever is lower.” Unlike Case #29, this time the Court was divided and had more to say.

In one sense, the Court’s order was even shorter, running just one sentence: “The application for injunctive relief presented to Justice Kagan and by her referred to the Court is denied.” Five justices agreed with this result, making it the official action of the Court. Without any stated rationale, this result provides uncertain guidance, though it may encourage lower courts in other cases to reject church requests for emergency relief.

More telling than the result were the opinions issued by two justices. Chief Justice Roberts filed a concurring opinion, explaining why he joined the majority (Justices Ginsburg, Breyer, Sotomayor, and Kagan). Justice Kavanaugh filed a dissenting opinion, joined by Justices Thomas and Gorsuch. Justice Alito also dissented but did not file or join an opinion.

In his two-page concurring opinion, Chief Justice Roberts noted the extremely difficult test to justify the injunctive relief sought by the church, including proving its rights are “indisputably clear” (essentially obvious and irrefutable). Then he framed the issue as one principally entrusted to the “politically accountable officials of the States” and not to the “unelected federal judiciary, which lacks the background, competence, and expertise to assess public health and is not accountable to the people.” That is “especially true,” he said, “where, as here, a party seeks emergency relief . . . while local officials are actively shaping their response to changing facts on the ground.” He briefly addressed the Free Exercise Clause claim, suggesting worship services are more akin to “lectures, concerts, movie showings, spectator sports, and theatrical performances, where large groups of people gather in close proximity for extended periods of time,” than to “operating grocery stores, banks, and laundromats, in which people neither congregate in large groups nor remain in close proximity for extended periods.” Thus, it “seems quite improbable,” he concluded, that the “unconstitutional[ity]” of the state’s limitations could be “indisputably clear” at this preliminary stage of litigation.

In a three-page opinion, Justice Kavanaugh vigorously disagreed. After quoting extensively from, and effectively adopting, the rationale of the Sixth Circuit in Case #16, he concluded:

The State also has substantial room to draw lines, especially in an emergency. But as relevant here, the Constitution imposes one key restriction on that line-drawing: The State may not discriminate against religion. In sum, California’s 25% occupancy cap on religious worship services indisputably discriminates against religion, and such discrimination violates the First Amendment.

Author’s Note: The four justices who joined Chief Justice Roberts in the majority gave no indication of their views, which are impossible to predict. The views of all justices are nuanced and cautious of how their votes and rationales in one case can affect so many others.

Case #31: Bullock v. Carney (D.Del. (Third Circuit) May 29, 2020)

On May 30, 2020, US District Judge Colm Connolly denied a TRO sought by Pastor Christopher Bullock of Canaan Baptist Church against Delaware Governor John Carney. Delaware has no RFRA, but it did not matter for this TRO, which the judge rejected on procedural grounds.

As elsewhere, pandemic-related orders have been fluid in Delaware, with constant changes. When Pastor Bullock filed this lawsuit, he claimed Delaware guidance prohibited persons over age 65 from attending religious services, barred the use of choirs, microphones, and person-to-person Communion, and limited religious services to 60 minutes once per week. Before the judge could rule, however, all these restrictions were replaced with more lenient ones.

Even so, the new guidance contained “numerous mandatory provisions,” the judge said. For example, it still “prohibits communal receptacles for congregants to bless themselves with holy water, [the] use of ushers to collect contributions, [and] the holding of persons during their baptism.” It also “requires preachers to wear a face covering or face shield when they preach unless doing so would imperil their health, in which case they must preach facing away from the congregation.” And it “imposes requirements such as glove wearing and handwashing on individuals who prepare or distribute consecrated or blessed food.”

Judge Connolly denied the TRO for two reasons. First, he said the new guidance was actually less burdensome on Pastor Bullock than the TRO he requested—which would “limit, not expand [his] freedom to exercise his religion.” Second, the judge said Pastor Bullock had failed to show he would be irreparably harmed without the TRO. Nothing “submitted by Dr. Bullock [shows that his] church intended to serve communion or hold a baptism this coming Sunday, [or that he] would be irreparably harmed if required to preach this Sunday wearing a mask.”

The judge emphasized that his decision here was preliminary and “has no bearing on the merits of Dr. Bullock’s claims [which] implicate one of our most treasured rights protected by the Constitution—the right to exercise freely one’s religion.”

(The denial of the TRO here was later affirmed on appeal by the Third Circuit in Case #33.)

Case #32: Calvary Chapel Dayton Valley v. Sisolak (D.Nev. (Ninth Circuit) May 30, 2020)

On May 30, 2020, Miranda Du, Chief Judge for the US District Court for Nevada, denied a church’s second request to consider its motion for a TRO in time for Pentecost Sunday.

The church was seeking relief from Governor Steve Sisolak’s phased reopening plan that precluded its planned worship services. “Waiting until one business day before Pentecost Sunday to ask for emergency relief is simply unreasonable,” Judge Du wrote in her original order. Now, seeking reconsideration of that order, the church said its delay in filing its emergency motion was due to progress in recent discussions between religious leaders, including the church’s pastor, and the governor. It argued that it had “exercised diligence in trying to resolve its dispute before bringing the Motion.”

The judge rejected this argument for two reasons. First, it was inappropriate to raise a new argument in a request for reconsideration. Second, the new argument failed to persuade the judge in any event. Noting that the restrictions the church was challenging “have been in place for weeks,” she said that, by waiting “until one business day before Pentecost Sunday to file” its motion, the church “put Defendants and the Court in the untenable position of having essentially no time to address the Motion on the merits.”

Case #33: Bullock v. Carney (Third Circuit (three-judge panel) May 30, 2020)

On May 30, 2020, the US Court of Appeals for the Third Circuit (covering Pennsylvania, New Jersey, and Delaware) reviewed the decision of US District Judge Colm Connolly in Case #31, which refused relief sought by Pastor Christopher Bullock against Delaware Governor John Carney. The Third Circuit panel, including Circuit Judges Theodore McKee, Patty Shwartz, and Peter Phipps, joined the Seventh Circuit (Case #22) and Ninth Circuit (Case #26) in ruling against churches. The panel majority here issued only a one-sentence order affirming denial of the TRO, but Circuit Judge Phipps filed a dissenting opinion. Neither the majority nor the dissent cited the US Supreme Court’s orders from the prior night in Cases #29 or #30.

In his dissenting opinion, Judge Phipps relied solely on Smith and Lukumi, the Supreme Court’s main Free Exercise precedents in these cases. Like the judges in Cases #1, #5, #9, #13, #16, #21, and dissenting judges in Cases #26 and #30, Judge Phipps found the state’s actions to fail both neutrality and general applicability.

He also relied on a “hybrid-rights” theory. This theory, endorsed by several circuits, is based on Smith’s discussion of an exception to the neutrality/general applicability framework. It says strict scrutiny applies to “hybrid” situations where Free Exercise rights are combined with other constitutional rights, such as Free Speech. Judge Phipps explained:

This case presents a hybrid situation. Reverend Bullock does not bring a free exercise claim in isolation, but rather he also challenges a restriction on a communicative element of that freedom. Specifically, he disputes limitations on gathering size, preaching, baptism, and communion. And in any event, because these restrictions govern churches specifically, they do not act as neutral and generally applicable regulations. Accordingly, to be constitutional, the Governor’s order must survive strict scrutiny. . . . [Here,] a reasonable probability exists that the Governor will not be able to demonstrate that the challenged restrictions on churches are narrowly tailored to accomplishing [his] goal.

Judge Phipps then analyzed the restrictions under these headings: (a) Capacity Restrictions on Congregations; (b) Restrictions on Communicating with the Congregation; (c) Restrictions on Baptism; and (d) Regulation of Receipt of Communion. Each one failed the narrow tailoring of strict scrutiny, in his view.

Author’s Note: Few circuits have accepted the hybrid theory as it renders the Free Exercise Clause superfluous: it provides strict scrutiny for Free Exercise only when it’s combined with another constitutional right (which, by itself, normally requires strict scrutiny). A similar criticism from scholarly commentary on some of these cases—including Chief Justice Roberts’s concurring opinion in Case #30—is that insufficient attention is given to the Free Exercise Clause, which provides explicit constitutional protection for religious exercise that is not available for secular activities.

Case #34: Calvary Chapel v. Mills (First Circuit (three-judge panel) June 2, 2020)

On June 2, 2020, the US Court of Appeals for the First Circuit (covering Massachusetts, Rhode Island, New Hampshire, and Maine) reviewed the decision of US District Judge Nancy Torresen in Case #15, which refused a TRO against Maine Governor Janet Mills. The First Circuit panel included Chief Judge Jeffrey Howard and Circuit Judges Juan Torruella and Ojetta Thompson. In a single sentence, the panel denied an injunction pending appeal based upon its “careful review of the papers and arguments of the parties.” It provided no other rationale.

This denial of emergency relief, as in most other cases in this article, is not a final ruling on the merits of the case. But it may forecast how the court eventually will rule. With this decision, the First Circuit has joined the Seventh Circuit (Case #22), Ninth Circuit (Case #26), and Third Circuit (Case #33) in denying relief to churches. Only the Sixth Circuit (Cases #9 and #16) and the Fifth Circuit (Case #27) have granted such relief to churches.

Case #35: Abiding Place Ministries v. Newsom (S.D.Cal. (Ninth Circuit) June 4, 2020)

On June 4, 2020, US District Judge Cynthia Bashant—whose denial of relief to a different church was allowed by the Ninth Circuit in Case #26 and by the US Supreme Court in Case #30—denied injunctive relief to the church in this case. She refused to pass judgment on outdated (superseded) orders of California Governor Gavin Newsom and local officials. It appeared that new, looser restrictions rendered the legal challenge moot (pointless).

Here, Abiding Place Ministries challenged state guidelines that appeared to criminalize the planned activities of the church and its less-than-100 congregants to “assemble away from the general public in the open air on a large, private ranch” while following CDC guidelines. Judge Bashant said that the new guidelines would “allow Plaintiff’s congregation (of less than 100 persons) to meet as long as certain CDC guidelines are followed.” Noting these “most recent guidelines supersede any prior orders,” she said this status change was “enough to render [the] case moot,” even if the government can reenact the restrictions “after the lawsuit is dismissed.”

Case #36: Christian Cathedral v. Pan (N.D.Cal. (Ninth Circuit) June 6, 2020)

On June 6, 2020, US District Judge Charles Breyer denied a California church’s TRO request against county health official Erica Pan. The church was seeking relief from an “order which allows school graduation ceremonies of up to 25 persons but does not allow religious worship services held with identical numbers and health protocols.” In framing the case, the judge characterized Dr. Pan’s actions as an attempt “to clarify the (unfortunately) ambiguous original guidelines” and the church’s pro se case (without a lawyer) as lacking evidence.

On the merits of the case, Judge Breyer said the church’s constitutional claims of differential treatment depended “on its contention that Alameda County allows in-person graduation ceremonies which comply with certain strict safety protocols, but not in-person worship services that comply with identical requirements.” The church was attempting to compare guidelines that applied to the in-person graduation ceremonies of its K-12 school with guidelines that applied to its worship services. But the judge said the church misinterpreted the graduation guidelines, which allowed only outdoor ceremonies. Thus, “the proposed graduation ceremony and worship services were prohibited for the same reason: because they were to be held indoors.”

Finding no other evidence of unconstitutional discrimination, Judge Breyer denied TRO relief because “the current record does not adequately support Christian Cathedral’s crucial factual allegation that Alameda County treats graduation ceremonies and worship services differently.” He emphasized the “demanding standard” for such emergency relief and noted the church was free to file “a later motion for a preliminary injunction based on a more adequate record.”

Author’s Note: With this case, judges in all four federal judicial districts in California have now denied emergency relief to churches. See Cases #6, #11, and #35. All these district judges fall within the jurisdiction of the Ninth Circuit and their decisions appear consistent with the precedent of that Circuit Court in Case #26, which the US Supreme Court upheld in Case #30.

Case #37: Calvary Chapel Dayton Valley v. Sisolak (D.Nev. (Ninth Circuit) June 11, 2020)

On June 11, 2020, US District Judge Richard Boulware denied TRO relief to a Nevada church against Governor Steve Sisolak’s 50-person cap on gatherings. This decision followed the refusal of Chief Judge Miranda Du in Case #32 to decide the church’s last-minute request before Pentecost Sunday. This case, like nearly all others, turned on the Free Exercise Clause.

Judge Boulware quoted extensively from the concurring opinion of Chief Justice Roberts in Case #30 without acknowledging that it was the opinion solely of Roberts and not the whole Supreme Court (as no other justice joined it). Adopting the Chief Justice’s guidance, Judge Boulware found the governor’s directive neutral and generally applicable, both on its face and as applied.

In its “facial” challenge to the directive, the church compared its services to “comparable activity in which people gather in large groups and remain in close proximity for large periods of time, including casinos, restaurants, nail salons, massage centers, bars, gyms, bowling alleys and arcades, all of which are allowed to operate at 50% of official fire code capacity.” Per Judge Boulware, however, all these activities were subject to equal or worse restrictions than church services. “Thus, even if the Court were to accept casinos as the nearest point of comparison for its analysis of similar activities and their related restrictions imposed by the Governor, the Court would nonetheless find that casinos are subject to much greater restrictions on their operations and oversight of their entire operations than places of worship.”

The judge conceded some differential treatment but found it inconsequential. “Given that there are some secular activities comparable to in-person church services that are subject to more lenient restrictions, and yet other activities arguably comparable to in-person church services that are subject to more stringent restrictions, the Court cannot find that the Emergency Directive is an implicit or explicit attempt to specifically target places of worship.”

In its “as applied” challenge, the church claimed “selective enforcement” of the directive based on photographs of outdoor protests and indoor casino activity that appeared to freely violate the social distancing guidelines and 50-person cap. Judge Boulware was unconvinced. First, he found that outdoor protest was quite different in terms of its ability to be regulated, and in terms of the concerns of law enforcers who said attempts to regulate outdoor protests may do more harm than good. Second, he found the claim “premature,” as there was no evidence of a “pattern” of selective enforcement. To the contrary, the judge noted, the sheriff indicated he “has no intention of using limited . . . resources to enforce the directive against Calvary or other places of worship,” and “Calvary has presented no evidence indicating that it has been subject to actual enforcement.” The judge said that, if the church develops “evidence of selective enforcement,” it could return to court.

Case #38: Elkhorn Baptist Church v. Brown (Oregon Supreme Court June 12, 2020)

On June 12, 2020, the Supreme Court of Oregon issued the first state court decision included in this article. The court was reviewing a state trial court injunction against the pandemic orders of Governor Katherine Brown. The trial court ruled that the governor’s orders exceeded “a statutory time limit.” The state supreme court reversed. Relying on the concurring opinion of Chief Justice Roberts in Case #30, the court said, “the safety and health of the people is principally entrusted to the states’ political leaders,” whose latitude during the pandemic “must be especially broad.”

Although the church “focused primarily on the idea that the Governor’s executive orders have expired and, therefore, are null and void,” the church “also argued that the orders violate their state constitutional right to freely exercise their religion.” The state supreme court rejected this argument on procedural grounds, saying the church failed to properly raise the argument in the trial court. But in a footnote the court suggested the argument would fail anyway, because “it is well established under both the First Amendment’s Free Exercise Clause and Article I, sections 2 and 3 of the Oregon Constitution that a regulation can affect a person’s exercise of their religion without violating those provisions.” The court indicated that the governor’s pandemic orders were precisely such regulations, again citing Chief Justice Roberts in Case #30.

Author’s Note: State courts are bound by the federal constitution and must address any federal constitutional issues properly raised in state litigation. But on all such federal issues, state courts look to federal court precedent and are bound by US Supreme Court precedent.

Case #39: High Plains Harvest Church v. Polis (D.Colo. (Tenth Circuit) June 16, 2020)

On June 16, 2020, US District Judge Raymond Moore denied TRO relief to a Colorado church against Governor Jared Polis’s 50-person cap on gatherings. Per Judge Moore, the church plaintiffs voluntarily withdrew their complaint after the US Supreme Court in Case #30 denied similar “relief in a case substantially similar to theirs.” But after “thousands of people began to gather in Denver and other cities in Colorado to protest police violence,” the church filed an amended complaint alleging the state “permitted and encouraged these protest gatherings while continuing to impose draconian restrictions on religious gatherings.” Continuing a trend, this case relied heavily on the concurring opinion of Chief Justice Roberts in Case #30.

Judge Moore rejected this argument for several reasons. First, he saw no evidence that “outdoor protests” were “comparable secular gatherings” to “indoor, in-person church services.” Second, he rejected the bare assertion that “from an epidemiological perspective, the protests were far more intense than any religious service.” Third, he was not persuaded that failure of the state to enforce “social distancing during a protest” meant the state was “engaged in a variety of constitutional misconduct directed at religious institutions.” Fourth, he saw no evidence that the state “permitted or encouraged the protests,” but he said he would consider such evidence if the church provided it.

Case #40: Taylor v. Grisham (D.N.M. (Tenth Circuit) June 16, 2020)

On June 16, 2020, US Magistrate Jerry Ritter, as assigned by US District Judge James Browning (see Case #3), proposed a resolution against pro se (representing himself) plaintiff Leland Taylor. Taylor challenged two orders of New Mexico Governor Michelle Lujan Grisham for denying “him and other citizens of New Mexico the right to free assembly and worship.”

One order provided early release of inmates who met certain conditions. The other one extended a series of prior pandemic orders governing the general public. It is not clear why Taylor challenged the order governing inmates. What is clear is that Taylor made many procedural errors and failed to correct them even after instructed by the judge, a common occurrence whenever plaintiffs represent themselves.

Before rejecting the Free Exercise claim, Judge Ritter tried to make sense of it, and set out the Smith/Lukumi standard. But he could find no plausible constitutional claim, since neither order appeared to restrict religious practices and Taylor never articulated how they “burden his religious practices.” Judge Ritter said there might possibly be a plausible claim against the mass gathering restrictions if Taylor had named the proper state official as a defendant. The judge drew the line there, citing precedent that, “while pro se pleadings are liberally construed, courts will not make arguments for pro se litigants or otherwise advocate on their behalf.”

Case #41: Elim Romanian Pentecostal v. Pritzker (Seventh Circuit (three-judge panel) June 16, 2020)

On June 16, 2020, the US Court of Appeals for the Seventh Circuit issued a second unanimous decision by the same panel. In Case #22, the panel refused the church’s request for an injunction pending appeal against Illinois Governor J.B. Pritzker. In Case #29, the US Supreme Court did likewise, suggesting the church’s request was moot (pointless) because Pritzker had removed the restrictions the church was challenging. Now it was time for the panel to decide the appeal. Its well-reasoned decision here is a blow to all churches challenging pandemic orders.

Initially, the panel addressed three preliminary issues that control many of these cases. First, it considered whether the governor’s removal of restrictions “makes this suit moot, because it gives the churches all of the relief they wanted from a judge.” The new guidelines contain a long list of “recommendations but do not impose any legal obligation,” the panel conceded. But voluntarily ceasing challenged “conduct makes litigation moot only if it is absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur.” Since the governor’s “criteria for moving back to Phase 2” shows how easily he could reimpose the restrictions, the panel said it must address the merits of the challenge to the prior order “even though it is no longer in effect.”

Second, the panel conceded the US Supreme Court appeared ready to consider whether to overrule its controversial Smith decision (in a separate case, Fulton v. City of Philadelphia, which will go before the Court during its next term). In the meantime: “Unless the Justices overrule or modify Smith, we must implement its approach.” The panel thus followed the Smith/Lukumi standard.

Third, the panel conceded that the federal and Illinois RFRAs provided greater statutory protection for religious freedom than the constitutional protection provided by Smith. But the panel noted that the federal RFRA did not apply to states (due to a 1997 US Supreme Court case), and that the state RFRA could not be used in federal court (since Illinois never clearly consented to litigate its state RFRA in federal court, rather than state court). “As a result, neither the federal nor the state [RFRA] can be applied in this case,” the panel said.

The panel then turned to the “vital” constitutional question of whether the order “discriminates against religion.” The key issue, it said, was choosing the right secular “comparison group” to determine if religious groups were treated more harshly. “So what is the right comparison group: grocery shopping, warehouses, and soup kitchens, as plaintiffs contend, or concerts and lectures, as Illinois maintains?” Citing Cases #9, #16, #26, and #30, the panel noted that judges of the US Supreme Court and circuit courts “have supported both comparisons.”

Acknowledging that precedent ran in both directions, the panel said it chose to “line up with Chief Justice Roberts” and his “concurring . . . observations” in Case #30, including the differences between activities where “large groups of people gather in close proximity for extended periods of time” and activities where “people neither congregate in large groups nor remain in close proximity for extended periods.”

It was a close case, in the panel’s view. “It would be foolish to pretend that worship services are exactly like any of the possible comparisons, but they seem most like other congregate functions that occur in auditoriums, such as concerts and movies.” The panel conceded that workers may “remain together for extended periods in warehouses [and] office settings,” but noted that such workers may not “engage in the sort of speech or singing that elevates the risk of transmitting the virus” or “remain close to one another for extended periods.” The panel also conceded that “some workplaces present both risks,” including “meatpacking plants and nursing homes,” both of which “have been centers of COVID-19 outbreaks.”

In the end, the panel had to choose sides, and its following rationale proved pivotal:

[It] is hard to see how food production, care for the elderly, or the distribution of vital goods through warehouses could be halted. Reducing the rate of transmission would not be much use if people starved or could not get medicine. That’s also why soup kitchens and housing for the homeless have been treated as essential. Those activities must be carried on in person, while concerts can be replaced by recorded music, movie-going by streaming video, and large in-person worship services by smaller gatherings, radio and TV worship services, drive-in worship services, and the Internet. Feeding the body requires teams of people to work together in physical spaces, but churches can feed the spirit in other ways.

The panel sided with the state. “Perhaps with more time—and more data from contact tracing—Illinois could figure out just how dangerous religious services are compared with warehouses and similar activities, but no one contends that such data were available when Executive Order 2020-32 was promulgated (or, for that matter, now).” The panel concluded:

[W]arehouse workers and people who assist the poor or elderly may be at much the same risk as people who gather for large, in-person religious worship. Still, movies and concerts seem a better comparison group, and by that standard the discrimination has been in favor of religion. While all theaters and concert halls in Illinois have been closed since mid-March, sanctuaries and other houses of worship were open, though to smaller gatherings. And under [the governor’s order,] all arrangements for worship are permitted while schools, theaters, and auditoriums remain closed. Illinois has not discriminated against religion and so has not violated the First Amendment, as Smith understands [it].

Case #42: Spell v. Edwards (Fifth Circuit (three-judge panel) June 18, 2020)

On June 18, 2020, the US Court of Appeals for the Fifth Circuit (covering Texas, Louisiana, Mississippi) issued its second decision. In Case #27, a panel granted relief to a Mississippi church while it awaited the district judge’s ruling in Case #19. Here, a different panel—Circuit Judges Jerry Smith, Gregg Costa, and James Ho—dismissed as moot (pointless) the appeal of Pastor Mark Spell against Louisiana Governor John Bel Edwards.

Previously, in Case #20, US District Judge Brian Jackson noted the potential mootness of Pastor Spell’s case while issuing a decision on the merits, denying the request for a TRO. In this appeal, the panel said Judge Jackson should have dismissed the lawsuit and never reached the merits. Thus, the panel “erased” Case #20. “[B]ecause the appeal became moot before appellate review, the district court’s order denying preliminary relief is VACATED.”

Mootness is decisive in many of these church cases and it depends on facts and nuance. While cases such as Case #41 rejected mootness, the panel here accepted it:

A Louisiana church and its pastor ask us to enjoin stay-at-home orders restricting in-person church services to ten congregants. But there is nothing for us to enjoin. The challenged orders expired more than a month ago. That means this appeal and the related request for an injunction . . . are moot.

The facts dictated the outcome, in the panel’s view. Since the Louisiana order expired “by its own terms,” its “lapse was predetermined and not a response to” this litigation. Moreover, Pastor Spell failed “to establish that the Governor might reimpose another gathering restriction on places of worship.” To the contrary, the panel noted, the “trend in Louisiana has been to reopen the state, not to close it down.” Thus, “it is speculative, at best, that the Governor might reimpose the ten-person restriction or a similar one.”

Circuit Judge James Ho agreed the case was moot, but wrote a concurring opinion to offer some observations in light of recent nationwide protests against police:

In recent weeks, officials have not only tolerated protests—they have encouraged them as necessary and important expressions of outrage over abuses of government power. For people of faith demoralized by coercive shutdown policies, that raises a question: If officials are now exempting protesters, how can they justify continuing to restrict worshippers? The answer is that they can’t. Government does not have carte blanche, even in a pandemic, to pick and choose which First Amendment rights are “open” and which remain “closed.”

Judge Ho also agreed with the views of Judge Collins in Case #26 about key US Supreme Court precedent. Judge Ho agreed that “[n]othing in Jacobson supports the view that an emergency displaces normal constitutional standards,” such as Smith, and that Smith had limits. “Smith does not cover laws that grant exemptions to some, while denying them to people of faith. Religious liberty deserves better than that—even under Smith.” Judge Ho went further:

Smith has been derided by “civil rights leaders and scholars as the Dred Scott of First Amendment law,” criticized by “at least ten members of the Supreme Court,” and “widely panned as contrary to the Free Exercise Clause and our Founders’ belief in religion as a cornerstone of civil society.” Smith is troubling because it is of “little solace to the person of faith that a non-believer might be equally inconvenienced. . . . For it is the person of faith whose faith is uniquely burdened—the non-believer, by definition, suffers no such crisis of conscience.” (Citations and internal punctuation omitted.)

Case #43: Ramsek v. Beshear (E.D.Ky. (Sixth Circuit) June 24, 2020)

On June 24, 2020, US District Judge Gregory Van Tatenhove issued his third decision in these cases. See Cases #13 and #24. They all involve the same mass-gathering ban of Kentucky Governor Andy Beshear at issue in many of these cases. This time, the judge analyzed the ban not in the context of religious challenges but in the context of peaceful nonreligious protests against the governor’s pandemic orders. He ruled that a “blanket prohibition on gathering in large groups to express constitutionally protected speech is unconstitutional.”

This case is vital to this article for one reason. It is the first to fully analyze the concurring opinion of US Supreme Court Chief Justice John Roberts in Case #30. If that opinion is given too much weight, it sharply undercuts all churches in these cases. Indeed, churches have not won a single victory since that opinion was issued. In this case, the judge criticized other judges for according “significant weight to Justice Roberts’ concurring opinion, without any extended analysis of the precedential considerations,” alluding to Case #37 as an example.

According to the governor, Justice Roberts’s opinion rejected the Sixth Circuit’s otherwise binding precedent in Cases #9 and #16, which invalidated Kentucky’s mass-gathering ban as applied to church services. But, for the reasons below, Judge Van Tatenhove said this argument “demands too much of the preliminary views of one Justice.”

First, the judge noted the nascent posture of Case #30, where the Supreme Court could only glance at the merits of the case. He analogized the Court’s refusal of the church’s request for emergency relief to the Court’s routine refusals to accept appeals. The Court refuses 99 percent of all appeals, usually without comment but sometimes with a concurring or dissenting opinion of one or more justices. Such refusals of appeals have no precedential value.

Second, the judge noted the heightened burden in Case #30, where the church sought emergency change to the legal status quo on a sparse record. The church had to prove the violation of its constitutional rights was “indisputably clear.” Such a burden far exceeds the burden the church ultimately will bear during the normal course of its litigation. Thus, Justice Roberts’s opinion does not predict his ultimate view of the church’s case after it is fully and properly litigated.

Third, at “the very least,” the judge said, “if the concurring opinion is to be accorded weight, then the fact that no other Justices joined the opinion must be acknowledged.” Since the “other four Justices . . . gave no indication as to the basis for their decisions,” the judge refused “to speculate” they might agree with “Roberts’ basis.” Thus, the judge said, “the grounds set forth by Justice Roberts in support of his decision . . . should be interpreted as narrowly as possible.”

Finally, the judge said Justice Roberts’s opinion did not reject the rationale of Cases #9 and #16 and, as the opinion of a single justice, could not overrule those cases. The judge concluded:

Accordingly, the Court declines to accord too broad of a precedential effect to Justice Roberts’ concurrence in South Bay. A narrow reading is required and simply leads to the conclusion that Justice Roberts found that it was not “indisputably clear” that the California law restricting in-person religious services violated the Free Exercise Clause. While informative, this conclusion does not create precedent which controls in this case.

Case #44: Soos v. Cuomo (N.D.N.Y. (Second Circuit) June 26, 2020)

On June 26, 2020, US District Judge Gary Sharpe granted relief to two Catholic priests (including the Reverend Steven Soos) and three Orthodox Jewish congregants against the orders of New York Governor Andrew Cuomo and Mayor Bill de Blasio, partly due to their better treatment of “race-related protests.” This is the first religious win since Case #27.

Judge Sharpe outlined the many orders and guidance documents issued by the governor and mayor and contrasted their negative statements about religious gatherings with their positive statements about protests. He also listed the burdens on the priests as including a ban on “offering Mass and the other sacraments beyond an ever-changing maximum number of people” and a choice to reject “parishioners who wish to attend Mass—a weekly obligation that Catholics face under pain of mortal sin—or to hold more Masses per day than are possible.” Nor could they hold daily mass for their Catholic school students “when they return to school.”

The state’s accommodations were ineffective, the judge said. Drive-in services were of little value to Catholics, whose religion requires “kneeling while receiving Holy Communion.” And outdoor masses, weddings, and funerals were either forbidden or practically impossible.

The burdens on the Jewish congregants from Brooklyn were similarly onerous and the proffered accommodations similarly ineffective. Judge Sharpe listed many examples, including the forcible dispersal of a small, socially distanced outdoor prayer service. The congregants said they were forced to: miss “many religious services, including during Passover”; endure the constant “presence and interference” and “harassment and surveillance by the police”; face the “fear of arrest”; experience “harassment from community activists”; and, forgo the “tranquility of worship.”

The judge began his legal analysis with Case #30. After quoting its concurring opinion, he said it was “not the judiciary’s role to second guess the likes of Governor Cuomo or Mayor de Blasio when it comes to decisions they make in such troubling times, that is, until those decisions result in the curtailment of fundamental rights without compelling justification.” Citing Smith/Lukumi’s interpretation of the Free Exercise Clause, the judge concluded: “Assuming, without deciding, that the challenged laws are neutral . . . it appears [they] are not generally applicable, and that they would fail strict scrutiny.” The problem was differential treatment, in his view.

Regarding the “25% indoor capacity limitation,” the judge said that, “on its face,” it “applies only to houses of worship.” He emphasized that “no other secular entity, save for those that remain closed in their entirety until Phase 4 or beyond, are limited to only 25% capacity.” He listed offices, retail stores, salons, restaurants, and special education among secular activities allowing 50% capacity and looser restrictions. “Restaurant patrons sit and congregate with family and friends in close proximity for a lengthy period of time, and have close contact with their hosts and servers,” even as face “coverings may be removed while seated.”

Regarding the outdoor gathering restrictions, the judge separately analyzed the actions of the governor and the mayor, finding that both had created “de facto” exemptions for protests. The governor, per the judge, was responsible for the actions of the state police, which treated protests differently from religious gatherings. “And in any case, Governor Cuomo’s comments, which applauded and encouraged protesting and discouraged others from violating the outdoor limitations, likely demonstrate the creation of a de facto exemption.”

The mayor, per the judge, “has one of the largest municipal police departments in the world, and has also actively encouraged participation in protests and openly discouraged religious gatherings and threatened religious worshipers.” The mayor’s reliance on Case #37’s “public safety” reason for gentler policing of protests was misplaced, the judge said, due to the mayor’s “simultaneous pro-protest/anti-religious gathering messages, which [undermine] the proffered reason for what seems to be a clear exemption, no matter the reason.” The judge concluded:

Governor Cuomo and Mayor de Blasio could have just as easily discouraged protests, short of condemning their message, in the name of public health and exercised discretion to suspend enforcement for public safety reasons instead of encouraging what they knew was a flagrant disregard of the outdoor limits and social distancing rules. They could have also been silent. But by acting as they did, Governor Cuomo and Mayor de Blasio sent a clear message that mass protests are deserving of preferential treatment.

The judge also identified a “case of individualized exemption” that “seems even more obvious,” i.e., “outdoor, in-person graduation ceremonies of no more than 150 people.” This “is an express exemption from the ten- or twenty-five-person outdoor limits.” And “there is nothing materially different about a graduation ceremony and a religious gathering such that [the] justifications for a difference in treatment can be found compelling.”

Author’s Note: The US Department of Justice (DOJ) promptly lauded this decision.

Calvary Chapel v. Sisolak (US Supreme Court July 24, 2020)

Editor’s Note: Church Law & Tax Senior Editor Richard R. Hammar examined this decision and provides takeaways for church leaders in this article.

Roman Catholic Diocese of Brooklyn, New York v. Cuomo (US Supreme Court November 25, 2020)

Editor’s Note: Church Law & Tax Senior Editor Richard R. Hammar examined this decision and will provide takeaways for church leaders in a forthcoming article.

Editor’s Note: Stay updated on this issue and many more by signing up for the free Church Law & Tax Update e-newsletter.

To learn more about how federal and state courts decide religious freedom cases, and to understand which states have state RFRAs or other religious freedom laws, check out the 50-State Religious Freedom Laws Report, a new downloadable resource from Church Law & Tax.

J. Matthew Szymanski is an attorney on his second tour at Gammon & Grange , a DC-area law firm specializing in nonprofit and church law. After litigating religious freedom cases with the firm in the 1990s, he left for Capitol Hill and then for China, where he frequently guest-lectured at Chinese law schools for seven years. He returned to Gammon & Grange in 2018.

Checklists for Your Church

From copyright compliance to facility management, how does your church rate at staying safe, legal, and financially sound?

Checklists are a great way to ensure everything is going the way it should or to find out what needs to be worked on to improve. We’ve assembled checklists on a variety of topics that churches encounter. Each checklist has a link to download the checklist as a PDF to make it easy to print and share with staff and volunteers.

Developing a Lay Counseling Ministry

Have you created a safe, secure environment for your spiritual care ministry?

Use the following checklist to gauge how your church’s lay counseling ministry is doing.

Download a PDF version of this checklist.

Creating a safe, secure environment for a spiritual care ministry calls for specific policies and procedures that protect your church, lay caregivers, and those who receive care. The effectiveness of any church program begins with the understanding and support of church leadership. That’s especially true of lay counseling and spiritual care ministries.

For this reason, include church leaders in your planning process. Ensure that the governing body of your church not only understands the rationale for your ministry, but also fully supports and approves of spiritual care ministry policies and procedures before you implement a new program. It’s also important to confirm that the policies and procedures you develop do not conflict with the church’s by-laws or other governing documents.

Evaluate Risk Management Aspects of Any Spiritual Care Ministry

It’s important that you consult with an attorney as you prepare a lay counseling policy and any related forms. Your attorney should give you a legal evaluation of the risk management issues of any spiritual care ministry program that your church develops. With the help of legal counsel, church leaders should consider how lay counseling policy elements discussed in this publication may apply to other spiritual care ministries that the church sponsors.

The attorney your church selects should be familiar with various federal and state laws that have an impact on churches with spiritual care ministries. Very few attorneys concentrate in “church law,” so you may want to seek attorney recommendations from other churches or trusted sources.

Check with Your Insurance Provider

There are several insurance policy liability coverages that are potentially relevant to your church’s lay counseling ministry and other spiritual care ministries. There are church specialty insurers that design insurance programs specifically for churches and other ministries.

Review Your Plan Regularly; Follow It Carefully

Laws change, as do the makeup and needs of a church. Review and update your lay counseling policy and forms annually, together with any other relevant spiritual care ministry policies and procedures. Church leaders should actively apply the church’s lay counseling and spiritual care ministry policies and procedures.

Will Your Church’s “Good Faith Certification” for a Paycheck Protection Loan Come into Question?

For loans under $2 million, the SBA will assume the borrower determined in “good faith” that it met the PPP loan requirement.

Since the CARES Act’s Paycheck Protection Program (PPP) launched in early April, some borrowers, including nonprofit organizations, have experienced substantial scrutiny regarding their financial qualifications for PPP forgivable loans.

Under the CARES Act, all eligible recipients must “make a good faith certification” that, among other things, the uncertainty of current economic conditions due to the COVID-19 pandemic makes their respective loan request necessary to support their ongoing operations.

The certifying borrower also must acknowledge that the PPP loan funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments. These certification requirements open the door for a government audit of matters such as “necessity” for a PPP loan, the amount of a PPP loan, and the use of PPP loan funds.

The US Small Business Administration (SBA) administers the PPP on behalf of the US Department of the Treasury. While most SBA guidance does not single out churches and religious organizations, the most recent SBA guidance states that the guidance applies to all PPP borrowers, including churches and ministries.

Understanding the “necessity” requirement

Through multiple iterations of the SBA’s Guidance on PPP loans, the latest of which was issued on May 13, 2020, the SBA stressed the “necessity” requirement for applicants trying to determine their eligibility for a PPP loan. This emphasis appears primarily in Questions 31, 37, 39, 46, and 47 of the SBA’s continually evolving Frequently Asked Questions.

Here is pertinent guidance from Question 31:

31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: . . . [A]ll borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. . . . [B]orrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. . . .

Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith (emphasis added).

On May 5, 2020, the SBA extended the safe-harbor deadline for loan repayments to May 14, 2020. Then, on May 13, 2020, the SBA extended the safe-harbor deadline to May 18, 2020, in Question 47.

Also on May 13, 2020, the SBA issued Question 46, addressing the “good faith” standard: For all loans less than $2 million, the SBA will assume the borrower determined in good faith that it met the requirement for the PPP loan. For loans of $2 million or more, the SBA will examine whether the borrower met the standards for the loan. If the SBA determines that the borrower does not qualify, it will demand repayment of the loan. If the borrower repays the loan, then the SBA will not pursue any other remedies.

Careful documentation is essential

PPP loan certifications revolve around or focus on these core factors: borrower qualification as an “eligible recipient”; necessity for the loan; the loan amount; and, the qualified uses once PPP loan dollars are disbursed to a borrower.

According to Steven Mnuchin, Treasury Department Secretary, liquidity is a critical factor in the certification. Some eligible recipients are more “liquid” than others. But the depth of liquidity is, in most situations, certainly “uncertain” when it comes to meeting the goals intended by the PPP loans; that is, maintaining payrolls through the applicable eight-week covered period to be funded by the PPP loan as the pandemic continues.

For the loans of more than $2 million, documentation is the primary key to substantiating the good-faith certification for a PPP loan, and demonstrating it is not a perfect science. To substantiate a good-faith certification under the CARES Act, borrowers will inevitably turn to an innumerable list of factors applicable to the borrower’s activities, including, but not limited to: its financial state; its access to credit lines; its donor base; any supply chain challenges; any COVID-19-related government orders affecting a specific geographic location; any uncertainties about future donations; its remote-working capabilities; and, other employment-focused and fund-producing conditions.

Borrowers should have documented their state of affairs before applying for a PPP loan. Still, it is likely not too late to look back and account for the state of business affairs that existed when the PPP loan application was submitted to the applicable lender.

The borrower should document the risks and uncertainties that led it to apply for the PPP loan, such as cash on hand, anticipated and actual revenue declines, and other factors. It should also document its efforts to keep its employees compensated during the foreseeable future, even when work was not available.

The borrower also should document how various government policies adversely affected the borrower’s ability to continue operating. The borrower should measure the adverse impact after March 15, 2020 (or the shutdown date for the borrower’s location(s) when the government policies came into effect).

Preparing for loan forgiveness

To be forgiven, PPP loan proceeds must be used for qualifying expenses within the eight weeks after receiving the loan proceeds. The eight weeks begin on the date the lender makes the first disbursement of PPP loan proceeds to the borrower. Borrowers should consider placing PPP loan proceeds in an account separate from general use funds. The borrower should consider using the PPP loan proceeds on qualified PPP payroll costs before using the borrower’s general use fund account.

Also of necessity: borrowers should make sure the PPP loan uses are adequately tracked and documented in a systematic and easy-to-report manner. Contact payroll administration (internal or external, as applicable) to ensure the borrower can easily extract payroll information within the covered period that is funded by PPP loan proceeds. Borrowers should establish a systematic process for transfers of funds to cover the types of costs permitted for a PPP loan in order to qualify for forgiveness.

Borrowers should carefully and systematically document the necessity for the PPP loan and use of the PPP loan to establish how those government funds were used to their intended purposes—to keep Americans employed in a most uncertain period of economic conditions. The borrower or its decision-making leaders must be willing to accept the risks that come with forgiveness and a potential audit.

CPA and attorney Frank Sommerville, a senior editorial advisor for Church Law & Tax, is a shareholder in the law firm of Weycer, Kaplan, Pulaski & Zuber, P.C. (WKPZ) in Houston and Dallas, Texas. Attorney Cory Halliburton is also a shareholder with WKPZ and serves as outside general counsel and business consultant to many different forms of tax-exempt (nonprofit) organizations.

Are We Using Social Media Safely?

How well do you understand the risks that exist on social media sites?

Churches continue to find new ways to use social media for ministry. This strategy can be effective—for building community, strengthening communication among members, and reaching out to unchurched people in the community. But churches that dive headfirst into the social media pool without fully understanding the risks could find themselves in over their head. Use this assessment to gauge your church’s understanding of the risks involved with social media.

Download a PDF version of this checklist.

Facebook and Twitter are among the most frequented sites online. Which means these sites can provide considerable benefits for churches. These social networking services do come with certain risks—for individuals, businesses, and churches. Understanding how these websites work—and how they should be used—is the key to avoiding the pitfalls of social media.

Facebook

Facebook is the most popular type of social media. And it also harbors the most potential risks for churches. Here are some tips for avoiding risks on Facebook:

Don’t provide too much information. When posting comments, writing a status update, or deciding what information to include on the church Facebook page, remember that anyone could be reading it. Facebook might seem like a place to interact with friends (and it is), but Facebook also attracts deviants, predators, and those hoping to steal the identities of others. Some information is necessary, but revealing too much is dangerous.

Delete anything inappropriate. If your church Facebook page is accessible to all, then anyone can post a comment on the “wall.” At least one person should be checking this daily (email notifications can be set up to alert users about any new posts), and anything inappropriate should be deleted immediately. Whether it’s an inappropriate comment, a link to a questionable site, or a harmless comment posted by someone with a racy profile picture—these things, if not removed, might reflect negatively on your church, especially for those who could be visiting your church’s Facebook page without any prior knowledge about who you are and what you value as a congregation. As far as that visitor knows, the person posting inappropriate content could be a church member—and the fact that it hasn’t been deleted will suggest that the church leaders didn’t have a problem with it.

Understand the privacy settings. Facebook’s default privacy settings are not private. As a church, there is some information you will want to make available to all (who you are, what you believe in, where you are located, etc.), and other information you will want to keep private. Customize the privacy settings to get the right balance.

Protect your photos. Sharing photos is one of the features that attracts many users to Facebook. But as a church, you should be extremely careful what pictures you post—and who you allow to view them. If minors are pictured, do not include their names in the captions. And do not make these photos available to everyone. Doing so could open up your church family to potential predators.

Making first impressions. Facebook is fun, but churches should remember that their Facebook for those in the community (or anywhere in the world) who have never been to the church. Facebook provides a venue for friends to stay in touch, for new acquaintances to become friends, and for friends and family members to interact in amusing ways. Having fun is not a bad thing—but if a church is taking the time to operate a Facebook page, then they should be doing it with a clear purpose in mind.

See Using Social Media Safely for more information.

New Stimulus Funding Replenishes Paycheck Protection Program

Churches still in need of a forgivable loan should immediately restart their efforts.

Churches that missed out on the first round of the CARES Act’s Paycheck Protection Program (PPP) will want to restart their efforts immediately after the federal government approved more funding for the loan forgiveness program.

The US Small Business Administration (SBA), which oversees the program, will begin accepting applications again at 10:30 a.m. (Eastern Daylight Time) on April 27, 2020.

The PPP offers employers with fewer than 500 workers, including churches and nonprofits, the chance to obtain loans intended to cover payroll and other certain operational expenses over an eight-week period during the COVID-19 (coronavirus) pandemic. PPP’s goal is to help employers retain their workers, rather than lay them off, and maintain their compensation levels in the midst of the economic fallout caused in large part by shelter-in-place and public-gathering directives designed to keep people home and slow the spread of the virus.

If those small employers spend proceeds from their PPP loan in a certain way during the eight weeks, they are then eligible to apply for forgiveness. Most, if not all, of the loan can convert into a nontaxable grant.

The initial $349 billion allocated to the PPP ran out on April 16, 2020. The new law—dubbed the Paycheck Protection Program and Health Care Enhancement Act—was passed by both houses of Congress and signed on April 24, 2020, by President Trump. It provides an additional $310 billion for PPP, plus $60 billion more for separate Economic Injury Disaster Loans (EIDLs). Churches also can apply for EIDLs; however, if they receive both a PPP loan and an EIDL, they need to make certain the EIDL is not spent on anything the PPP is intended to cover.

There is already speculation the PPP’s latest funding will get doled out quickly. Churches that wish to participate should submit an application to a lender approved by the SBA as soon as possible.

On-Demand Webinar

Church Financial Management in Challenging Times

CPA Michael E. Batts helps churches navigate financial concerns created by the pandemic in this on-demand webinar.

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The COVID-19 (coronavirus) outbreak, and the accompanying “stay-at-home” directives underway in most states, present numerous challenges to churches, particularly with respect to financial management.

This one-hour webinar with CPA Michael E. Batts directly addresses these financial management challenges for pastors and church leaders.

Batts, managing partner of a CPA firm serving churches and nonprofits nationwide and the author of Church Finance, Second Edition, covers church giving methods, communication approaches with the congregation, and the financial fundamentals necessary to reduce costs, shore up cash reserves, create operational efficiencies, and maintain sound internal controls.

Download the presentation slides here.

To stay updated on the latest COVID-19 news and advice from Church Law & Tax, visit: www.ChurchLawAndTax.com/Coronavirus.

How Churches Can Apply for the Paycheck Protection Program

What leaders should know—including a change extending the application deadline to August 8, 2020.

Editor’s Note: In early June, Congress nearly unanimously passed the Paycheck Protection Program Flexibility Act (“Flexibility Act”), and on June 5, 2020, President Trump signed it into law. The legislation modifies several key provisions of the CARES Act, and this article has been updated accordingly. Readers are also strongly encouraged to read Batson’s new article on the Flexibility Act to ensure they understand what has changed as a result of the new legislation.

Additionally, Congress passed another bill—which President Trump signed on July 4, 2020—that extends the deadline for PPP loan applications to August 8, 2020. Unfortunately, it’s not yet clear what the new application deadline means for the various dates and deadlines associated with the program, but future guidance from the Treasury Department and SBA should shed light on any changes resulting from the extension. A forthcoming article from Batson will further address the extension.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act creates a new Paycheck Protection Program administered by the US Small Business Administration (SBA). The program is designed to provide small employers, including nonprofits and churches, with immediate access to cash to allow them to survive the disruption caused by the COVID-19 pandemic. More details about the program can be found here, but keep in mind the significant opportunity this program presents in the midst of the economic uncertainty caused by the outbreak. Participating employers initially receive loans administered over a 24-week period; when that period concludes, the loans convert into grants if certain criteria are met.

The application form is now available from the US Department of Treasury. This article explains how church leaders can navigate the unfolding application process for the program. Churches and nonprofits with fewer than 500 employees will want to work quickly with a SBA-approved lender to submit their applications.

Key Loan Features

PPP Loans will carry an interest rate of 1 percent and have a five-year maturity. At least 60 percent of the loan eligible for forgiveness must be used for payroll costs.

How is the loan amount calculated?

The loan amount is calculated using a formula that multiplies the church’s average monthly payroll by 2.5 times. Churches will calculate their average monthly payrolls by determining the sum of average monthly payroll costs from the prior one-year period (preceding the date of the loan) divided by twelve. The costs to include:

  • Salary, wages, commissions, or other similar compensation;
  • Payment of cash tips or their equivalent;
  • Payments for vacation, parental, family, medical, or sick leave;
  • Any allowance for dismissal or separation;
  • Payments for group health care benefits, including insurance premiums;
  • Payment of any retirement benefit;
  • Payment of any state or local tax assessed on employee compensation; or
  • Employer-paid state and local payroll taxes.

Payroll costs do not include:

  • Compensation in excess of $100,000 paid to any one individual;
  • FICA tax, Medicare tax, RRTA tax, or federal unemployment tax;
  • Compensation to an employee whose principal place of residence is outside the United States; and
  • Any qualified paid leave or sick leave for credit allowed under the Families First Coronavirus Response Act (FFCRA)—the Family and Medical Leave Act expansion enacted by Congress prior to the CARES Act.

What other criteria must a lender consider when evaluating a Paycheck Protection Loan applicant?

The CARES Act identifies a number of criteria lenders must consider to determine if an applicant is an eligible borrower. These factors include:

  • Whether the applicant was in operation on February 15, 2020; and
  • Whether the applicant had employees for whom it paid salaries and payroll taxes or paid independent contractors as reported on Form 1099-MISC.

In addition, an applicant must make a good-faith certification that:

  • The loan is necessary to support the applicant’s ongoing operations due to the uncertainty of current economic conditions;
  • The loan proceeds will be used to retain workers and maintain payroll, or to make mortgage payments, lease payments, and utility payments;
  • The applicant has no other Paycheck Protection Loan Application pending; and
  • During the period beginning February 15, 2020 and ending December 31, 2020, the applicant has not received Paycheck Protection Loan proceeds for the same purpose and duplicative of amounts applied for or received under another Paycheck Protection Loan.

What documentation should churches prepare to produce with their applications?

  • The number of employees they employed as of February 15, 2020 (simply add full-time and part-time employees together—no full-time equivalency is used for this);
  • The pay rates for those employees;
  • Prepared thoughts regarding the good-faith certification your church will make; and
  • Prepared forecast of amounts your church will spend on payroll costs, mortgage interest payments, rent payments, and utility payments during the covered period following the origination of the loan.

Other Loan Features

Paycheck Protection loans are 100-percent guaranteed by the federal government. They do not require personal guarantees or collateral. No prepayment penalty may apply. They are made by and administered by banks, savings and loans, and credit unions.

What else should you know?

This is a complex loan program. Expect the SBA and lenders to be flying blind for several weeks as the application process is designed, forms are created, and regulations and other guidance are created.

We received a loan—now what?

Your church will want to take several steps to ensure it properly tracks and documents the use of the funds. It also should know the steps it will need to take to have the loan forgiven, and how your lender will evaluate the criteria necessary for loan forgiveness. Follow-up articles will provide more details.

Ted R. Batson Jr. is a CPA and tax attorney, and serves as a partner and Professional Practice Leader – Tax for CapinCrouse LLP, a national CPA and consulting firm. He speaks and teaches frequently for national conferences and organizations on exempt organization and charitable giving matters.

An Overview of the CARES Act for Churches

Key highlights from the government’s $2.2 trillion stimulus plan responding to COVID-19.

Editor’s Note: Additional updates regarding the CARES Act and its various provisions can be found on Church Law & Tax’s coronavirus coverage page.

The 900-page, $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act became law on March 27, 2020. It is the third package enacted by Congress in response to the COVID-19 (coronavirus) outbreak.

I have written a detailed analysis regarding key provisions from the CARES Act that are most relevant to churches and church staff. It is accessible to members of ChurchLawAndTax.com. Below is a brief, free overview covering some of these key provisions.

Key Provisions of the Act

Individual help

All US residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work eligible Social Security number, are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as Supplemental Security Income (SSI) benefits.

Key point. The rebate is treated like other refundable tax credits, such as the child tax credit and earned income tax credit, and is not considered taxable income. For the vast majority of Americans, no action on their part will be required to receive a rebate check since the Internal Revenue Service (IRS) will use a taxpayer’s 2019 tax return if filed (or their 2018 return if they haven’t filed their 2019 return).

Employee retention credit

  • This is a credit designed to prevent layoffs and keep workers on the job.
  • Tax-exempt employers are eligible.
  • Eligible employers are allowed a credit against employment taxes (FICA, income tax) based on a specific formula. The fully refundable credit would be available to any business or non-profit that has a furloughed or reduced workforce as a result of a forced closure or the quarantining of employees. The credit would also be available to any business that has seen a 50 percent drop in gross receipts when compared to the same quarter last year.
  • A special rule applies to eligible small employers (those with 100 employees or less) that provides a 50-percent credit for all wages paid, regardless of whether employees are furloughed or not.
  • The credit is capped and is refundable against payroll taxes.

Key point. If an eligible employer receives a forgivable loan under the Paycheck Protection Program (see below), it is not eligible for the employee retention credit under this section.

Paycheck Protection Program (PPP)

  • The Act establishes a new US Small Business Administration loan program called the Paycheck Protection Program for small employers (including nonprofits and churches) with 500 or fewer employees to help prevent workers from losing their jobs and small businesses from failing due to economic losses caused by the COVID-19 pandemic.
  • The program provides federally guaranteed loans to cover payroll and other operating expenses.
  • To be eligible, the small employer must have been harmed by the pandemic between February 15, 2020, and June 30, 2020. The Act requires eligible borrowers to make a good-faith certification that:
    • the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; and
    • they will use the funds to retain workers and maintain payroll, lease, and utility payments.
  • The program is retroactive to February 15, 2020, to help bring workers who may have already been laid off back onto payrolls.
  • Applicants can apply for this loan until August 8, 2020. (Editor’s Note: Congress passed another bill—which President Trump signed on July 4, 2020—that extends the deadline for PPP loan applications to August 8, 2020.)
  • The program provides loans of up to 250 percent of an employer’s average monthly payroll costs for the one-year period preceding the loan (excluding compensation over $100,000).
  • The loan is forgiven in full if, during the eight-week period beginning when the church receives the loan, the money is spent entirely on:
    • payroll costs (the SBA requires at least 60 percent of the loan eligible for forgiveness be used for payroll costs)
    • group health care expenses
    • interest on any mortgage obligations
    • rent, including rent under a lease agreement
    • interest on debt incurred before February 15, 2020
    • utilities

Key point. The SBA released an updated “frequently asked questions” document on April 26, 2020, in which it states that a minister’s housing allowance is considered part of “payroll costs.” The document includes this question and answer:

Question: Does the cost of a housing stipend or allowance provided to an employee as part of compensation count toward payroll costs?

Answer: Yes. Payroll costs includes all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.

  • The amount of loan forgiveness is reduced based on an employer’s reduction in workers or wages according to a formula (but declines between February 15, 2020, and April 26, 2020, do not reduce the amount of loan forgiveness if the employer returns to pre-decline levels by June 30, 2020).
  • Any portion of a loan not forgiven is carried forward as an ongoing loan with a term of five years at 1 percent interest.
  • The recipient applies for forgiveness through the lender.

Key point. If an eligible employer receives an employee retention credit (see above), it is not eligible for the Paycheck Protection Program.

Key point. Learn more about how churches can apply for the Paycheck Protection Program through this article.

Key point. The SBA has issued a fact sheet providing additional specific details about the Paycheck Protection Program loans, along with the application form to use.

Paycheck Protection Program and Health Care Enhancement Act (CARES Act II)

The CARES Act appropriated $349 billion for PPP. However, the program met with immediate success and the initial appropriation was depleted in a few weeks. Congress quickly responded by enacting the “Paycheck Protection Program and Health Care Enhancement Act” (PPPHCE), the main provision of which was a boost in appropriated funds for PPP. Starting April 27, 2020, this allows the government to continue providing forgivable loans to cover the cost of payroll and operating expenses for small businesses.

Other provisions in the PPPHCE Act include:

  • $60 billion for the SBA’s economic injury disaster loans and grants, including: $50 billion for economic injury disaster loans up to $2 million with interest rates not to exceed 4 percent and long-term repayment periods of up to 30 years, and $10 billion for grants of up to $10,000 that do not have to be repaid.
  • $75 billion to support the American healthcare system, including additional funding to reimburse hospitals and healthcare providers for lost revenues and expenses related to the outbreak.
  • $25 billion to expand testing, which will provide information on where cases are occurring, and support continued efforts to reopen communities and reignite the economy.

Unemployment insurance provisions

The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways. One important way is the creation of a new temporary federal program called the Pandemic Unemployment Assistance (PUA) program that provides (through December 31, 2020) payment to those not traditionally eligible for unemployment benefits. PUA provides up to 39 weeks of unemployment benefits. Individuals receiving PUA benefits may also receive the $600 weekly benefit amount (WBA) under the Federal Pandemic Unemployment Compensation (FPUC) program if they are eligible for such compensation for the week claimed.

Eligibility for PUA includes those individuals not eligible for regular unemployment compensation or extended benefits under state or federal law, including those who have exhausted all rights to such benefits. Covered individuals also include self-employed individuals, those seeking part-time employment, and individuals lacking sufficient work history.

The application of these provisions to church employees is unclear. State and federal laws exempt from unemployment taxes “service performed in the employ of a church, a convention or association of churches, or an organization that is oper­ated primarily for religious purposes and that is operated, supervised, controlled, or principally supported by a church or convention or association of churches.”

Does the CARES Act’s temporary Pandemic Unemployment Assistance program apply to church employees on the ground that they “are not traditionally eligible for unemployment benefits”? A recent Department of Labor “Unemployment Insurance Program Letter” (No. 16-20) suggests that it may. It reads, in part:

The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways. The CARES Act includes a provision of temporary benefits for individuals who have exhausted their entitlement to regular unemployment compensation as well as coverage for individuals who are not eligible for regular unemployment compensation . . . . These individuals may include . . . clergy and those working for religious organizations who are not covered by regular unemployment compensation, and other workers who may not be covered by the regular unemployment compensation program under some state laws.

Check with your state unemployment office to see if church employees in your state qualify for the PUA and WBA programs.

Charitable contributions

The Act encourages Americans to contribute to churches and charitable organizations in 2020 by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not.

Payroll taxes

  • The Act provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
  • The Act allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Deferral is not available to employers receiving assistance through the Paycheck Protection Program of the CARES Act.

Delay of certain deadlines

  • In March of 2020 the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty, or interest will be due. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due. IR-2020-58.
  • A few weeks later, in Notice 2020-23, the IRS expanded this relief to additional returns, tax payments and other actions. As a result, the extension now applies to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. This includes quarterly estimated tax payments (Form 1040-ES) that would have been due before July 15, 2020, including the first two estimated tax payments due on April 15 and June 15 of 2020. This means that any individual who has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.

More provisions

Read my detailed summary for more details regarding provisions pertaining to “affiliation” rules pertaining to employee counts for PPP, more details about the availability of federal Economic Injury Disaster Loans (EIDL), education provisions, foreclosure moratorium and forbearance, utility shutoffs, and more.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Navigating Technology in the Midst of the Coronavirus: Electronic Giving

Insights and advice from Church IT experts Nick Nicholaou and Jonathan Smith

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Church IT experts Nick Nicholaou and Jonathan Smith join Church Law & Tax Content Editor to look at electronic giving options, whether a church regularly uses electronic giving—or never has before.

More from This Series:

Related Links:

To stay updated on the latest COVID-19 news and advice from Church Law & Tax, visit: www.ChurchLawAndTax.com/Coronavirus

How New FMLA Changes Will Affect Churches During the Coronavirus Outbreak

These temporary provisions affect church leaders throughout 2020.

President Trump has signed the Families First Coronavirus Response Act (“Act”), the second significant federal law addressing the COVID-19 pandemic.

It is designed to provide paid leave to cushion employees who cannot work due to certain virus-related circumstances. The Act accomplishes this by both: (1) amending the Family and Medical Leave Act (FMLA) to expand family and medical leave; and (2) establishing new paid sick leave mandates.

This Q&A summarizes the Act, which takes effect on April 1, 2020. These new provisions are temporary and will expire at the end of 2020. The US Department of Labor’s Wage and Hour Division has now issued a tempoary rule laying out the regulations the Act must follow for the remainder of the year, including the recordkeeping requirements employers must keep.

What changes does the Act make to family and medical leave?

Section C of the Act (the “Emergency Family and Medical Leave Expansion Act”) expands family and medical leave under the FMLA. Section E (the “Emergency Paid Sick Leave Act”) establishes a new paid sick leave entitlement. The Act requires employers, for the first time, to provide workers paid leave, albeit only in limited circumstances.

Emergency Family and Medical Leave Expansion Act

Does the Act apply to nonprofits and religious organizations?

The FMLA generally applies to all employers that meet the coverage tests, whether commercial, for profit, nonprofit, or charitable. The Act does not alter that scope. However, employees of religious organizations who are “ministers” may be exempt under the so-called ministerial exception to employment laws.

When is paid leave required?

The Act amends the FMLA by adding a new Section 110, which adds “public health emergency leave” (FMLA+) to the types of FMLA-leave qualifying employees may take. The Act does not require existing types of FMLA leave to be paid leave.

Does the Act change which employers are covered by the FMLA?

The FMLA normally applies to employers with 50 or more workers. The FMLA+ leave provisions apply to employers with fewer than 500 employees. That includes employers with fewer than 50 workers. Employers must count employees who are on leave to determine whether they have fewer than 500 employees.

Does the Act change which employees the FMLA covers?

Yes. Employees are eligible (assuming their employer is covered) if they have worked for their employer for at least 30 calendar days. This includes part-time workers.

What is FMLA+?

FMLA+ leave is leave taken because of a “qualifying need related to a public health emergency,” which means that an employee is unable to work (or telework) due to a need for leave to care for his or her son or daughter (under 18 years old) if the child’s school or place of care has been closed, or the child’s care provider is unavailable, due to a public health emergency.

What is considered a “public health emergency?”

The term “public health emergency” means an emergency with respect to COVID-19 declared by a federal, state, or local authority. President Trump declared a national emergency on March 13.

When must FMLA+ leave need be paid leave?

An employee’s first 10 days of qualifying leave may be unpaid. During that period, an employee can choose to substitute any available employer-provided accrued paid leave, but the employer may not require the employee to use accrued paid leave. Additional qualifying leave after 10 days would have to be paid at a rate of at least two-thirds of the employee’s normal wage and on the assumption that the employee is working a normal schedule. Up to twelve weeks of FMLA+ leave is available.

Are there any limits on the amount of paid FMLA+ leave?

Yes. The maximum per employee is $200 per day and $10,000 in total.

What if the employee does not work the same schedule from week to week?

For employees whose schedule various from week to week to such an extent that the employer is unable to determine with certainty the number of hours the employee would have worked during leave, pay may be based upon the average number of hours the employee was scheduled to work per day during the previous six months. For recent hires, pay may be based upon the employee’s reasonable expectation at the time of hiring of the average number of hours per day the employee would be scheduled to work.

Do employees have to provide advance notice to employers before taking FMLA+ leave?

Yes, but only where the need for leave is foreseeable. Even then, employees must only provide employers with as much advance notice as is practicable.

Emergency Paid Sick Leave Act (EPSLA)

What does the EPSLA do?

The EPSLA is stand-alone legislation, rather than an amendment to the FMLA. It requires employers to provide emergency paid sick (EPS) leave in covered situations.

Does the EPSLA cover the same employers and employees as the FMLA?

The EPSLA and FMLA+ leave provisions cover the same group of employers. The EPSLA covers every worker, not just those who have been on the job for a certain length of time.

When is leave required under the EPSLA?

In six situations—specifically, when an employee is absent because he or she:

  1. is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
  2. has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  3. is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  4. is caring for an individual who (a) is subject to a federal, state, or local quarantine or isolation order related to COVID-19; or (b) has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  5. is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the childcare provider of such child is unavailable, due to COVID-19 precautions; or
  6. is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.
  7. How much paid leave may employees receive?
  8. Employees must receive their regular rate of pay for leave caused by events 1, 2, or 3, above. They receive two-thirds of their regular rate of pay for leave caused by events 4, 5, or 6. In general, employees must receive the pay they would have gotten based on the hours they “would otherwise be normally scheduled to work” at their regular rate of pay. The limit for full-time employees is 80 hours. For part-time employees, the limit is the average number of hours the employee works in a two-week period. These requirements are subject to maximum limits, which vary based on the type of situation. These limits are $511 per day and $5,110 in total for events 1, 2, and 3, above. The limits are $200 per day/$2,000 in total for events 4, 5, and 6, above.
  9. Can employers require employees to use other accrued sick leave provided by an employer before using the leave under EPSLA?
  10. No. Employees may elect to use emergency paid sick leave first. The law prohibits employers from requiring employees to use other paid leave provided by the employer before the employee uses leave under the EPSLA.
  11. Are there other provisions employers should know about?
  12. Yes, but they do not require immediate action. For example, employers must post a Notice of Employee Rights prepared by the Department of Labor. In addition, the law prohibits retaliation against workers for taking leave or filing a complaint to enforce the law. Finally, the Act includes enforcement penalties should an employer fail to pay mandated sick leave. The labor department has announced that it will not seek penalties against employers for any violations of the Act occurring through April 18, 2020, so long as the employer has made reasonable, good-faith efforts to comply.
  13. The Act has raised many questions, and some common questions beyond the summary above are provided in the sidebar. The sidebar also discusses the Act’s effect on health plans. Please contact us if you have questions about the Act’s specific application to your workplace.
  14. Health plans
  15. Should we change our FMLA policies?
  16. The Act’s amendments to the FMLA are temporary. Future near-term federal legislation may incorporate additional changes. We suggest that employers prepare and distribute addenda to their leave policies, noting that policy provisions covering additional leave will automatically expire.
  17. Can we provide pay and benefits more generous than the Act requires?
  18. Absolutely, and most of our clients are doing so. Part-time and hourly workers are most vulnerable to unexpected payroll hits, and they can be protected with guaranteed pay for hours worked at home, bonuses, and paid sick leave that goes beyond the Act’s requirements. Keep in mind that these changes must be deliberately considered; promising an hourly worker a bonus, for example, likely will increase his or her effective hourly wage, and any overtime pay would need to be based on that enhanced regular rate of pay.
  19. Does the Act impact state and local family and medical leave obligations?
  20. No. Absent changes to state and local laws, those laws remain in place. In this area of the law, federal legislation does not supplant state and local laws, so they remain in force. If the laws differ, workers are entitled to the most favorable benefits and protections
  21. What will the Act require for employer-sponsored health plans?
  22. The Act will require group health plans and health insurers to provide coverage for COVID-19 diagnostic testing and items and services furnished during an office, telehealth, urgent care center, or emergency room visit to the extent those items and services relate to the furnishing of the test or the evaluation of the individual’s need for the test. Coverage must be provided without cost-sharing (such as deductibles, copayments, and coinsurance), prior authorization, or other medical management requirements. The coverage requirement is effective on the date of enactment and continues until the Secretary of DHHS determines that the public health emergency has ended.
  23. We are aware that some third-party administrators are proposing to provide COVID-19-related coverage on a retroactive basis. Plan sponsors will want to confirm that the coverage administered by their third-party administrator satisfies any requirements under the Act and, if additional coverage is provided, that it is consistent with the plan sponsor’s intent.
  24. Are there other considerations for high deductible health plans (HDHP)?
  25. The Act does not address HDHPs. However, in Notice 2020-15, the IRS announced that HDHPs are permitted to pay for “medical care services and items purchased related to testing for and treatment of COVID-19” before the deductible is satisfied. Other services currently remain subject to HDHP requirements. Sponsors of HDHP plans will want to confirm that any extension of pre-deductible coverage is consistent with the IRS announcement and any subsequent guidance.
  26. Danny Miller is a partner in the Washington, D.C., office of Conner & Winters, LLP, and is a member of the firm’s employee benefits group. He has practiced in the employee benefits area since graduating from law school in 1974. He is an advisor-at-large for Church Law & Tax.
  27. Donn Meindertsma is a partner in the Washington, D.C., office of Conner & Winters, LLP, and specializes in employment law.

What We Know: Tax Payments and Filings for Churches and Individuals

How the coronavirus is affecting the current tax season—and beyond.

The US Department of Treasury, the Internal Revenue Service (IRS), and state agencies continue to issue new instructions and guidance regarding tax-related matters for the country in response to the COVID-19 (coronavirus) outbreak. Church Law & Tax continues to update this page as relevant new advisories and information become available.

Income tax-filing

The Treasury Department has pushed back the deadline for Americans to file their income tax returns in response to the COVID-19 (coronavirus) outbreak.

All taxpayers and businesses now have through July 15, 2020, to file their returns—and the IRS will waive all interest and penalties. As a result, the extension now applies to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020.

Separately, in Notice 2020-23, the IRS expanded this relief to include quarterly estimated tax payments (Form 1040-ES) that would have been due before July 15, 2020, including the first two estimated tax payments due on April 15 and June 15 of 2020. This means that any individual who has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.

Estimated Quarterly Tax Payments for 2020

QuarterOriginal Due DateRevised Due Date
Jan-MarApril 15, 2020July 15, 2020
Apr-JunJune 15, 2020July 15, 2020
July-SeptSept. 15, 2020Sept. 15, 2020
Oct-DecJan. 15, 2021Jan. 15, 2021

Individual taxpayers who need additional time to file beyond the July 15 deadline can request an extension to October 15, 2020, by filing Form 4868 through their tax professional, tax software, or using the Free File link on irs.gov. An extension to file is not an extension to pay any taxes owed. Taxpayers requesting additional time to file should estimate their tax liability and pay any taxes owed by the July 15, 2020, deadline to avoid additional interest and penalties.

Key point. This provision is especially relevant to pastors who typically use the estimated tax procedure to prepay their federal taxes since they are exempt by law from income tax withholding.

Treasury Secretary Steven Mnuchin still encourages taxpayers to file income taxes as soon as possible, especially those who are expecting refunds, the Wall Street Journalreported.

The IRS also encourages people who have failed to file returns from previous years to do so now. The agency says “[m]ore than 1 million households that haven’t filed tax returns during the last three years are actually owed refunds; they still have time to claim these refunds.” For taxpayers with a tax liability, the IRS says they “should consider taking the opportunity to [enter] into an Installment Agreement or an Offer in Compromise.”

At the state level, the American Institute of Certified Public Accountants has assembled this chart tracking state income tax-filing deadlines. California has already pushed its filing and payment deadline to June 15, and the state waived interest, late-filing, and late-payment penalties. Connecticut and Maryland have extended their deadlines for business returns (June 15 for Connecticut and June 1 for Maryland). Oregon and Washington have issued guidance offering certain provisions and accommodations as well.

Church reporting requirements

Separately, in Notice 2020-23, the IRS said its deadline extensions also apply to tax-exempt organizations required to file an annual Form 990, Form 990-N, and/or Form 990-T; Form 4720; or other commonly required reports used under certain circumstances. Section 6033 of the Internal Revenue Code exempts churches from filing annual Form 990s or Form 990-Ns, however, if a church generates $1,000 or more annually in unrelated business income from a church-run business or the renting of its space to outside groups, it is required to file a Form 990-T.

Installment Agreements

The IRS says individuals with outstanding tax liabilities are still able to enter into new Installment Agreements (a monthly payment arrangement set in advance with the IRS). For existing Installment Agreements, the agency says payments that would have been due between April 1 and July 15, 2020, are now suspended. Taxpayers who cannot comply with the terms of an Installment Payment Agreement (including a Direct Deposit Installment Agreement) may also suspend payments during this timeframe if they wish, the IRS says.

The IRS will not default on Installment Agreements through July 15, 2020. However, interest will continue to accrue on unpaid balances.

Offers in Compromise

The IRS says taxpayers with a pending Offer in Compromise application will now have until July 15, 2020, to provide any requested additional information. The agency also will accept new applications for Offers in Compromise.

Regarding existing Offers in Compromise:

  • Taxpayers may suspend all payments until July 15, 2020. However, interest will continue to accrue on unpaid balances.
  • The IRS will not default on an existing Offer in Compromise for a taxpayer that is delinquent on a 2018 return. But the agency says the taxpayer should file the delinquent 2018 return, along with their 2019 return, on or before July 15, 2020.

Audits

The IRS will not start new field, office and correspondence examinations until July 15, 2020, unless such an examination is “deemed necessary to protect the government’s interest in preserving the applicable statute of limitations.”

Stay updated

Continue to follow ChurchLawAndTax.com and its free e-newsletters and social media for updates on this page as well as its coronavirus coverage. In the meantime, track ongoing tax-related deadlines through Church Law & Tax’s tax calendar.

Also get updates directly from the IRS and the Treasury Department.

Recommended Reading

Coronavirus and the Church: The Latest News and Advice from Church Law & Tax

The unfolding effects of the COVID-19 (coronavirus) global pandemic have touched millions of people directly

The unfolding effects of the COVID-19 (coronavirus) global pandemic have touched millions of people directly and indirectly throughout the early part of 2020. Churches and church communities are among those affected. While it is easy to succumb to the fear and anxiety that come in historical moments of uncertainty, our call as the church is to bring light and hope to our communities.

Toward that end, Church Law & Tax continues to monitor this developing story with an eye toward educating and equipping leaders to lead well in their communities. This free page is designed to help churches assess the legal, tax, financial, and risk management considerations of this rapidly changing situation—and then make sound decisions.

Church Law & Tax will regularly update this coverage—be sure to sign up for its free e-newsletters and follow it on Facebook, Twitter, and LinkedIn to stay informed of the latest. And if your church is wrestling with a specific question you don’t see addressed here, email us: editor@churchlawandtax.com. We can’t promise an answer—but we’ll do our best as we navigate the challenge of this moment. May the church rise up to meet this challenge and bring honor and glory to the Lord.

CARES Act/Paycheck Protection Program

Financial Issues

Legal Issues

Risk Management Issues

Online Worship and Meetings

5 Ways to Protect Your Church

How to implement thorough policies and procedures.

No matter which side of the gun control debate you fall on, as someone in ministry at a church, news of gun violence hits close to home. The devastating news of gun violence rank among some of the greatest fears of contemporary church leaders.

So what can your church do in the wake of such a tragedy?

With churchgoers around the country wondering if it’s truly safe to attend services, now is the time to create a security plan at your church—one that addresses active shooters. The best way to do this is by listening and learning.

We can listen to the people in our churches about how they have been impacted by the news of gun violence at church and what kind of actions your church could take to help them feel safe. Some of the thoughts and ideas they have may be worth implementing in your church security plan.

Another important way to learn is to look through your own security plans with your leadership team. Listen to the people on your team, learn from each other, and see if there are any changes you need to make. If you discover there are elements missing from your security plan, then you’ll need to have your team work together to resolve them.

To help your discussion get started, here are five key elements to consider for a security plan:

  1. Consider armed security on campus. It may seem like a peaceful approach to not allow armed security, but the Department of Homeland Security and the FBI report that in over 95 percent of active shooter incidents, an active shooter doesn’t stop shooting until someone who is armed shows up. In this circumstance, what would your church do? Among the different ways of approaching armed security, attorney Richard Hammar recommends churches use uniformed off-duty police officers.
  2. Build a proper security team. It’s important to have the right people on your security team: people who have proper training in law enforcement or the military. You’ll also need to conduct proper background checks and training that is specific to your church security plan.
  3. Develop a church communication plan for a crisis. How much does your church congregation need to know about your security team? They don’t need to know everything, but after national news like this, it is important to let your church members know that you have a plan to keep them safe. It is equally important for them to know what they should to do in case of an emergency on your church campus.
  4. Plan for different types of critical events. You should have a plan for an active shooter on your church campus and another plan for an active shooter who may be nearby. Many church security plans only cover an active shooter on the church campus, but it’s just as important to have a plan for a nearby active shooter so you can keep the shooter from coming to your campus and keep your church members from inadvertently running into the shooter’s path.
  5. Don’t overlook domestic violence. The most common active shooter scenarios on church campuses involve a spillover of domestic violence. Thus the most effective active shooter programs for churches will have a specific plan when it comes to domestic violence cases.
  6. Proper security, training, and communication are all key elements to creating both an active shooter program and a successful church security plan. For more articles and resources to help your church, check out our Creating a Church Security Plan page.
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