Tax Preparer Refuses To Prepare Joint Return For Same-Sex Couple

Washington Post reports on the latest clash between religious liberty assertions and non-discrimination principles:

For four years, Bailey Brazzel says, she had employed the same tax preparer, Nancy Fivecoate of Carter Tax Service in Russiaville, Ind. Fivecoate prepared the taxes without issue each time — until this year, when Brazzel brought her new wife, Samantha.

Fivecoate declined to serve the couple, citing her religious beliefs.

This was the first year the Brazzels, who wed in July, were filing jointly as a married couple. According to Samantha, Fivecoate explained that she believed marriage was between a man and a woman and that she would therefore not be able to prepare their taxes.

Indiana does not have a statewide law barring discrimination on the basis of sexual orientation. (See prior related posting.) [Thanks to Nathan Walker for the lead.]

Suit Challenges IRS Church Exemption From Filing Form 990

A lawsuit was filed yesterday in D.C. federal district court challenging the exemption for churches from filing annual Form 990 with the Internal Revenue Service.  The exemption is set out in Internal Revenue Code Sec. 6033(a)(3). The complaint (full text) in Nonbelief Relief, Inc. v. Kauter, (D DC, filed 10/11/2018), contends that:

The information return exemption given to churches and other religious organizations constitutes discrimination on the basis of religion in violation of the Establishment Clause.

The suit was filed by a nonprofit organization set up by the Executive Board
of the Freedom From Religion Foundation for nonbelievers to use to channel contributions for relieving human suffering and injustice on a global scale, whether from natural disasters, human actions or adherence to religious dogma. The organization's non-profit status was suspended for its failure to file Form 990 for 3 years. FFRF issued a press release announcing the filing of the lawsuit.

Tax Court: "Pastoral Gifts" Were Taxable Income

In a 36-page opinion peppered with New Testament quotations and citations, the U.S. Tax Court in Felton v. Commissioner, (US TC, Oct. 10, 2018) held that the over $200,000 per year that congregants donated to Rev. Wayne Felton should be taxed as income rather than treated as gifts.  The amounts were received in "Pastoral Gift" envelopes that were available to congregants each week. The court explained:

The dispute between the Commissioner and the Feltons has roots deep in Christian history, and both parties can see their positions staked out as far back as St. Paul. “Who planteth a vineyard, and eateth not of the fruit thereof? Or who  feedeth a flock, and eateth not of the milk of the flock?” 1 Cor. 9:7. And “[e]ven so hath the Lord ordained that they which preach the gospel should live of the gospel.” 1 Cor. 9:14. In our era, the Commissioner might have argued, all this milk and fruit constitute income upon receipt. See sec. 61 (gross income defined as income from whatever source deriveth).

But the relationship between a pastor and his flock is far from entirely commercial, and the Feltons argue that, at least in part, they are supported by gifts, not wages justly bargained for and justly earned in the marketplace: “[W]hen I preach the gospel, I may make the gospel of Christ without charge, that I abuse not my power in the gospel.” 1 Cor. 9:18. And “[y]e sent once and again unto my necessity. Not because I desire a gift: but I desire fruit that may abound to your account. But I have all, and abound: I am full.” Phil. 4:16-18.

We have already found that the transfers--whether gifts or compensation-- have left the Feltons very full indeed. But our tax system is somewhat more complicated than the ancients’, and meeting its exactions can only rarely be extinguished with the draught of a single fish. See Matt. 17:27. To decide this case, we must therefore descend from the sacred to the profane.

The court also approved of the tax penalties assessed by the IRS. [Thanks to Steven H. Sholk for the lead.]

IRS Grants Non-Profit Church Status To Lesbian Anti-Trans Organization

TaxProf blog and Forbes report on the recent decision by the Internal Revenue Service to grant 501(c)(3) non-profit status to the Pussy Church of Modern Witchcraft.  The IRS also granted the organization tax status as a church. PCMW describes itself as "a congregation of adherents to our female born, lesbian-feminist-based religions beliefs and traditions." It goes on to say "We expressly reject the concepts of gender identity, transgenderism, and gender as being meaningful to defining what a Woman or Girl is." [Thanks to Steven H.Sholk for the lead.]

New IRS Rules On Substantiation of Charitable Contributions

T.D. 9836, published in the July 30 Federal Register, sets out revised IRS rules for reporting and substantiation of cash and non-cash charitable contributions.  They implement provisions of the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006. [Thanks to Steven H. Sholk for the lead.]

Church Tax Audit Limits Do Not Apply to Investigation of Pastors

In Rowe v. United States, (ED LA, May 16, 2018), a Louisiana federal district court held that the special protections of the Church Audit Procedure Act only applies to investigations into a church's tax liability. It does not apply to summonses to banks to supply church financial records in connection with an inquiry into the tax liability of the church's pastors. Nonprofit Law Prof Blog reports on the decision. [Thanks to Steven H. Sholk for the lead.]

Unusual Brief Filed In Appeal of Parsonage Allowance Case

As previously reported, last October in Gaylor v. Mnuchin a Wisconsin federal district court held that the parsonage allowance provision in Sec. 107(2) of the Internal Revenue Code violates the Establishment Clause.  The case has been appealed to the U.S. 7th Circuit Court of Appeals.  Yesterday an unusual amicus brief (full text) was filed by ADF on behalf of 8,899 Christian pastors from all 50 states.  The brief's 12-pages of legal arguments in favor of the constitutionality of the exemption are followed by a 200-page list of the pastors and churches on whose behalf the brief was filed.

Tax Objector's Strategy To Prevent Garnishment Does Not Constitute Tax Evasion

The Oregonian last week reported on a partial court victory by Christian tax objector Michael Bowman who for the last nearly 20 years has refused to file income tax returns unless some accommodation is made so none of his tax monies support abortion.  When in 2012 Oregon tax authorities began to garnish Bowman's bank account, he moved to keep only a small balance in his checking account by cashing his pay checks rather than depositing them.  This led federal authorities last year to charge him with felony counts of tax evasion.  However, last week an Oregon federal district court held that merely cashing pay checks, when his income was fully reported to the IRS, could not constitute tax evasion.  However Bowman still faces four federal misdemeanor counts of willful failure to file tax returns.

Omnibus Spending Bill Does Not Contain Johnson Amendment Repeal

Several non-profit organizations have noted that the 2,232-page version of the omnibus Consolidated Appropriations Act, 2018 (full text) made public yesterday does not contain a repeal of the Johnson Amendment. A press release from the National Council of Nonprofits says in part:

Public trust is essential for charitable nonprofits, houses of worship, and foundations to do their work – and keeping the Johnson Amendment in place allows the public to continue trusting that our organizations can focus on our missions without being torn apart by divisive partisan politics.

A Baptist Joint Committee press release expresses similar sentiments, saying in part:

Those who depend on houses of worship and community nonprofits can breathe a sigh of relief, as concerted efforts to weaken the longstanding law that keeps the 501(c)(3) sector free from partisan campaigning were rebuked yet again. 

Some hoped they could slip a bad policy change into must-pass legislation, but advocates for keeping nonprofits nonpartisan spoke up and prevailed.

Final Tax Bill Extends 529 Plans To Elementary and Secondary School Tuition

The final version of the Tax Cuts and Jobs Act as it emerged from the Conference Committee (full text) extends Section 529 Qualified Tuition Programs so that they will now be able to be used to fund not just higher education expenses, but also up to $10,000 per student per year of tuition at public, private or religious elementary or secondary schools.

No Johnson Amendment Repeal In Conference Version of Tax Bill

The Conference Committee version of the Tax Reform Act which will be released today will not contain a repeal of the Johnson Amendment.  Washington Post reports that the Senate Parliamentarian has ruled that repeal of this provision cannot be included in legislation passed through the reconciliation process. The so-called "Byrd Rule" does not allow measures passed by reconciliation to contain matters extraneous to revenues or expenditures.  The Johnson Amendment bars non-profit organizations from engaging in partisan political activity.  A partial repeal of the Johnson Amendment had been in the House version of the tax bill (see prior posting), but not the Senate version (see prior posting). [Thanks to Nathan Walker for the lead.]

Court Dismisses Establishment Clause Challenge To Tax Code

In Hinds v. United States Government, (ED MO, Dec. 11, 2017), a Missouri federal district court dismissed on various jurisdictional and procedural grounds a claim by by plaintiff that:

by virtue of the Tax Code, the Government has established an institutionalized faith and religion of taxism ...[and] that this institutionalized religion has the effect of endorsing, favoring, and promoting organized religions, which Plaintiff believes violates the Establishment and Free Exercise clauses of the Constitution.

Senate Version of Tax Bill Does Not Include Johnson Amendment Repeal

Vox has made available a "preliminary version" of the final Senate tax reform bill  (full text) passed early Saturday morning.  Repeal of the Johnson Amendment that was part of the House version did not make its way into the version of the bill passed by the Senate.  This will be one of many differences between the House and Senate versions that will need to be resolved by the Conference Committee.

Catholic Bishops Oppose Parts of Senate's Tax Reform Draft

Earlier this week, the chairman of the U.S. Conference of Catholic Bishops' Committee on Domestic Justice and Human Development issued a letter (full text) (press release)  criticizing the current version of the Senate's Tax Cuts and Jobs Act.  The letter calls for the Senate to amend its draft "to better ensure a just and moral framework for all."  While supporting some aspects of the bill, the Bishops expressed concern over a number of the provisions, analyzing them in light of six moral principles the Bishops had set fort in a statement on tax reform last October. Many of the criticisms focus on "care for the poor and concern for families."  Among the specific concerns expressed were opposition to repeal of the Affordable Care Act mandate without more comprehensive health care reform; concern that families with more than three children will find themselves in a worse tax situation that at present; concern that stricter rules regarding children’s social security numbers for the Child Tax Credit will make it difficult for immigrants to receive the benefit; and inadequate tax incentives for charitable giving.

Senate Republicans' Version of Tax Bill Retains Johnson Amendment Restrictions

As previously reported, the tax cut legislation introduced by Republicans in the House of Representatives eliminates some of the restrictions on political speech by non-profits currently imposed by the Johnson Amendment.  Senate Republicans have drafted their own version of a tax bill.  As reported by The Hill, Republicans on Thursday released a 253- page description of the bill (full text), though not the full legislative language.  It does not appear that the Senate is proposing any change to the Johnson Amendment's current restrictions on political intervention by non-profits. The Senate bill is scheduled for markup by the Finance Committee on Nov. 13.

Marked-Up House Version of Tax Bill Includes Expanded, But Time-Limited, Partial Repeal of Johnson Amendment

The House Ways and Means Committee today during its markup of HR 1, the Tax Cuts and Jobs Act, approved an amendment (full text) that, if finally adopted, will expand the partial repeal of the Johnson Amendment that was in the original version, but will revert to the current Johnson Amendment after 5 years. (See prior posting.)  The original version would have permitted houses of worship to include political endorsement in sermons by clergy.  The amended version that now goes to the full House expands that to allow political endorsements in statements by any Section 501(c)(3) organization when the statement is made in the ordinary course of its exempt activities without incurring additional expense.  Here is the amended text of the section, marked up by me to show additions and deletions from the original HR 1:

SEC. 5201. CHURCHES 501 (c)(3) ORGANIZATIONS PERMITTED TO MAKE STATEMENTS RELATING TO POLITICAL CAMPAIGN IN ORDINARY COURSE OF RELIGIOUS SERVICES AND ACTIVITIES.

(a) IN GENERAL.—Section 501 is amended by adding at the end the following new subsection:

"(s) SPECIAL RULE RELATING TO POLITICAL CAMPAIGN STATEMENTS OF CHURCHES, INTEGRATED AUXILIARIES, ETC. ORGANIZATIONS DESCRIBED IN SUBSECTION (c)(3) —

(1) IN GENERAL.—For purposes of subsection (c)(3) and sections 170(c)(2), 2055, 2106, 2522, and 4955, an organization described in section 508(c)(1)(A) shall not fail to be treated as organized and operated exclusively for a religious purpose purpose described in subsection (c)(3), nor shall it be deemed to have participated in, or intervened in any political campaign on behalf of (or in opposition to) any candidate for public office, solely because of the content of any homily, sermon, teaching, dialectic, or other presentation made during religious services or gatherings, but only if the preparation and presentation of such content content of any statement which—

(A) is in is made in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose, and

(B) results in the organization incurring not more than de minimis incremental expenses.

 (2) TERMINATION.—Paragraph (1) shall not apply to taxable years beginning after December 31, 2023. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act beginning after December 31, 2018."

[Thanks to Samuel Brunson via Religionlaw for the lead.] 

New Tax Bill Would Allow "529 Plans" For Parochial School Tuition

The Republican tax bill (full text) introduced yesterday (see prior posting) would allow parents to set up "529 Plans" for up to $10,000 per year of elementary and secondary school tuition, including tuition at religious schools. (Section 1202).  529 Plans, currently limited to saving for college expenses, are a method of earning tax-free income on educational savings.  The bill also allows a Section 529 plan to be set up for an "unborn child," defined in the proposal as a "child in utero," which is in turn defined in the bill as "a member of the species homo sapiens, at any stage of development, who is carried in the womb."

Republican Tax Bill Would End Johnson Amendment Ban On Partisan Sermons

As reported by CBS, House Republicans yesterday released their proposed tax reduction plan.  The bill (full text) titled "Tax Cuts and Jobs Act" includes a limited change in the Johnson Amendment that would allow sermons that endorse specific candidates. The Johnson Amendment prohibits Section 501(c)(3) non-profits from participating in partisan political campaigns.  Yesterday's proposal (Sec. 5201) would provide a limited exceptions to that ban as it applies to churches (and their integrated auxiliaries and conventions and associations of churches).  Here is the relevant portion of the proposed language in the bill:

... an organization described in section 508(c)(1)(A) shall not fail to be treated as organized and operated exclusively for a religious purpose, nor shall it be deemed to have participated in, or intervened in any political campaign on behalf of (or in opposition to) any candidate for public office, solely because of the content of any homily, sermon, teaching, dialectic, or other presentation made during religious services or gatherings, but only if the preparation and presentation of such content— (A) is in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose, and (B) results in the organization incurring not more than de minimis incremental expenses.

Court Says Tax Code's Parsonage Allowance Is Unconstitutional

In Gaylor v. Mnuchin, (WD WI, Oct. 6, 2017), a Wisconsin federal district court held that the parsonage allowance provision in Sec. 107(2) of the Internal Revenue Code violates the Establishment Clause. That section allows clergy to exclude from income the rental allowance they receive that is used to rent or provide a home.  In a 2013 decision, the same court reached a similar conclusion, but was reversed on appeal on standing grounds.  Plaintiffs cured those standing issues in the present case. The court summarized it holding:

any reasonable observer would conclude that the purpose and effect of § 107(2) is to provide financial assistance to one group of religious employees without any consideration to the secular employees who are similarly situated to ministers. Under current law, that type of provision violates the establishment clause.

As a remedy, however, the court issued only a declaratory judgment, and gave the parties the opportunity to file supplemental briefs on additional remedies such as a tax refund to plaintiffs who were taxed on their housing allowances from their employer (the Freedom From Religion Foundation), or an injunction of some sort.  FFRF issued a press release announcing the decision. [Thanks to Bob Ritter for the lead.]

4,000 Faith Leaders Oppose Repeal of Johnson Amendment

As reported by Americans United, this week a letter signed by more than 4,000 faith leaders from all 50 states (full text) was sent to members of Congress urging them to keep the Johnson Amendment in the Internal Revenue Code.  That Amendment, which Donald Trump has promised to repeal, prohibits non-profits, including houses of worship, from supporting or opposing candidates in political elections. The letter says in part:

Faith leaders are called to speak truth to power, and we cannot do so if we are merely cogs in partisan political machines. The prophetic role of faith communities necessitates that we retain our independent voice.....

Changing the law to repeal or weaken the “Johnson Amendment” – the section of the tax code that prevents tax-exempt nonprofit organizations from endorsing or opposing candidates – would harm houses of worship, which are not identified or divided by partisan lines. Particularly in today’s political climate, engaging in partisan politics and issuing endorsements would be highly divisive and have a detrimental impact on congregational unity and civil discourse.