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COMMENTARY • January 2006 |
Preserving the Saints: IRS v. All Saints Church
By Mark A. Muntean
CHRISTIAN EXAMINER- Opinion |
Newspapers from The New York Times to the Los Angeles Times have reported a controversial antiwar and antipoverty sermon delivered by a minister at All Saints Church in Pasadena, Calif., before the last presidential election. Recently, the IRS spawned its own debate by beginning an inquiry into whether the church can keep its tax-exempt status. This isn’t the only church facing an IRS judgment day. The IRS is probing 20 churches about political activities related to the 2004 election, according to a Nov. 10 Washington Times article.
In a letter to All Saints, the IRS asserted that it has a reasonable belief that the church may not be tax-exempt as a church under the tax code. If true, the church could be liable for tax; charitable contributions by parishioners could be undone, etc. In short, a mess. The IRS gave the church notice of the beginning of a church tax inquiry to determine whether the church’s involvement in political activities constitutes political campaign intervention prohibited under the tax law. Political activities can cause a church to lose its tax-exempt status and subject it to an excise tax on the funds spent on that activity.
How did the IRS find out?
When I explain to clients this IRS investigation method, they seem surprised, which surprises me. IRS employees read the newspaper. Here, an IRS employee read a Nov. 1, 2004 LA Times article about the sermon preached at All Saints titled “If Jesus Debated Senator Kerry and President Bush” The article noted that many church officials stop short of endorsing candidates, mindful that such activism could endanger their congregation's tax-exempt status.
As part of its inquiry, the IRS asked the church to respond to several questions. Of interest was the relationship between the church and the minister who preached the sermon, and if the church had any input in drafting the minister’s sermon. Sound like Big Brother?
The IRS wanted to know who at the church (including its board members) knew about the sermon’s content before it was delivered, how many times that sermon was presented, and whether materials were distributed with the sermon. Finally, the IRS asked if any other sermons were given supporting or opposing a candidate for public office. Reminiscent of an Orwellian novel, the IRS quizzed, “Does All Saints agree that the sermon referenced above constituted intervention in a political campaign?” If they did not, the church was asked to provide a legal memorandum in its support.
Here’s the deal
Some reports suggest the IRS is trampling on All Saints’ right to free speech. Frankly, All Saints should not be complaining, and neither should the critics who have chimed in on its behalf. This is how it works. The tax law prohibits any political intervention by a church (or any other tax-exempt entity), but allows some political activities that influence legislation. Courts have held that requiring churches to comply with the tax law in exchange for tax-exempt status does not violate the church’s, or its parishioners,’ constitutional rights. Branch Ministries, Inc. v. Rossotti, 211 F.3d 137 (D.C. Cir. 2000).
All Saints responded referring to itself as being “boldly political without being partisan.” All Saints argues that if the tax rules are applied in the manner being suggested by the IRS, then the church would effectively be prohibited from preaching its core values in connection with political issues. The church seems to be forgetting its bargain with the IRS. In becoming tax-exempt it agreed to abide by the IRS’s rules in exchange for the tax benefits derived from its tax-exempt status. This may be like making a deal with the devil, but it is the system for tax-exempt status.
Give up tax-exempt status
Churches have two choices: follow the tax rules for tax-exempt entities concerning political activities, or give up their tax-exempt status. It’s that simple. Indeed, if a church drops its tax-exempt status it is free to take stands consistent with its religious beliefs, without pressure from the tax law’s prohibition against political activities (and its parishioners’ tax deductions for church contributions).
In the end, this is not Big Brother or some Orwellian drama. It’s a business deal. All Saints agreed to a business deal and the IRS is asking it to keep its side of the bargain. There is no room for the church community to be indignant. The IRS has a right to ask questions, and the church has an obligation to state its case.
Mark A. Muntean practices law in San Francisco, authoring numerous articles and books including Tax Guide for Church and Clergy (Tax Institute 1996). His practice concentrates on federal and state tax general matters and tax controversies.
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