The U.S. court of Appeals for the D.C. Circuit yesterday heard oral arguments in Iowaska Church of Healing v. Werfel (audio of full oral arguments). In the case, the D.C. federal district court upheld the IRS's refusal to grant §501(c)(3) non-profit status to a church that promotes the religious use of Ayahuasca, a tea brewed from plants containing a drug that is illegal under the federal Controlled Substances Act. (See prior posting.) Bloomberg Law reports on the oral arguments.
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Tuesday, March 12, 2024
Wednesday, April 05, 2023
IRS Correctly Denied Non-Profit Ruling to Church That Promoted Use of Ayahuasca
In Iowaska Church of Healing v. United States, (D DC, March 31, 2023), the D.C. federal district court upheld the IRS's refusal to grant §501(c)(3) non-profit status to a church that promotes the religious use of Ayahuasca, a tea brewed from plants containing a drug that is illegal under the federal Controlled Substances Act. The church, which has 20 members located around the world, applied to the Drug enforcement Administration for a religious exemption from CSA provisions. After four years, that application is still pending. The court said in part:
The IRS correctly concluded that, until plaintiff obtains a CSA exemption, its promotion and use of Ayahuasca remains illegal under federal law, and plaintiff is neither organized nor operated exclusively for public purposes. As a result, plaintiff is not entitled to an exemption from income tax under section 501(c)(3).
Plaintiff had argued that the Supreme Court's decision in the O'Centro case entitled it to a tax exemption. The court responded:
[T]he holding in O Centro stands only for the principle that obtaining a CSA exception for religious use of Ayahuasca is possible, if such use is in fact a sincere religious exercise. The flaw in plaintiff’s reliance on O Centro here, is that plaintiff has still not obtained that CSA exception—and whether plaintiff’s showing made to the DEA is sufficient to qualify for this exemption remains an open question that is not before this Court. O Centro simply does not stand for plaintiff’s asserted holding, that all Ayahuasca use is necessarily religious, and that case certainly does not establish that all organizations making use of Ayahuasca are entitled to an exemption from income tax, which is the issue pending here.
Friday, February 10, 2023
Federal Circuit Hears Arguments By Organization Seeking "Church", But Not Non-Profit, Tax Status
The Court of Appeals for the Federal Circuit heard oral arguments on Wednesday in an unusual appeal, Alearis, Inc. v. United States. (Audio of full oral arguments.) In the case, the U.S. Court of Federal Claims dismissed a challenge by Alearis to the refusal by the Internal Revenue Service to pass on its application to classify it as a "church". (Alearis, Inc. v. United States, (Ct. Fed. Cl., Jan. 11, 2022)). "Church" status would exempt the organization from various restrictions otherwise imposed on "private foundations." IRS forms require organizations seeking classification as a church to first apply on Form 1023 for an exemption as a non-profit organization under Section 501(c)(3). Alearis says it does not seek non-profit status, only "church" status. It contends that completing Form 1023 would violate its religious tenets, presumably because it would require disclosure of elements of the religion that its doctrines require to be kept secret. The Court of Federal Claims opinion described Alearis as follows:
Plaintiff, Alearis, Inc., is an organization incorporated in the state of Delaware. Its sole member, “the Church,” was “founded at time immemorial when the Old Ones placed the Game into ecclesiastical trust for such purpose.” Plaintiff is “organized exclusively for religious purposes to perform or carry out the functions of the Church.”
Wednesday, July 27, 2022
Title IX Applies To Religiously Affiliated School That Is Tax Exempt
The provisions of Title IX of the Education Amendments Act of 1972 which bar sex discrimination apply to "any education program or activity receiving federal financial assistance". In Buettner-Hartsoe v. Baltimore Lutheran High School Association, (D MD, July 21, 2022), a Maryland federal district court held that a §501(c)(3) tax exemption for a religiously-affiliated high school constitutes federal financial assistance so that the school is subject to Title IX. The court added that also in its view, schools that discriminate on the basis of sex, just like those that discriminate on the basis of race, are not entitled to federal tax exemptions. The court's opinion applies to cases brought by 5 women who are former students at the high school who allege sexual assault and verbal sexual harassment by male students at the school. JDSupra reports on the decision.
Tuesday, July 19, 2022
Non-Profits Are Seeking IRS Classification As "Churches"
Both Baptist News Global and ProPublica have recently published lengthy investigative articles on the growing number of non-profit entities that have sought classification by the IRS as a "church" or "association of churches" or an "integrated auxiliary of a church." this exempts them from filing the annual Form 990 required of other non-profits. Form 990 disclose income, expenditures and compensation of officers, directors and key employees.
Thursday, September 09, 2021
Court of Federal Claims Denies Motion For Reconsideration Of Church Camp's Tax Liability
In Steeves v. United States, (Fed. Cl., Sept. 7, 2021), the U.S. Court of Federal Claims denied a motion for reconsideration filed pro se in a case challenging the IRS's enforcement of tax liability against Camp Noble, Inc. (CNI). Petitioner claims that CNI is an integrated auxiliary of a church and that therefore the IRS lacks jurisdiction over it. The court previously dismissed the case because petitioner failed to comply with its instructions to join or substitute CNI as the real party in interest. In this decision, the court holds that plaintiff is merely reasserting arguments it previously made in the case.
Tuesday, August 18, 2020
Churches Respond To IRS Proposed Changes In Group Exemption Letter Program
In May, the Internal Revenue Service issued a 63-page proposal (full text) to update procedures for a parent organization to obtain 501(c)(3) non-profit status rulings for a group of subordinate organizations. The Notice explains its purpose, saying in part:
The Internal Revenue Service (IRS) is issuing this guidance in proposed form to provide an opportunity for public comment because the IRS recognizes that, if finalized, the proposed revenue procedure would make substantial changes to the procedures set forth in Rev. Proc. 80-27 and that the application of these new procedures may impose an additional administrative burden on central organizations with group exemption letters in existence on the date the final revenue procedure is published in the Internal Revenue Bulletin (preexisting group exemption letters).
The IRS oversees more than 4,000 group exemption letters that include more than 440,000 subordinate organizations. The IRS has considered how to reduce the administrative burden and increase the efficiency of the group exemption letter program, to improve the integrity of data collected for purposes of program oversight, to increase the transparency of the program, and to increase compliance by central organizations and subordinate organizations with program requirements....
Last week, a 14-page joint comment letter (full text) was filed with the IRS by the Evangelical Lutheran Church, the United Church of Christ, The United Methodist Church, The Episcopal Church, and the Reformed Church in America. It contends that the proposal in its present form violates both RFRA and the 1st Amendment, saying in part:
This letter asks that if the IRS adopts a revamped procedure for the administration of the group ruling exemption process, it make an accommodation to allow the faith communities to continue their status quo.... We do not believe the IRS desires a set of modifications that would burden the expression of religious beliefs in ways that would range from making group rulings overwhelmingly unmanageable to obviously unconstitutional....
The Proposed Revenue Procedure requires that subordinate organizations participating in a group exemption ruling must adopt a uniform governing instrument...
Considering the decades during which these religious organizations added first thousands, and then tens of thousands, of subordinate organizations to their group rulings, the impact of this requirement going forward is enormous....
Further, the very act of requiring uniform governing instruments is theologically untenable in these denominations that have chosen respective ecclesiastical structures and relationships that best express their beliefs about where authority resides and how it is exercised, and how and by whom ultimate decisions about key theological issues are made....
Even if RFRA were not dispositive, the First Amendment would bar the IRS from effectively dictating polity and structure matters inside a denomination. The IRS cannot close the Group Exemption process to all churches except those able to eccelsiologically impose specific civil forms on subordinates.
Other denominations have also filed comment letters. [Thanks to Jennifer Gniady for the lead.]
Thursday, January 30, 2020
Church Leaders Sentenced To Prison In Scheme To Siphon Off Church Funds
The leader and the main treasurer of the Israelite Church of God in Jesus Christ were sentenced to federal prison today for their respective roles in a scheme in which both men caused the church to pay millions of dollars in personal expenses for the leader that the leader then omitted from his personal tax returns.The two men had previously pleaded guilty to one count of conspiring to defraud the United States of at least $250,000 in taxes. Jermaine Grant, the church leader, was sentenced to 18 months in prison. The treasurer, Lincoln Warrington, was sentenced to 12 months and one day.
Saturday, January 25, 2020
President Proclaims National School Choice Week
Each child is a gift from God who has boundless potential and deserves a fair shot at the American Dream. To have that fair shot, children and their families must be free to pursue an educational environment that matches their individual learning style, develops their unique talents, and prepares them with the knowledge and character needed for fulfilling and productive lives.....
Today, I renew my call on the Congress to focus on what is best for children and pass a Federal tax credit to support State-based educational choice programs.....
Monday, January 13, 2020
Challenge To Form 990 Rules Is Dismissed
... the award of an injunction or declaratory judgment on NonBelief Relief’s behalf would restrain the government’s collection of taxes against NonBelief and its donors.The court went on to hold that once NonBelief Relief's tax exempt status was revoked, it lost standing to challenge the constitutionality of the church exemption from filing Form 990:
NonBelief Relief alleges that it suffered an injury when, as a 501(c)(3) tax-exempt organization, it was required to file a Form 990, while churches and other religious institutions were not. But assuming that is so, that injury is neither ongoing nor imminent, because NonBelief Relief is no longer a tax-exempt organization and has expressed no intent to reapply for that status..... [I]t is being treated the same as all other non-501(c)(3) organizations.
Tuesday, December 17, 2019
WAPO: IRS Whistleblower Says Mormon Church Misled Regarding Charitable Accounts
A former investment manager alleges in a whistleblower complaint to the Internal Revenue Service that the Church of Jesus Christ of Latter-day Saints has amassed about $100 billion in accounts intended for charitable purposes, according to a copy of the complaint obtained by The Washington Post.
The confidential document, received by the IRS on Nov. 21, accuses church leaders of misleading members — and possibly breaching federal tax rules — by stockpiling their surplus donations instead of using them for charitable works. It also accuses church leaders of using the tax-exempt donations to prop up a pair of businesses.
Tuesday, December 10, 2019
Misunderstanding of RFRA Not A Defense To Willful Failure To File Tax Returns
Bowman’s lawyer had argued during Bowman’s jury trial that Bowman’s reliance on another federal law, the Religious Freedom [Restoration] Act, led to his "good faith’' misunderstanding of his obligations under the federal tax code. The judge threw out that defense before Bowman’s second trial, ruling that any "good faith'' misunderstanding had to be of the tax code itself, not another law.The court's ruling was presumably based on its reading of the U.S. Supreme Court's decision in Cheek v. United States (1991). An appeal of the conviction is planned.
Friday, August 23, 2019
Hung Jury In Pro-Life Tax Objector's Trial
Tuesday, July 02, 2019
New Tax Law Tweaks Non-Profit Annual Filing Requirements
Sunday, June 23, 2019
IRS Urged To Accommodate Amish On Child Tax Credit Claims
Wednesday, June 19, 2019
FFRF Foregoes Cert Petition In Challenge To Parsonage Allowance
After “counting heads,” we concluded that any decision from the current court would put the kibosh on challenging the housing allowance for several generations.
We began this challenge years ago, when the composition of the Supreme Court was very different. We have (secular) faith that someday the Supreme Court composition will again favor the Establishment Clause and be willing to scrutinize this preferential code and declare it unconstitutional. By ending our challenge at this time, the Freedom From Religion Foundation is making it possible for another challenge to be taken in the future, and we hope to be part of that.
Friday, May 31, 2019
Tax Court Denies Deduction For Evangelist's Expenses
Petitioner contends that respondent is characterizing his evangelism as if it were not a religious activity and that respondent’s characterization violates the First Amendment. Petitioner mischaracterizes respondent’s position, which is that petitioner’s expenses for evangelistic activities are not deductible as charitable contributions under section 170, not that they are not religious activities. Not all religious activities are services “to or for the use of” a religious organization for purposes of section 170....
Petitioner contends that disallowance of his section 170 deductions violates his right to the free exercise of religion by placing a substantial burden on his evangelization, in that it would result in his having less money to evangelize. We disagree. In Hernandez v. Commissioner, 490 U.S. 680, 699 (1989), the Supreme Court said that “we need not decide whether the burden of disallowing the §170 deduction is a substantial one, for our decision in Lee establishes that even a substantial burden would be justified by the ‘broad public interest in maintaining as ound tax system’”.The Tax Court also rejected petitioner's claim that "three audits of his Federal income tax returns within 10 years resulted in excessive Government entanglement with his exercise of religion."
Thursday, April 25, 2019
IRS Recognizes Satanic Temple As A "Church"
Although the Satanic Temple had previously rejected pursuing tax-exempt status, church president Lucien Greaves reversed this stance in 2017 after President Trump signed a “religious freedom” executive order. “As ‘the religious’ are increasingly gaining ground as a privileged class, we must ensure that this privilege is available to all, and that superstition doesn’t gain exclusive rights over non-theistic religions or non-belief,” Greaves wrote in the Satanic Temple newsletter....
Thursday, March 21, 2019
ACA Mandate Does Not Violate RFRA
The Magistrate Judge ... found that the burden imposed on Plaintiffs was de minimis.... RFRA prohibits substantial burdens on the free exercise of religion absent a compelling governmental interest achieved by the least restrictive means.... Describing the thousands of dollars Plaintiffs have paid in ACA penalties since 2014 as de minimis may not be fair. However, that does not render the penalties substantially burdensome, either. Plaintiffs offer no indication that they are forced to decide between their religious beliefs and a benefit generally available. Moreover, Plaintiffs do not allege or otherwise show that the ACA penalty places a substantial burden on them to modify their religious conduct.... [T]he cost of the penalty would not exceed the cost to obtain the required level of insurance. Plaintiffs do not indicate how this applies substantial pressure to forego their religious beliefs. Staying true to their religion and avoiding health insurance would cost no more, and potentially cost less, than purchasing insurance at the expense of their religious beliefs.
Sunday, March 17, 2019
7th Circuit: Parsonage Allowance Exclusion Is Constitutional
§107(2) is simply one of many per se rules that provide a tax exemption to employees with work-related housing requirements.... Congress’s policy choice to ease the administration of the convenience-of-the-employer doctrine by applying a categorical exclusion is a secular purpose, not “motivated wholly by religious considerations.”
.... The government argues Congress passed § 107(2) because providing the tax exemption only to ministers given in-kind housing tended to exclude ministers of smaller or poorer denominations.... [W]e take the government at its word, which resolves this question. “The clearest command of the Establishment Clause is that one religious denomination cannot be officially preferred over another.”
The third secular legislative purpose cited by the Treasury Department is to avoid excessive entanglement with religion. To the government, Congress’s decision to exempt ministers from the proof requirements of § 119(a)(2) prevents the IRS from conducting intrusive inquiries into how religious organizations use their facilities....
[T]he primary effect of § 107(2) is not to advance religion on behalf of the government, but to “allow[] churches to advance religion, which is their very purpose.” ...
FFRF claims § 107(2) renders unto God that which is Caesar’s. But this tax provision falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: neither commanded by the former, nor proscribed by the latter. We conclude § 107(2) is constitutional.Milwaukee Journal Sentinel reports on the decision.