Thursday, March 14, 2013
Wednesday, March 13, 2013
A couple of years ago one of my students, Brittany Viola (not the Olympic platform diver) wrote a note for the University of Illinois Law Review on the property tax status of "fallow" property owned by exempt organizations, particularly churches. A PDF of that article is available here. In the article, Ms. Viola discussed how various states, particularly in the Northeast, were attempting to tax "fallow" property - for example, shuttered Catholic schools or churches that had been closed by the local diocese (though this issue was by no means limited to property owned by the Catholic church). The essence of the legal issue was the requirement of most state property tax exemption laws that the exempt property be "used" for an exempt purpose; arguably, fallow church property is not being "used" for religious purposes; it literally isn't being "used" at all, and hence potentially does not meet the requirements for exemption.
It appears that Arizona is in the midst of considering legislation that would protect this fallow property from taxation. This article in the East Valley Tribune details legislation that was first proposed in the Arizona House that would permit religious organizations to buy undeveloped property and hold it subject to exemption (this original version of the legislation also apparently would have exempted other property owned by churches, but used for non-religious purposes, like student dormitories). Word today is that a compromise version of this bill passed the Arizona House, and although it no longer protects things like student dormitories, it does apparently still provide for exemption of fallow land (I haven't been able to find a full-text version of the amended bill; I'll try to link it when I do).
I've written before about my view that churches ought not to be given the tax benefits accorded "charities." While some clearly do produce "public goods" in the form of helping the poor and disadvantaged, many are nothing more than clubs for believers. The modern case for general tax exemptions for churches usually rests on the notion that taxing them would be unconstitutional (a violation of the federal free-exercise clause, or similar provisions in state constitutions). I don't agree - and think that a neutral tax law applied to religious organizations would be upheld. (The historical rationale for religious exemptions comes from the proposition that human beings could not (or should not) tax God; there are references in ancient Egyptian history and the Old Testament regarding the proposition that human beings did not have the authority to tax priests or temples. I think we're sort of past the "if we tax churches, plagues of locusts will destroy the fields" theory.) Social clubs do get federal income tax exemption under Section 501(c)(7), but clubs do not get the other major benefits of charitable tax exemption under 501(c)(3) (e.g., the ability to receive tax-deductible donations or to issue tax-exempt bonds), and states generally do not provide property tax exemptions for clubs. So let's give churches the same tax benefits we give all social clubs and nothing more.
A colleague at another institution once floated the idea that churches ought to be taxed, but get an unlimited charitable deduction for actual charitable works, like expenditures for programs to help the poor. That also sounds fine to me. But the idea that we should be expanding exemption for churches to property that isn't even used for religious worship, particularly given the strains on local budgets, is in my view ludicrous.
Tuesday, March 12, 2013
It appears that one of the (perhaps unanticipated?) effects of the new Illinois law on hospital tax exemption is additional pain for strapped school districts in areas where hospitals previously had been denied exemption based upon the Illinois Supreme Court's ruling in the Provena-Covenant case. This story posted on the WLS Radio (Chicago) web site notes that some school districts will have to refund millions of dollars collected over the past several years: Valley View School District, which covers Romeoville and Bolingbrook, will have to refund Adventist Bolingbrook Hospital between $4.5 million to $5 million and Plainfiled School District 202 apparently owes Naperville's Edwards Hospital $1 million.
Monday, March 11, 2013
A couple of weeks ago, Johnny Buckles reported on the court case brought by Citizens for Responsibility and Ethics in Washington and David Gill against the IRS for what they believe is lax enforcement by the IRS of exempt status for 501(c)(4) organizations. Johnny's post is here, and we've blogged so many times on (c)(4)'s generally that I won't even attempt a list (the search engine is your friend).
But the number of calls I've gotten from reporters who are taking this case seriously indicates that perhaps a short refresher on standing to sue in tax cases would be helpful (if nothing else, then I'll at least be able to refer reporters here!). So here goes.
As all lawyers know, the general concept of standing to sue is a predicate to successfully bringing litigation. In general, standing doctrine requires that the plaintiff in a case be able to allege "an injury in fact" - that is, that the defendant's conduct created a direct personal harm to the plaintiff. The key here is the word "direct": individuals cannot generally sue the government because of some general grievance about government operations. In tax cases, what this means is that one generally cannot sue taxing authorities over their treatment of some other taxpayer, even if one might argue that that treatment resulted in some diffuse injury to the plaintiff. I generally cannot complain that the IRS is treating someone else better than they should be, even if that better treatment arguably impacts me (e.g., I pay more in taxes) in some diffuse way. Another way to look at this is that I cannot prove that my taxes would be impacted in any direct way by the treatment of another taxpayer. My taxes aren't necessarily going to go down if the IRS "gets tough" with someone else; nor will they necessarily go up if the IRS lets someone else slide. About as good a discussion of the general rules of taxpayer standing that I've read is in Kristen Hickman, How Did We Get Here Anyway?: Considering the Standing Question in DaimlerChrysler v. Cuno, 4 Georgetown Journal of Law & Public Policy 47 (2006).
One of the more famous cases dealing with standing in tax matters also happens to be a federal tax exemption case. In Abortion Rights Mobilization v. U.S. Conference of Catholic Bishops, 885 F.2d 1020 (2d Cir. 1989), the court held that Abortion Rights Mobilization did not have standing to sue the IRS over its alleged non-enforcement of the political campaign activity limitation in Section 501(c)(3). While the court did not rule out the possibility that taxpayers might have standing to challenge certain very narrow aspects of tax administration, it distinguished the Supreme Court's 1988 decision in Bowen v. Kendrick, 487 U.S. 589, where the court had permitted a taxpayer to challenge the grant of funds under the Adolescent Family Life Act as violating the Constitution: "Here, there is no nexus between plaintiffs' allegations and Congress' exercise of its taxing and spending power."
More recently, the Supreme Court in DaimlerChrysler Corp. v. Cuno, 547 U.S. 332 (2006) held that individual taxpayers did not have standing in federal court to challenge tax exemptions and other tax breaks given by the city of Toledo to DiamlerChrysler in order to entice them to locate a plant there. The Court reaffirmed the general federal taxpayer standing doctrine in Cuno, and applied the same concepts to the state taxpayers at issue in the case.
The addition by CREW of David Gill to the case likely is CREW's attempt to avoid the taxpayer standing doctrine. Gill will argue that he personally suffered as a result of the IRS's lack of enforcement, because that lack of enforcement led to large campaign spending attacking his candidacy. But CREW and Gill are going to have a very hard time showing that the campaign spending wouldn't have happend anyway; moreover, the Second Circuit in the Abortion Rights Mobilization case addressed the issue of "competitor" standing in a way that is going to be difficult for Gill to overcome: in rejecting "competitor" standing, the Second Circuit noted that Abortion Rights Mobilization had failed to undertake the same political activity as the Catholic Church and therefore in effect had refused to become a competitor. Similarly, Gill could have formed his own 501(c)(4) organization to compete in his political campaign, but did not. Gill isn't arguing that the IRS audited his own (c)(4) and found it wanting in circumstances where a competitor was let go (a set of facts that might provide standing for Gill).
As I've told all the reporters, I expect this case to be dismissed on standing grounds (if someone raises the issue; I assume they will). We will see.