Confirmation of Tax Division Chief Delayed Over Past Position On ADF's Pulpit Initiative

The Chicago Tribune last week reported that President Obama's nomination of Cono Namorato to be Assistant Attorney General for the Tax Division of the Department of Justice, is being held up in the Senate Judiciary Committee because of the position he took in the past on church involvement in partisan political activity. In 2008, while a lawyer at the Washington firm of Kaplan & Drysdale, Namorato along with two other attorneys wrote the Internal Revenue Service's Office of Professional Responsibility complaining about the Pulpit Initiative being promoted by Alliance Defense Fund (now known as Alliance Defending Freedom). The letter urged an investigation of ADF's lawyers for "explicitly soliciting churches across America to violate Federal law" that bars partisan political participation by tax-exempt organizations.

Supreme Court Denies Review Of California Donor Disclosure Law

The U.S. Supreme Court yesterday denied certiorari in Center for Competitive Politics v. Harris, (Docket No. 15-152, cert. denied 11/9/2015). (Order List).  In the case, the U.S. 9th Circuit Court of Appeals upheld California's requirement that in order to solicit tax deductible contributions in the state, a charity or other non-profit must file a non-public annual report that includes an unredacted IRS Form 990 Schedule B, the names and contributions of significant donors. (See prior posting.) AP reports on the Supreme Court's action.

Carson Want IRS To Penalize CAIR Over Its Call For Him To Leave Presidential Race

As previously reported, last month the Council on American-Islamic Relations called for Dr. Ben Carson to withdraw from the Republican Presidential contest after Carson told an interviewer that a Muslim should not be made President and that Islam is inconsistent with the U.S. Constitution.  Now, as reported by today's Washington Times, Dr. Carson is urging the Internal Revenue Service to immediately revoke CAIR's tax-exempt status.  Carson has posted a petition on his campaign website saying in part:

The Council on Islamic-American Relations (CAIR), a U.S. Muslim group, recently demanded that I withdraw as candidate for the 2016 presidential race. By doing so, the organization has brazenly violated IRS rules prohibiting tax-exempt nonprofits like CAIR to intervene in a political campaign on behalf of—or in opposition to—a candidate. 

Estate Loses Income Tax Deduction For Large Contributions To Churches Because of Will Challenges

In Estate of DiMarco v. Commissioner, (T.C., Sept. 21, 2015), the U.S. Tax Court denied the estate of John DiMarco a deduction on its 2010 income tax return for a $314,942 contribution to two churches.  DiMarco's will left his residuary estate to the churches he attended regularly at the time of his death. The Tax Court held that because of various challenges to the will, it was not clear until 2013 that the churches would receive the contributions.  Thus presumably any deduction would have to be taken in that year, if income was available to offset against the deduction. The court affirmed the tax commissioner's assessment of a $108,588 deficiency for 2010.

IRS Requires Speedier Responses From Applicants for Non-Profit Status

Last week the Internal Revenue Service issued a Memorandum For Exempt Organization Determination Employees (Sept. 8, 2015) giving organizations that apply for tax exempt status less time to submit additional information requested by the IRS. Under the new procedures if an organization does not provide the information by the due date, the case will be closed and fees will not be refunded.  A manager-approved extension of up to 14 days can be granted.  Previously an applicant could get a standard 14 day extension and then its file was held for an additional 90 days before it was closed.

Tax Court Upholds Penalties Against Promoters of Evasionary "Corporation Sole" Tax Scheme

In Gardner v. Commissioner of Internal Revenue, (USTC, Aug. 26, 2015), the U.S. Tax Court upheld $47,000 in penalties assessed by the Internal Revenue Service against a husband and wife who marketed to more than 300 people a tax evasion scheme involving the creation of a purported religious entity -- a "corporation sole."  Defendants claimed that taxpayers could turn otherwise taxable income into tax free income by assigning it to the corporation sole they create and control. BNA Daily Report for Executives [subscription required] reports on the decision.

Comedian Takes On Televangelists Preaching Prosperity Gospel

Comedian John Oliver, host of the HBO late-night show "Last Week Tonight," has gained widespread attention for his Aug. 16 episode (YouTube video of episode) that took on televangelists who preach the Prosperity Gospel.  As reported by the Wall Street Journal, to illustrate the ease of creating a religious organization that can solicit tax-exempt contributions, Oliver filed paperwork to create his own church, Our Lady of Perpetual Exemption. The humorous 20-minute episode argues that some broadcast ministries exploit those who can least afford to donate.

IRS Seeks Nominees For Tax Exempt Advisory Committee

The Internal Revenue Service has issued a Notice And Request For Applicants Or Nominations for vacancies on the Advisory Committee on Tax Exempt and Government Entities. (Federal Register, Aug. 10, 2015). Applications or nominations must be received by Sept. 4.

IRS Commissioner Says No Non-Profit Revocations In His Term For Colleges That Oppose Gay Marriage

At a July 29 hearing conducted by the Senate Judiciary Committee's Subcommittee on Oversight, Agency Action, Federal Rights and Federal Courts (video and testimony at hearing), Sen. Mike Lee (R-UT) had a lengthy exchange with IRS Commissioner John Koskinen over whether the IRS would revoke the tax-exempt status of Christian colleges and universities that remain opposed to same-sex marriage.  According to the Christian Post, Koskinen pledged:

that he will commit to making sure that the IRS does not punish religious schools for not adopting policies to accommodate gay marriage — such as allowing married same-sex couples to live in married student housing — as long as he is in charge of the IRS..... However, Koskinen did leave the door wide open for tax-exempt statuses to be a problem for Christian schools in the future....

All we do is follow whatever the public policy is that is set by other organizations," Koskinen argued. "At this point other actions would have to take place before the IRS can consider issuing a regulation, which would give people notices to what we think the public policy was and then cases and exams would be conducted under that.

[Thanks to Steven H. Sholk for the lead.]

Report on Tax Implications of Same-Sex Marriage

On July 30, the Congressional Research Service issued a report titled The Federal Tax Treatment of Married Same-Sex Couples. The report details the various tax code provisions that will lead to tax differences between filing as two single taxpayers and filing as a married couple.  The report concluded that while for some same-sex couples, federal recognition of their marriage will lead to lower taxes, for other it will lead to taxes higher than if filing as two single individuals. Several studies have reached different estimates on the overall impact on tax revenues.

NY May Require Charities To File Information on Major Donors

In Citizens United v. Schneiderman, (SD NY, July 27, 2015), a New York federal district court held that the New York Attorney General can constitutionally require registered charities to file a copy of their federal Form 990, Schedule B disclosing the names, addresses, and contributions of their major donors in order to solicit funds in the state. According to the court:

On this record, the Court is satisfied that the Schedule B policy bears a substantial relation to the important governmental interests of enforcing charitable solicitation laws and protecting New York residents from illegitimate charities.... In light of the important governmental interests that the Schedule B policy serves, the Court cannot find on this record that it places unjustified burdens on charities' rights of speech and association.

The court also rejected prior restraint and due process arguments. Reuters reports on the decision.  In May, the 9th Circuit reached a similar result. (See prior posting.)

IRS Seeks Comments On Form 990 Used By Non-Profits

In a July 14 Notice and Request for Comments published in the Federal Register, the IRS has asked for comments concerning Form 990, Return of Organization Exempt From Income Tax Under Section 501(c), 527, or 4947(a)(1) of the Internal Revenue Code, and on Schedules A and B of Form 990. Comments are due by Sept. 14.

DC Circuit: Anti-Injunction Act Does Not Bar Suit Challenging Alleged Special IRS Review of Zionist Groups

In Z Street v. Koskinen, (DC Cir., June 19, 2015), the D.C. Circuit Court of Appeals held that the Anti-Injunction Act, which prohibits suits to restrain the assessment or collection of any tax, does not bar a suit by a pro-Israel non-profit organization that sued to prevent allegedly unconstitutional delay in processing its application for non-profit status.  Z Street claimed that the IRS has a special Israel policy that results in special scrutiny, and thus delay, of applications by groups holding political views on the Middle East inconsistent with those of the Obama administration. Jewish Press reports on the decision.

9th Circuit: State AG Can Require Disclosure of IRS Form 990 List of Donors

In a decision handed down early last month, the U.S. 9th Circuit Court of Appeals upheld California's requirement that in order to solicit tax deductible contributions in the state, a charity or other non-profit must file an annual report that includes an unredacted IRS Form 990 Schedule B, the names and contributions of significant donors.  In Center for Competitive Politics v. Harris, (9th Cir., May 1, 2015), the court held that the organization challenging the requriement had not shown that its donors would experience threats or harassment because of the disclosure requirement.  It also rejected the argument that Congress had intended to protect the privacy of Schedule B information. BNA Daily Report for Executives (subscription required) reported on the decision this week.

Some Recent Congressional Actions of Interest

On April 15, the U.S. House of Representatives passed H.R. 1314, a bill that would amend the Internal Revenue Code to assure the right to an administrative appeal for non-profit organizations that are denied tax-exempt status by the IRS.  When the bill went to the Senate, it became the vehicle for the high profile trade promotion authority.  The May 12 substitute amendment (full text) that added the trade authority provisions, however, eliminated the text of the House language regarding non-profits.

A large number of amendments have been offered on the Senate floor to the trade authority bill. One of those amendments (No. 1237), approved in the Seante  on May 18 by a 92-0 vote, adds to the numerous trade negotiating objectives in Sec. 102, the following:

to take into account conditions relating to religious freedom of any party to negotiations for a trade agreement with the United States.

California Megachurch Challenges Church-State Boundaries

The Center for Investigative Reporting on Wednesday posted a long report on a megachurch in Chino Hills, California that is attempting to break down the church-state barrier.  Three of the five members of the Chino Valley Unified School District Board of Education worship at the 10,000-member Calvary Chapel.  Apparently two of them bring their praying and preaching regularly into school board meetings.The church's Pastor Jack Hibbs frequently flouts IRS regulations by urging his congregants to vote for specific anti-abortion, anti-gay-marriage and pro-Israel candidates. Hibbs says he is only precluded from endorsing candidates "from behind the pulpit." So during services Hibbs walks in front of the pulpit, blesses a favored candidate, tells the congregation how great the person is and that he is voting for the individual.  Hibbs also uses social media to endorse candidates. Every election, Calvary Chapel hands out questionnaires on conservative issues to candidates and then distributes the responses to the congregation. Following the lead of Pastor Hibbs, the school board has approved a course on The Bible and Its Influence and has opposed the state's transgender protection law. Last November, the Freedom From Religion Foundation filed suit against the Chino Valley School Board over the prayers and preaching at board meetings. (See prior posting.)

Group Files FOIA Suit Seeking Disclosure of New IRS Church Audit Procedures

Alliance Defending Freedom filed a Freedom of Information Act lawsuit on Thursday seeking IRS documents on changes in  procedures for church tax inquiries or examinations.  The complaint (full text) in Alliance Defending Freedom v. Internal Revenue Service, (D DC, filed 4/9/2015) also asks for all documents that were referred to in a July 2014 press release by Freedom From Religion Foundation. That press release (see prior posting) indicated that FFRF had settled a lawsuit against IRS over non-enforcement of non-profit limits against churches because IRS had now created new procedures for initiating church investigations. One News Now reports on ADF's lawsuit.

Tax Court Says Bet Din Arbitration Clause In Demand Trust Does Not Destroy Gift Tax Exclusion

In Mikel v. Commissioner, (USTC April 6, 2015), the U.S. Tax Court held that a clause in a demand trust (a so-called Crummey trust)  providing that any disputes about its interpretation "shall be submitted to arbitration before a panel consisting of three persons of the Orthodox Jewish faith" (a beth din) did not prevent distributions under the trust from qualifying for the annual gift tax exclusion.

Under the trust, 60 children and grandchildren of the husband and wife creating the trust had the right to demand a distribution of $24,000 per year. Trustees could also make additional distributions.  The trust provided that any beneficiary who filed an action in a court of law challenging a distribution would lose his or her benefits under the trust.  The IRS had contended that these provisions prevented the beneficiaries from receiving a "present interest in property"-- the requirement for the gift tax exclusion-- because as a practical matter the right to the distributions were not legally enforceable in court. The Tax Court disagreed concluding first that the right to a distribution would be enforceable before a bet din, and secondly that the clause discouraging court actions applies to discretionary distributions by the trustees, not annual demand amounts. BNA Daily Tax Report (subscription required) reports on the decision. [Thanks to Steven H. Sholk for the lead.]

9th Circuit: Anti-Injunction Act Bars Suit Seeking New IRS Procedures For Religious Objectors

In Boardman v. Commissioner of Internal Revenue, (9th Cir., March 12, 2015), the U.S. 9th Circuit Court of Appeals held that the Anti-Injunction Act requires dismissal of a suit seeking to prevent the Intenal Revenue Service from using expedited procedures to resolve frivolous assertions of religious objections to paying income taxes.  Plaintiff had asked for an injunction ordering the IRS to adopt "procedures for processing disputes, claims, collections and litigation adverse to taxpayers who refuse to pay taxes because of conscience or religion that are respectful, efficient, transparent and minimally burdensome and that lead to Tax Court determinations upon taxpayer request."

IRS New Form For Small Non-Profit Applications Has Eliminated Backlog

BNA Daily Report for Executives [subscription required] reported on Feb. 27 that an IRS official recently told a conference that the IRS new streamlined Form 1023-EZ for small entities has been successful in getting rid of the backlog of 75,000 applications for tax exempt status under Section 501(c)(3). The IRS has approved 18,169 of the 20,123 applications for tax exempt status it has received in the last six months. (Churches and other houses of worship, and church associations, do not need to file in order to obtain exemptions.)