In order to maintain their tax-exempt status for federal income tax purposes, churches and other religious organizations must comply with several requirements specified in section 501(c)(3) of the tax code. One of these requirements is that the organization must not participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office. Many churches have violated this requirement in the past with no adverse consequences. However, the landscape is changing.
In 1995 the IRS for the first time revoked the exempt status of a church for intervening in a political campaign. The church had published full-page ads in two national newspapers, warning Christians not to vote for candidate Bill Clinton in the 1992 presidential election. The IRS ruling was upheld recently by a federal court. The court rejected the church's claim that the revocation of its tax-exempt status violated the first amendment and the Religious Freedom Restoration Act.
A federal court has upheld a ruling by the IRS revoking the tax-exempt status of a church on account of its intervention in the 1992 presidential campaign. This case makes it essential for church leaders to be familiar with the limitation on political involvement. This article reviews the court's ruling, summarizes the limitation on political activities, and addresses the impact of the ruling on church practices.
Details of the case
On October 30, 1992, four days before a presidential election, Branch Ministries, Inc., doing business as the Church at Pierce Creek (the "church"), expressed its concern about the moral character of candidate Bill Clinton in a full page advertisement in the Washington Times and in USA Today. The advertisement proclaimed "Christian Beware. Do not put the economy ahead of the Ten Commandments." It asserted that Bill Clinton supported abortion on demand, homosexuality and the distribution of condoms to teenagers in public schools.
The advertisement cited various Biblical passages and stated that "Bill Clinton is promoting policies that are in rebellion to God's laws." It concluded with the question, "How then can we vote for Bill Clinton?" At the bottom of the advertisement, in fine print, was the following notice: "This advertisement was co-sponsored by The Church at Pierce Creek, Daniel J. Little, Senior Pastor, and by churches and concerned Christians nationwide. Tax-deductible donations for this advertisement gladly accepted. Make donations to: The Church at Pierce Creek," and provided a mailing address.
At the time the advertisement was published, the church was a tax-exempt organization. On October 31, 1992, the New York Times published an article entitled "Religious Right Intensifies Campaign for Bush." The article discussed the role of the religious right in the 1992 presidential campaign and mentioned the advertisement described above, but it did not mention Branch Ministries or the Church at Pierce Creek by name. On December 1, 1992, the New York Times published an op-ed piece entitled "Tax-Exempt Politics?" The article discussed the "use of tax-exempt money for politics," and, as a case in point, focused on the advertisement in USA Today by the Church at Pierce Creek. The article observed that "[t]he sponsors [of the advertisement] almost certainly violated the Internal Revenue Code."
On November 20, 1992, the Regional Commissioner of the Internal Revenue Service sent the Church at Pierce Creek a letter stating that he was authorizing the District Director to begin "a church tax inquiry because a reasonable belief exists that you may not be tax-exempt or that you may be liable for tax. The general subject matter of the inquiry concerns political expenditures which you may have paid or incurred, as well as whether you are tax-exempt." The letter also requested certain information "[i]n order to better understand your activities," including information about the USA Today advertisement, any political campaigns for public office in which the church had sponsored advertisements, the political expenditures of the church, the total amount of contributions received in response to the USA Today advertisement, and the purpose of the church.
On December 23, 1992, the church sent a response to the request for information. The church took the position that it had not engaged in any political activity. Rather, the advertisement printed in USA Today and the Washington Times constituted a "warning to members of the Body of Christ," and the warning "did not constitute participation in a political campaign." The church refused to respond to most of the requests made by the IRS, including the request for the identities of persons who had contributed money in response to the USA Today and Washington Times advertisement.
By letters dated February 11, 1993 and August 11, 1993, the IRS informed the church that it was beginning a church tax examination, and it again requested certain documents from the church. At one point, the IRS drafted a summons to require the church to submit the requested information, but the summons was never issued. Finally, on January 19, 1995, the IRS issued a letter stating that the church's status as a section 501(c)(3) tax-exempt organization was revoked, retroactive to January 1, 1992.
Three months after the revocation letter was issued, the church filed a lawsuit in federal court asserting that the revocation of its status as a Section 501(c)(3) organization was improper. The basic premise of the church's claim was that once a church applies for and is deemed a section 501(c)(3) organization, the IRS lacks authority to revoke that status unless it concludes that the church is not a bona fide church. The church also contended that the IRS selectively prosecuted it on the basis of its conservative political or religious views in violation of the equal protection clause of the fifth amendment, and that the revocation of its exempt status violated the first amendment and the Religious Freedom Restoration Act.
The Court's Ruling
The church argued that the IRS has no authority to revoke the section 501(c)(3) status of a church unless it determines that the church is not a bona fide church. It insisted that the Church Audit Procedures Act ("CAPA") provides a "zone of protection" that prevents the IRS from revoking the section 501(c)(3) status of a church on the basis of partisan political activity. The church also claimed that CAPA only permits the IRS to revoke the exempt status of "sham churches." If the church is bona fide, the IRS can only impose a tax or seek an injunction to stop the activities of the church. It cannot revoke its exempt status.
The IRS conceded that the church in this case is a bona fide church. However, it asserted that it revoked the section 501(c)(3) status because the church engaged in partisan political activity in direct violation of section 501(c)(3). The IRS rejected the church's claim that CAPA allows revocation only in the case of sham churches:
The clear statutory language of CAPA, however, provides that the [IRS] is authorized to revoke the tax-exempt status upon a determination that the organization "is not a church which (i) is exempt from taxation by reason of section 501(a) …." Section 501(a) in turn provides that an "organization described in subsection (c) … shall be exempt from taxation under this subtitle …." Subsection (c)(3) describes "corporations … organized and operated exclusively for religious … purposes … which do not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."
The court pointed out that the IRS determined, in compliance with the procedures set forth in CAPA, that the church, while it remained a bona fide church, was not an organization described in section 501(c)(3) because it had published or distributed a statement in opposition to a candidate for public office. Because the IRS determined that the church was not an organization described in section 501(c)(3), it had the legal authority to determine that it was no longer a church that was exempt from taxation.
Equal Protection of the Laws
The church claimed that the decision of the IRS to revoke its tax-exempt status was unconstitutionally motivated by the conservative political and religious beliefs of the church. The court noted that to win a selective prosecution claim, the church must clearly establish "(1) that the prosecutorial decision had a discriminatory effect, and (2) that it was motivated by a discriminatory purpose or intent." The court continued:
A showing of discriminatory effect requires [the church] to demonstrate that similarly situated persons of other religions or political beliefs have not been prosecuted. Discriminatory purpose may be established either with direct evidence of intent or with "evidence concerning the unequal application of the law, statistical disparities and other indirect evidence of intent." For obvious reasons, the selective prosecution standard is a "demanding one," and [the church] must present "clear evidence" of both discriminatory effect and intent in order to establish their claim.
The court concluded that the church had failed to present "clear evidence" of either requirement, and the IRS therefore was entitled to summary judgment on this claim:
[The church has] presented little or no evidence of discriminatory effect. As the government has pointed out [the church has] not identified any "similarly situated" organization that retained its section 501(c)(3) status. [The church's] evidence of similarly situated entities relates only to churches that have allowed political leaders to appear at religious services or churches that have used the pulpit to advocate a certain message. For purposes of deciding whether to begin an investigation, however, those entities are not similarly situated to the church. The IRS decided to revoke the tax-exempt … because the church had run a print advertisement in two national newspapers that was fully attributable to the church and that solicited donations. [The church has] pointed to no other instance in which a church so brazenly claimed responsibility for a political advertisement in a national newspaper and solicited tax-deductible donations for that political advertisement. In fact, [the church has] provided no evidence of an instance in which a political act could so easily be attributed to a tax-exempt church.
Virtually all of the 65 examples cited by [the church] are of candidates or other political figures speaking from the pulpits of churches or at synagogues-Reverend Jesse Jackson, Senators Al Gore, Charles Robb, Frank Lautenberg and Tom Harkin, Senate candidates Oliver North and Harvey Gantt, Governors Bill Clinton, Mario Cuomo and Douglas Wilder, gubernatorial candidates James Gilmore, III and Don Beyers, Jr., Mayors Marion Barry, Kurt Schmoke and Rudolph Giuliani, and numerous others. [The church maintains] that this conduct is similar to that of the church because, like the advertisement at issue here, those instances involve "public declarations" urging people to vote for or against particular candidates. As the court previously noted, however, "candidates giving speeches from pulpits or churches or churches sponsoring political debates or forums … are substantially dissimilar to the instant case."
The court pointed out that in the only two instances with arguably similar circumstances, the IRS in fact did revoke the tax-exempt status of the two religious organizations. Each case is summarized below.
(1) Christian Echoes National Ministry, Inc. v. United States 470 F.2d 849 (10th Cir. 1964). In 1964, the IRS revoked the tax-exempt status of Christian Echoes National Ministry in part because "it had directly and indirectly intervened in political campaigns on behalf of candidates for public office."
(2) The Way International. In 1985 the IRS revoked the section 501(c)(3) tax-exempt status of The Way International retroactively, in part because The Way had engaged in political activity. The Way International challenged the revocation of its exemption in federal court. While the case was pending, the parties entered into a settlement. The Way International was granted an exemption effective September 1, 1983, but the revocation for the prior years was allowed to stand.
The church argued that the fact that the IRS took actions against Christian Echoes and The Way does not undermine its selective prosecution claim because neither organization was a church. The court noted that this claim only bolstered the position of the IRS that there were no other "similar" cases in which the IRS treated politically active churches more leniently. The court concluded:
In the circumstances presented here-where a tax-exempt church bought an advertisement that stated its opposition to a particular candidate for public office, attributed the advertisement to the church and solicited tax-deductible contributions for the advertisement-the IRS was justified in revoking the tax-exempt status of the church, even if it might refrain from revoking the status of churches where attribution is less clear. In the absence of any showing that any other churches engaged in similar conduct and did not have their tax-exempt status revoked [the church has] failed to establish discriminatory effect.
The court then addressed the second requirement for a selective prosecution claim-clear evidence of discriminatory motivation by the IRS. As proof of this requirement, the church pointed to the fact that the IRS had not previously revoked the section 501(c)(3) status of a church for its involvement in a campaign for political office. The court rejected this argument, noting that "while statistical evidence may be used to establish discriminatory intent, it is not sufficient for [the church] to assert that the lack of any other revocations must mean that the IRS had a discriminatory intent where, as here, [the church has] failed to provide any evidence that there are any similarly situated churches that retained their section 501(c)(3) status."
Free Exercise of Religion
The church also asserted that the revocation of its tax-exempt status violated the right to free exercise of religion guaranteed by the Religious Freedom Restoration Act (RFRA) and the first amendment. RFRA provides that the government "shall not substantially burden a person's exercise of religion … [unless] it demonstrates that application of the burden to the person (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest."
In order to invoke the protections of RFRA, the church first must demonstrate that the government has substantially interfered with its exercise of religion. If, and only if, the church can demonstrate a substantial burden, then the government has the burden under RFRA of establishing that the revocation serves a compelling governmental interest and that revocation is the least restrictive means of accomplishing that compelling interest. The court concluded that the church had failed to establish that the revocation of its tax-exempt status substantially burdened its right to freely exercise its religion:
A substantial burden exists where the government puts substantial pressure on an adherent to modify his behavior and to violate his beliefs, or where the government forces an individual to choose between following the precepts of her religion and forfeiting benefits, on the one hand, and abandoning one of the precepts of her religion.
The court stressed that the church had provided no evidence that the revocation of its exempt status by the IRS was in any way connected to its "refusal to violate its religious beliefs or abandon a precept of their religion." Instead, the revocation was undertaken "because of the church's involvement in partisan political activity."
The church claimed that the decision of the IRS to revoke its section 501(c)(3) status had imposed a number of burdens, including exposure to federal income taxation, and the likelihood that contributions will decrease since donors will not be eligible to deduct their contributions to the church. The court acknowledged that the church was "probably correct" in claiming that the revocation had imposed these burdens, but it insisted that the church had "failed to establish that the revocation has imposed a burden on their free exercise of religion." The court emphasized that the church had a choice-it "could engage in partisan political activity and forfeit its section 501(c)(3) status or it could refrain from partisan political activity and retain its section 501(c)(3) status." The court insisted that this choice was unconnected to the church's ability to freely exercise its religion.
The court noted that the only way in which the revocation of section 501(c)(3) status had any effect on the church's exercise of religion was that the church had less operating money to spend on religious activities because it was now a taxable entity. But, the fact that the church had less money to spend on religious activities as a result of its participation in partisan political activity "is insufficient to establish a substantial burden on their free exercise of religion."
Since the church had failed to demonstrate that the revocation of its tax-exempt status had "substantially interfered" with its exercise of religion, there was no violation of either RFRA or the first amendment guaranty of religious freedom, and there was no need for the IRS to demonstrate that the revocation served a compelling governmental interest. However, the court added that even if the church had demonstrated a substantial burden on the exercise of its religion, the IRS had met the compelling governmental interest standard and therefore the church's rights were not violated. The court observed: "The government has a compelling interest in maintaining the integrity of the tax system and in not subsidizing partisan political activity, and section 501(c)(3) is the least restrictive means of accomplishing that purpose."
Branch Ministries, Inc. v. Commissioner, 99-1 USTC ¶50,410 (D.D.C. 1999)