Saturday, November 29, 2014
Update on Nonprofits & Politics: Aprill and Colinvaux Articles, AALS Program, IRS Controversy Developments & More
While perhaps the congressional attention to the now 18 months old and counting IRS controversy will decline as the focus shifts to governing (we hope) and 2016 (unavoidably), the bubbling pot that is now nonprofits and politics continues to boil. Here are some of the latest developments:
Ellen Aprill (Loyola-L.A.) has posted The Latest Installment of the Section 501(c)(4) Saga: The Section 527 Obstacle to Effective Section 501(c)(4) Regulations, and Roger Colinvaux (Catholic) has posted Political Activity Limits and Tax Exemption: A Gordian's Knot, Virginia Tax Review (forthcoming). (And, as noted by Paul Caron when I presented at Loyola-L.A., I am working on a draft article currently titled Taxing Politics, which I should hopefully be able to post early in the new year.)
At the 2015 AALS Annual Meeting, the Section on Nonprofit and Philanthropy Law and the Section on Taxation are co-sponsoring IRS Oversight of Charitable and Other Exempt Organizations – Broken? Fixable? on Saturday, January 3rd, from 10:30 a.m. to 12:15 p.m. The topic grew out of the IRS controversy, although the panel's scope will be much broader. Marcus Owens (Caplin & Drysdale) will be moderating, and panelists include Ellen Aprill (Loyola-LA), Phil Hackney (LSU), Jim Fishman (Pace), Terri Helge (Texas A&M), Dan Tokaji (Ohio State), and Donald Tobin (Maryland).
In news relating directly to the IRS controversy, the staffs of the Senate Permanent Subcommittee on Investigations issued dueling reports, neither of which said much more than we have already heard (repeatedly) from both sides of the aisle. At the IRS, new TE/GE Commissioner Sunita Lough issued her annual Program Letter, emphasizing accountability and transparency as she continues to try to move the division beyond the controversy (referenced obliquely as "the challenges over the last year for the IRS and TE/GE specifically"). And to the annoyance of her critics, Lois Lerner gave an extensive interview to Politico.
And there is more:
- Pulpit Freedom Sunday 2014 launched on October 5th, to very limited media coverage, although there were a few stories right around election day about the over 1600 participating pastors and churches. See the stories in Politico, a Washington Post blog, and the Washington Times.
- On the election law/FEC side of things, there are lawsuits still pending that asset Crossroads GPS (Public Citzen v. FEC) and American Action Network and Americans for Job Security (CREW v. FEC) should have registered and reported as political commitees. (Hat tip: Paul Barton's article this past week in the BNA Daily Tax Report)
Monday, November 17, 2014
In an Associated Press story, the Tulsa World reports that the United States Court of Appeals for the District of Columbia Circuit has rejected a challenge by religious groups, including Priests For Life and the Roman Catholic Archbishop of Washington, to an accommodation devised by the Obama administration to enable the groups to avoid paying for contraception under the Affordable Care Act. The court concluded that the accommodation does not impose an unjustified substantial burden on religious exercise in violation of the Religious Freedom Restoration Act (“RFRA”).
The facts are likely familiar to most readers, and are summarized in the story as follows:
The Affordable Care Act requires that women covered by group health plans be able to acquire Food and Drug Administration-approved contraceptive methods at no additional cost. In response to an outcry from religious groups, the government devised the accommodation, but the groups continued to oppose the regulations.
To be eligible for the accommodation, a religious organization must certify to its insurance company that it opposes coverage for contraceptives and that it operates as a nonprofit religious organization.
The opinion succinctly captures the plaintiffs’ objection to the accommodation:
The contraceptive coverage opt-out mechanism substantially burdens Plaintiffs’ religious exercise, Plaintiffs contend, by failing to extricate them from providing, paying for, or facilitating access to contraception. In particular, they assert that the notice they submit in requesting accommodation is a “trigger” that activates substitute coverage, and that the government will “hijack” their health plans and use them as “conduits” for providing contraceptive coverage to their employees and students. Plaintiffs dispute that the government has any compelling interest in obliging them to give notice of their wish to take advantage of the accommodation. And they argue that the government has failed to show that the notice requirement is the least restrictive means of serving any such interest.
The court rejected the plaintiffs’ RFRA claim. Said the court:
We conclude that the challenged regulations do not impose a substantial burden on Plaintiffs’ religious exercise under RFRA. All plaintiffs must do to opt out is express what they believe and seek what they want via a letter or two-page form. That bit of paperwork is more straightforward and minimal than many that are staples of nonprofit organizations’ compliance with law in the modern administrative state. Religious nonprofits that opt out are excused from playing any role in the provision of contraceptive services, and they remain free to condemn contraception in the clearest terms. The ACA shifts to health insurers and administrators the obligation to pay for and provide contraceptive coverage for insured persons who would otherwise lose it as a result of the religious accommodation.
The court further concluded that, even if the law were deemed to substantially burden the plaintiffs’ exercise of religion, the regulation is supported by compelling governmental interests, and the accommodation “requires as little as it can from the objectors” while still serving those interests.
In the AP story, the Archdiocese of Washington is quoted as characterizing the decision as "very troubling and deeply flawed."
Friday, September 26, 2014
Reuters is reporting that over 120 Islamic scholars from around the world have issued an open letter denouncing Islamic State militants and refuting their religious arguments. Many of these scholars are themselves leading Muslim voices in their own countries.
The 22-page letter, written in Arabic and heavy with quotes from the Koran and other Islamic sources, strongly condemns the torture, murder and destruction Islamic State militants have committed in areas they control.
The Reuters report states in part:
"You have misinterpreted Islam into a religion of harshness, brutality, torture and murder," the letter said. "This is a great wrong and an offense to Islam, to Muslims and to the entire world."
[The letter's] originality lies in its use of Islamic theological arguments to refute statements made by self-declared Caliph Abu Bakr al-Baghdadi and his spokesman Abu Muhammad al-Adnani to justify their actions and attract more recruits to their cause.
The letter is addressed to al-Baghdadi and "the fighters and followers of the self-declared 'Islamic State'", but is also aimed at potential recruits and imams or others trying to dissuade young Muslims from going to join the fight.
Nihad Awad of the Council on American Islamic Relations (CAIR), which presented the letter in Washington on Wednesday, said he hoped potential fighters would read the document and see through the arguments of Islamic State recruiters.
"They have a twisted theology," he said in a video explaining the letter. "They have relied many times, to mobilize and recruit young people, on classic religious texts that have been misinterpreted and misunderstood."
Reuters describes the 126 signatories as "prominent" Sunni men from across the Muslim world -- from Indonesia to Morocco, and from other countries such as the United States, Britain, France and Belgium.
Among those who signed are "the current and former grand muftis of Egypt, Shawqi Allam and Ali Gomaa, former Bosnian grand mufti Mustafa Ceric, the Nigerian Sultan of Sokoto Muhammad Sa'ad Abubakar and Din Syamsuddin, head of the large Muhammadiyah organization in Indonesia. Eight scholars from Cairo's Al-Azhar University, the highest seat of Sunni learning, also put their names to the document."
Monday, August 25, 2014
Over the summer the Freedom from Religion Foundation announced that it had agreed to the dismissal (without prejudice) of its lawsuit against the IRS alleging that the IRS had filaed to enforce against churches the prohibition on political campaign intervention. See previous post regarding the 2013 rejection of the IRS' motion to dismiss this case for more details. What is most dramatic about this development is the letter from the IRS to the DOJ attached to the Foundation's Memorandum in Support of Motion to Dismiss detailing the current audit activity relating to churches. Here is the substance of that letter:
1. Subsequent to the publication of proposed regulations on section 7611 of the Internal Revenue Code on August 5, 2009, the IRS has processed several cases involving churches using procedures designed to ensure that the protections afforded to churches by the Church Audit Procedures Act are adhered to in all enforcement interaction between the IRS and churches. The procedures require the reasonable belief determination under section 7611(a) to be made by the Commissioner, TEGE, either directly or as concurrence to the determination made by the Director, Exempt Organizations.
2. Our written procedures for our Dual Track process for information items (a.k.a. referrals) alleging violation of the political intervention prohibition of section 501(c)(3) require evaluation of the information item by our Review of Operations (“ROD”) unit and then the Political Activities Referral Committee (“PARC”). With regard to these referrals that concern violations by churches, the PARC has determined that as of June 23, 2014, 99 churches merit a high priority examination. Of these 99 churches, the number of churches alleged to have violated the prohibition during 2010 is 15, during 2011 is 18, during 2012 is 65, and during 2013 is one.
This comes after an apparent hiaitus in such activity, as detailed in a previous post. What is perhaps most surprising is that it has come without the finalization of the proposed regulations referenced in the above letter regarding exactly who, within the IRS, has sufficient authority to sign off on church tax inquiries and, if justified, church examinations.
Thursday, December 5, 2013
This story was a little while ago, but the Associated Press reported how the fact that church pension plans are exempt from many laws that normally regulate such plans has left many employees of church-affiliated entities, including hospitals, with little recourse when pension funds are severely underfunded. This exemption includes not being covered by federal Pension Benefit Guaranty Corporation and not being subject to the Employee Retirement Income Security Act, or ERISA. Based on the article, it appears this issue has been a particular problem at a number of Catholic-affiliated hospitals.
Wednesday, December 4, 2013
A federal District Court in Wisconsin has struck down the exclusion from gross income for vcertain housing allowances provided to "ministers of the Gospel" by Internal Revenue Code § 107 as a violation of the Establishment Clause. As previously discussed here, the same court is also considering challenges to the church exemption from Form 990 filing and the alleged lack of IRS enforcement against churches for violating the political campaign intervention the prohibition. As John Colombo has detailed in this space, the key question in all of these cases - including in the almost certain government appeal of the housing allowance decision - will be whether the plaintiffs have standing to even bring these claims. For reasons Professor Colombo details, it is unlikely that they do. As a commentator to the TaxProf Blog post on this story noted, the judge in the housing allowance case also previously ruled that the National Day of Prayer presidential proclamation was unconstitutional, only to have that case dismissed on appeal for lack of standing. Nevertheless, this case and the other challenges are currently still alive and proceeding, although news reports state the judge has stayed her decision on the housing allowance pending appeal.
Saturday, September 28, 2013
It's a new day, a new week. But let's begin it with an age-old story -- a story about law, education and religion.
The New York Times is reporting that as Texas gears up to select biology textbooks for use by high school students over the next decade, the panel responsible for reviewing submissions from publishers has stirred controversy because a number of its members do not accept evolution and climate change as scientific truth.
According to the Times,
One is a nutiritonist who believes "creation science" based on biblical principles should be taught in the classroom. Another is a chemical engineer who is listed as a "Darwin Skeptic" on the Web site of the Creation Science Hall of Fame. a third is a trained biologist who also happens to be a fellow of the Discovery Institute, the Seattle-based center of the intelligent-design movement and a vice president at an evangelical ministry in Plano, Texas.
The Times continues:
In the state whose governor, Rick Perry, boasted as a candidate for president that his schools taught both creationism and evolution, the State Board of Education, which includes members who hold creationist views, helped nominate several members of the textbook review panel. Others were named by parents and educators. Prospective candidates could also nominate themselves. The state's education commissioner, Michael L. Williams, a Perry appointee and a conservative Republican, made the final appointments to the 28-member panel. Six of them are known to reject evolution.
Kathy Miller, president of the Texas Freedom Network, which monitors the activities of far-right organizations, lamented that "Utterly unqualified partisan politicians will look at what utterly unqualified citizens have said about a textbook and decide whether it meets the requirements of a textbook."
Miller's statement reflects the view of some Texans who worry that ideologically driven review panel members and state school board members are slowly eroding science education in the state. Some parents even worry that if the State Board of Education has its way, their children will not be able to compete for jobs that require scientific backgrounds.
Others -- especially teachers -- see nothing wrong in teaching creationism or its cousin, intelligent design, as valid scientific alternatives to Darwinian evolutionary theory. The Times concludes its story as follows:
In Texas, the debate has each side borrowing from the other to make its point. Those who challenge evolution invoke the scientists Carl Sagan and Richard Dawkins, while those who plead for the sanctity of science cite Genesis and the Book of Job.
At the public hearing this month, Michael Singer, a biology professor at the University of Texas who teaches courses to nonscience majors, said his students were often nervous about learning evolution. “I tell them that the Book of Job says that their faith will be tested,” he said. “You don’t need faith to believe what the evidence suggests. You need faith to believe what the evidence doesn’t suggest.”
Then he pulled out a £10 note from his native Britain to show the audience: on one side was a picture of Queen Elizabeth II, on the other, Charles Darwin.
Time will tell how this all ends. Have a great week ahead.
Wednesday, September 18, 2013
As readers of this blog know, two lawsuits challenging the preferential federal tax law treatment of churches and ministers and brought by the Freedom from Religion Foundation survived motions to dismiss on standing grounds . A year ago, the U.S. District Court for the Western District of Wisconsin found FFRF had standing to challenge the income tax exemption for parsonages and pastor housing allowances provided by Internal Revenue Code section 107. About a month ago, the same court concluded FFRF had standing to challenge the IRS's alleged lack of enforcement of the section 501(c)(3) political campaign intervention prohibition as against churches.
Finally, about four weeks ago the same court rejected the government's motion to dismiss FFRF's complaint challenging the exemption for churches from having to file an annual information return (the Form 990) with the IRS. Relying heavily on its decision in the first case it considered, the court found that FFRF alleged a sufficient injury in fact because it is not able to claim such an exemption since it does not qualify as a church. FFRF also challenged the exemption of churches from the exemption application (Form 1023) requirement applicable to other groups seeking recognition of their section 501(c)(3) status, but the court questioned whether FFRF and the other plaintiff in the case had a future injury in fact that would justify the injunctive relief they were seeking given that both groups had already filed their applications and paid their application fees. It therefore asked the plaintiffs to demonstrate why their second claim should not be dismissed.
As John Colombo detailed in his previous post about the second case, and for the reasons Johnny Rex Buckles described in this space more generally and I also discussed with respect to Establishment Clause claims, this trio of decisions appears inconsistent with long-standing precedents relating to standing in the tax area. The judge in all three cases also has previously been reversed on a standing issue relating to an Establishment Clause challenge to the National Day of Prayer brought by FFRF. In that case the district court found the statute requiring that the President proclaim a National Day of Prayer each year to be a violation of the Establishment Clause, but the U.S. Court of Appeals for the Seventh Circuit concluded FFRF and the other plaintiffs lacked standing to bring the case (Freedom from Religion Foundation v. Obama, 651 F.3d 803 (7th Cir. 2011)).
A similar fate for the trio of tax cases therefore seems likely as well. Before the cases get to the appellate court, however, there may be some interesting information uncovered in discovery. While the housing allowance and Form 990 cases appear to turn solely on the statutory provisions and so should not require much if any factual discovery, the lack of enforcement case would appear to require discovery regarding the extent to which the IRS has enforced the political campaign intervention prohibition as against churches and non-churches in recent years. While there is some anecdotal information available regarding such enforcement efforts, since the quiet end of the IRS's Political Activity Compliance Initaitive after the 2008 election season (and perhaps earlier - the IRS never issued a report for that election season) there has not been more comprehensive information available regarding enforcement in this area. While not FFRF's primary aim, the discovery in their lawsuit may reveal a lot about the frequency and results of that enforcement.
Friday, August 16, 2013
“This is a deeply disturbing and troubling option,” said Independent Sector's President & CEO, Diana Aviv. “We think it should not be a possibility,” she said.
According to Aviv, some parts of the report and its recommendations were unclear, while other parts were contradictory and required further reading and study. She viewed the report and recommendations as having the intent to “drive a truck” through the clear separation of political activity and nonpartisan political activity from other activity.
“While we agree with the commission that there is no clarity in this area, the solution is not to gut everything,” Aviv said. “This actually contaminates our advocacy work.”
The only item in the report that Independent Sector agreed with was that current regulations are vague and require clarity. According to Aviv, a strong argument exists for reviewing the limits put in place in 1969 and 1976. Current regulations allow charities to interact with public officials on a limited basis, which Aviv said is an appropriate distinction since organizations work to educate officials on issues relevant to their missions and members.
“Speaking out and engaging in advocacy on issues is critical to the ability of nonprofits to achieve their missions. This is an entirely different matter than endorsing candidates or getting involved in political campaigns,” she said. She sees three necessary solutions to the political speech issue: (1) greater clarify over what is political activity: (2) clearer definition of what “unsubstantial” means for 501(c)(3) organizations; and (3) disclosure of donors to 501(c)(3) organizations if their donations are used for partisan activity.
Thursday, August 15, 2013
The Commission on Accountability and Policy for Religious Organizations has released its second report in response to a request from Sen. Charles Grassley (R-Iowa) for guidance. The approximately 60-page report titled “Government Regulation of Political Speech by Religious and Other 501(c)(3) Organizations: Why the Status Quo Is Untenable and Proposed Solutions” made three primary recommendations:
- Clergy should be able to say whatever they believe is appropriate in the context of their religious services or other regular religious activities without fear of reprisal by the Internal Revenue (IRS), even when that communication includes content related to political candidates. The communication would be permissible provided that the organization’s costs would be the same with or without the political communication.
- Secular nonprofits should have “comparable latitude when engaging in regular, exempt-purpose activities and communications.”
- Current IRS policy not permitting tax-deductible funds to be disbursed for political purposes should be preserved.
According to Commission Chair Michael Batts, “The law prohibiting political campaign participation and intervention by 501(c)(3) organizations as currently applied and administered lacks clarity, integrity, respect, and consistency.” He maintains that 501(c)(3) organizations’ leaders “are never quite sure where the lines of demarcation are, and the practical effect of such vagueness is to chill free speech -- often in the context of exercising religion.”
The report discusses the history of the ban on political campaign participation or intervention, which was included in the Revenue Act of 1954. It also identifies key cases in which the IRS has examined organizations or their leaders for certain actions, particularly several instances during the 2004 presidential campaign.
The Evangelical Council for Financial Accountability (ECFA) established the commission in response to a January 2011 request by Sen. Grassley to coordinate a national effort to provide input on accountability, tax policy and political expression for nonprofits in general and religious organizations in particular. The commission is comprised of 14 members and 66 panel members, including legal experts and representatives of religious and nonprofit sector organizations.
Wednesday, June 26, 2013
The Huffington Post reports that in a speech to a group of Southern Baptist ministers in Houston on Monday, Mike Huckabee said that churches should consider giving up exempt status. "I think we need to recognize that it may be time to quit worrying so much about the tax code and start thinking more about the truth of the living God, and if it means that we give up tax-exempt status and tax deductions for charitable contributions, I choose freedom more than I choose a deduction that the government gives me permission to say what God wants me to say." Huckabee confirmed his views in a tweet Tuesday evening.
I don't think I've ever uttered the words "I agree with Mike Huckabee," but there's a first time for everything. So here goes: I agree with Mike Huckabee. The primary issue, of course, is the ability of churches to engage in political campaign activity, the same issue at the core of the 501(c)(4) mess. But in the 501(c)(3) category, we have a nice, bright line: political campaign activity is completely banned. Nevertheless, that hasn't kept churches and their ministers (on both the right and the left of the political spectrum, by the way) from blatantly violating the law (for examples, see my prior posts here and here).
My view on the relationship of churches to 501(c)(3) has always been the same: if they want 501(c)(3) status, they need to play by the rules. If they don't want to play by the rules, give up 501(c)(3) status, and engage in politics to their hearts content. They don't get to break the rules and then whine that the government is picking on them, any more than 501(c)(4)'s should get to blatantly break the rules and whine that the government is picking on them. So - quit whining, and suck it up. Make your choice and live with it. Be like Mike (Huckabee).
Monday, June 24, 2013
Although some of the hubbub about 501(c)(4)'s and political activity has settled over the past couple of weeks, we shouldn't overlook the fact that the central fault leading to this mess was (and is) a set of un-administrable (and therefore unenforceable) rules regarding political campaign activity by exempt organizations.
In my back and forth with Rosemary Fei on 501(c)(4)'s, she mentioned that she was part of a group trying to provide better guidance on the line between prohibited political activity and permitted legislative lobbying or issue advocacy activity. This work is called The Bright Lines Project, and a full draft of their effort as of May, 2013, is available here.
In many ways, the project advances the IRS's own guidance on political activity by 501(c)(3) organizations published in Revenue Ruling 2007-41, but provides additional bright lines (pun unavoidable) on what is permitted and what isn't. It is a very thoughtful effort, modeled after the regulations on what constitutes lobbying expenditures under Section 4911 and the 501(h) election and fills some nagging holes in the IRS's guidance in Rev. Rul. 2007-41.
But I do think the project makes one mistake and ignores another very deep problem in this area. The one mistake is a sort of "pulpit speech" exception that is referred to as an exeption for "personal, oral remarks at official meetings." The project's explanation of this exeption is as follows:
Oral remarks made by anyone (other than a candidate) who is present in person at an official meeting of an organization held in a single room or location, so long as no announcement of the meeting refers to any candidate, party, election, or voting. This exception covers only oral remarks about candidates made by and to persons in attendance, not any other form of communication of those remarks, whether written, electronic, recorded, broadcast, or otherwise transmitted. A prominent disclaimer must be made to those attending, stating that such remarks are the speaker's personal opinion and are not made on behalf of the organization, and that the speaker is not advocating any of the actions set forth in Rule 3 [e.g., expressly calling for the election or defeat of a specific candidate or political party]
In it's examples, the Project notes that this rule would "permit a pastor to express his or her personal views on candidates from the pulpit. It would also allow parents at a PTA meeting, including officers, to express their views on candidates for school board. It would permit speeches, sermons, or discussions at any meeting of any tax-exempt organization to include expressions of opinion on those running for public office in upcoming elections, so long as such views were not made officially or on behalf of the organization."
My own view is that this exception is a huge mistake, because it will be exploited to the hilt by organizations intent on "having their say" about candidates. Face it - a Catholic priest, giving his "opinions" on candidates at Mass on the Sunday before the election will be viewed as an official church position, regardless how strong the "disclaimer" is that is attached to the remarks. We actually have a useful bright line on this kind of activity right now under Rev. Rul. 2007-41: you can't do it. The revenue ruling makes clear that speech such as this at an official function of an organization is prohibited, whether a disclaimer is attached or not. That seems to me to be an excellent bright line, and we should not replace it with an exploitable exception that is hardly a bright line.
The second major problem with the project is that it says nothing about the core problem that plagues 501(c)(4)'s (and 5's and 6's), which is "how much political activity is too much?" The project makes no attempt to set a bright line for when political activity becomes a "primary purpose" or otherwise address the "how much" issue.
This is a critical failing. The (c)(4) problem is as much (in my opinion, more) about how much political activity is permitted as it is in the dividing line between issue advocacy and campaign activity. Right now, we have nothing other than the vague notion that a (c)(4)'s "primary purpose" can't be political campaign activity - but there is no standard for judging "primary purpose."
So why not adopt a very clear bright line on this latter issue: the amount of political campaign activity permitted by (c)(4)'s, (5)'s and (6)'s is . . . zero. None. Absolute prohibition. Many of my colleagues believe there should be some "de minimis" amount of campaign activity permitted. I've heard things like "15%" thrown around, for example. But here's the problem: 15% OF WHAT? Of expenditures? Which expenditures? Of employee time? What if volunteers are used? Is the 15% per year or on a 4-year rolling average that we use elsewhere in 501(c)? If it's a 4-year average, that means an organization can "save up" for the presidential campaigns that happen every four years. Providing a de minimis exception is hardly a "bright line" in this area, unless one is going to couple it to a specific mathematical test like that provided in 501(h)/4911 for lobbying by 501(c)(3)'s. And anyone who's worked with that regime will tell you that it is incredibly complex, particularly when it comes to allocating expenditures (and I'd argue that the test doesn't account for volunteers or the fact that modern communication - e-mail and web sites - cost very little but have major communications impact). Do we REALLY want to go down that road? And if so, why? What is gained by such a rule other than complication and confusion? What part of "NONE" is so hard to understand or hard to comply with that we need an exception of some kind?
So I'll say it again. If we're really concerned about political campaign activity by (c)(4)'s, (5)'s and (6)'s, prohibit it; any organization that engages in political campaign activity in any amount that wants exemption should be subject to disclosure rules as Lloyd Mayer and others have argued - that is, shuffle them to 527 or some similar regime.
To actually solve the problems that led to the current mess, we need both bright line tests to distinguish between issue advocacy and political activity AND we need a bright line on how much activity is permitted. In the case of political campaign activity, "NONE" is a nice bright line that is mostly (not completely, I'll admit) incapable of exploitation . . .
[This represents a bit of change to my position, by the way - I'm actually OK with a 501(c)(4) category for organizations whose primary purpose is issue advocacy, including lobbying, IF such organization is prohibited from ANY campaign activity. It's probably a good thing to have such an organization that is also prohibited from receiving deductible contributions under 170 in order to avoid having (c)(3)'s used to end-run the 162(e) limits on the deductibility of lobbying expenses, and I'm also convinced there is a useful public benefit to issue advocacy.]
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.
Friday, December 7, 2012
The tireless nonprofit watchdog, Senator Grassley from Iowa, has turned his attention in recent years to what he perceives as irresponsible financial activity carried on by certain religious figures and organizations, television evangelists in particular. After some back and forth, religious leaders agreed to established a commission, the Evangelical Council for Financial Accountability, to examine Sen. Grassley's concerns and to comment on some of his proposed solutions. The Council recently released its findings in a 94-page report soothingly titled "Enhancing Accountability For the Religious and Broader Nonprofit Sector." With that title, who could object?
It appears that Senator Grassley objects, primarily because the bottom line of the report is that nothing should change. In the Senator's words, "[t]he report gives less attention to resolving some of the thornier questions, such as how to build accountability from entities that exploit vagueness in current laws and regulations for individual benefit rather than the greater good." He added, ominously, that if Congress follows through with plans to overhaul the tax code, many of the issues that he has raised "will be ripe for review."
A story in The Chronicle of Philanthropy summarizes events and provides links to the report and Sen. Grassley's statement about it.
Tuesday, November 6, 2012
With today's election, the perennial issue of church political involvement has once again gained prominence. What is new is the since-repudiated statement of an IRS official confirming what many have long suspected - that the still pending regulations on who exactly within the IRS can sign off on a church tax inquiry have left such inquiries in limbo. As reported by the AP and republished at the Huffington Post, and also previously reported by Christianity Today, a manager in the IRS Mid-Atlantic region said such inquiries had been suspended pending these regulations, but an IRS spokesman quickly said the manager "misspoke", although the spokesman refused to provide any more details about the status of such inquiries. Both an academic and a practitioner quoted in the AP story said they were not aware of any church tax inquiries over the past three years. This is apparently the case even with the increasingly popularity of Pulpit Freedom Sunday, as the press has noticed (see, for example, coverage by NBC News and The Nonprofit Quarterly).
There is also an interesting lack of activity on the side of those seeking to challenging the limits on church political activity, not with respect to such activity itself but instead with respect to forcing the IRS into court. While a church that allegedly violates the prohibition on political campaign intervention cannot force the IRS to launch a church tax inquiry, such a church that has not yet applied for tax-exempt status could file such an application, fully disclose its actual or planned political activity, and then wait to see what the IRS does. If the IRS grants the application that would give a green light for such activity. If the IRS denies the application or refuses to rule on it for 270 days, the church could file a declaratory judgment action seeking a declaration that it qualifies for exemption, thereby forcing the IRS to litigate the validity of the prohibition assuming the church otherwise qualifies for exemption under Internal Revenue Code section 501(c)(3). It is not clear why the the Alliance Defending Freedom (previously named the Alliance Defense Fund), which has brought us Pulpit Freedom Sunday, or other groups that assert they are seeking to challenging the prohibition have not pursued this route in order to bring this issue to a head.
Tuesday, September 11, 2012
On Sunday, September 2, the Church of St. Catherine of Siena, in NYC, published and circulated to parishioners a church bulletin containing a column by the Rev. John Farren, a member of the congregation’s pastoral staff. The column, which is ostensibly about religious freedom, reproduced in full a letter from several former U.S. ambassadors to the Vatican criticizing the Obama administration and concluding, “We urge our fellow Catholics, and indeed all people of good will, to join with us in this full-hearted effort to elect Governor Mitt Romney as the next President of the United States.” (Note that this is a quote from the ambassadors' letter, reproduced in full in Fr. Farren's column, not a quote from Fr. Farren himself). The reproduced letter, in fact, mentions Romney specifically a half-dozen times, and in each paragraph other than the very first.
Father Farren perhaps thought he had protected himself from violating the political campaign prohibition rules by framing his column as one about religious freedom, and including the following sentence: "I am aware that I and no church authority may endorse candidates for political office, but because that letter focuses on the centrality of religious freedom, I believe it is worth reproducing here." Or perhaps he thought that reproducing someone else's endorsement of Romney in an official church publication was OK as long as the endorsement words didn't come out of his mouth. Either way, he was dead wrong.
Aside from the fact that Father Farren's statement is pretty transparently a ploy to signal his approval of Governor Romney (he could easily have made his arguments regarding religious freedom without reproducing a letter that is essentially a campaign ad for Romney), the statement in the church bulletin quite clearly violates the rules the IRS laid out in Rev. Rul. 2007-41. I cited these rules in my previous post about Bishop Jenky of Peoria, but here they are again. In assessing whether a communication that is ostensibly about an "issue" rather than a political endorsement, the IRS considers the following factors:
- Whether the statement identifies one or more candidates for a given public office;
Whether the statement expresses approval or disapproval for one or more candidates’ positions and/or actions;
Whether the statement is delivered close in time to the election;
Whether the statement makes reference to voting or an election;
Whether the issue addressed in the communication has been raised as an issue distinguishing candidates for a given office;
Whether the communication is part of an ongoing series of communications by the organization on the same issue that are made independent of the timing of any election; and
Whether the timing of the communication and identification of the candidate are related to a non-electoral event such as a scheduled vote on specific legislation by an officeholder who also happens to be a candidate for public office.
My analysis is that Fr. Farren's column in the church bulletin managed to violate all seven of these criteria; a perfect (negative) score. To analogize to speeding, this isn't going 75 mph in a 65 zone; this is going 120. The fact that the rules were (mostly) broken in the context of reproducing a letter from outsiders is irrelevant; this is similar to a web link that would take you to a web page with the original endorsement. The Revenue Ruling is quite clear that one is responsible for the content behind such links in this context - in other words, you can't escape the rules by re-publishing someone else's endorsement. Link to it, or re-publish it approvingly, and it becomes your own.
As I indicated in my prior post about Bishop Jenky, it's high time the IRS made a stand on the political activity rules. Either enforce your ruling, or withdraw it and give up.
Thursday, August 2, 2012
The Columbia Law School Charities Project has released two new webinars for public viewing: “The IRS and Charities Regulation: A Primer,” and “Social Enterprise and Hybrid Corporate Forms: Emerging State Regulatory Perspectives and Responses.” According to the Charities Project, the webinars are designed to help inform the nonprofit sector, regulators, practitioners and academics about topical issues at the intersection of state regulation and the charitable sector.
Friday, June 22, 2012
As reported in the Chicago Tribune, a recent Reuters article discusses the ongoing work of the Alliance Defense Fund, the creator of Pulpit Freedom Sunday. As previously blogged, this event's purpose is to "have the Johnson Amendment [adding the political activity prohibition to section 501(c)(3)] declared unconstitutional – and once and for all remove the ability of the IRS to censor what a pastor says from the pulpit." In 2011, approximately 540 pastors in churches around the country "preached sermons that compared the positions held by candidates with what Scripture says about those issues. The pastors then made specific recommendations about those candidates (including recommendations about whether the congregation should vote for or against them)." The goal of the movement is to force a court case on the issue, with hopes that it will result in their favor - striking the prohibition from 501(c)(3). The article discusses the continuing recruitment of new pastors to join the movement, forcing the IRS to act and begin the ultimate court fight.
In a similar, but unrelated event, The U.S. Conference of Catholic Bishops have called for their own Fortnight for Freedom beginning this week (from June 21 to July 4), which encompasses holding masses and rallies, and using parish bulletins to voice opposition to the Obama administration's healthcare regulations on contraceptives. The Conference's website describes this event as a "special period of prayer, study, catechesis, and public action [that] will emphasize both our Christian and American heritage of liberty. Dioceses and parishes around the country have scheduled special events that support a great national campaign of teaching and witness for religious liberty."
The article concludes with some interesting data from recent Pew Research Center studies on this issue. In a January 2012 poll, only 18% of the participants responded that a candidate endorsement by their minister, priest or rabbi would impact their voting decision; 70% polled that it would have no impact.
In a second study conducted this spring, Pew discovered that most parishioners prefer that their religious leaders stay out of the political realm, with Catholic participants being the "most adamant."
Tuesday, May 22, 2012
With particular relevance during this election season, the New York Times hosted another online "Room for Debate" entitled, "Should Churches Get Tax Breaks?" This debate is composed of 5 pieces written by 6 persons (one is co-written) of differing backgrounds and viewpoints. For those of us in legal academia, this can serve as a great platform for an interesting class discussion on the policy behind the tax exemption. The five submissions are:
1. Mark L. Rienzi, "Good for Religion, Good for America"
2. Dan Barker, "Government Is Endorsing Religion"
3. Winnie Varghese, "Sustaining Progressive Faith"
4. Lawrence Sager & Christopher L. Eisgruber, "Don't Play Favorites"
5. Susan Jacoby, "Equal Protection vs. 'Religious Freedom'"
Hat tip: Nonprofit Quarterly
Tuesday, May 1, 2012
In Denver and Louisville, potential mergers in which a Catholic hospital system would take over a formerly secular hospital have raised issues regarding how takeovers by Catholic health care systems alter services available to women, including abortion, contraception and tubal ligations. Catholic doctrine may also impact patient directives regarding end-of-life care. I have no quarrel with Catholic hospitals operating according to Catholic doctrine. I DO have a quarrel with the Catholic Bishops who on the one hand rail against the war on Catholicism being conducted by the U.S. government (see my earlier post about Bishop Jenky of Peoria) and on the other hand seem perfectly content to accept millions of dollars in government subsidies through property and income tax exemption.
So here's a thought. Since 1969, nonprofit hospitals have claimed exemption under what is now generally referred to as the "community benefit test." In Rev. Rul. 69-545, the IRS held that providing health care services for the general benefit of the community was charitable even if the hospital in question did not provide free care for the poor as long as the hospital provided such care in an emergency setting, had a community board, provided services to all patients who could pay (including via government programs such as Medicare and Medicaid) and did not unduly restrict its medical staff. Most states in administering their property tax exemption laws follow a similar doctrine (a very few, notably Illinois, have held that charity care is an essential element of tax exemption). The result is that even large nonprofit hospital chains, like Ascension Health - a Catholic system that in fiscal 2011 reported "an excess of revenues and gains over expenses and losses of $1.5 billion" (yes, that is "billion," with a "B") - get federal income tax exemption and state property tax exemptions, because they legitimately can claim to be providing health services for the general benefit of the community. At current corporate tax rates, if Ascension really did have profits of $1.5 billion, then its income tax exemption is worth roughly $500 million, give or take.
But when a Catholic hospital takes over a hospital and discontinues services because of Catholic doctrine, I would argue that the result is a net decrease in "community benefit." Services previously available are no longer available; rather than benefitting the community, one might argue that these transactions have harmed it (perhaps not if the target would have gone out of business without the Catholic white knight - more on this below). So I suggest a rule: in the context of an acquisition of a hospital, any discontinuance of services by the target for reasons other than financial necessity or sound medical practice within five years of the acquisition will be a per se violation of the community benefit doctrine, resulting in a withdrawal of tax exemption, unless the target would be exempt under other tests of charity (e.g., a teaching hospital would remain exempt as an educational organization; a hospital or clinic that served primarily the poor would still be exempt as a poor-relief charity).
Now I know there are a slew of problems with my proposal. First, it may be unconstitutional. My own view is that such a rule would not violate the Free Exercise Clause under existing caselaw, but I recognize that there is no Supreme Court precedent "right on point" and what case law there is that is relevant is getting long in the tooth. Maybe if the Supreme Court takes a case involving political campaign activity by a church, we'd get better clarity on this point.
Second, what about the case in which a target literally would go out of business but for a Catholic "white knight"? Would I really prefer no services at all to an elimination of certain services in order to preserve a majority of other services? No, I wouldn't. So perhaps I need an exception for cases that truly present no other option. And then I'd have to define the circumstances in which "no other option" exists.
Third, there are a host of definitional problems with phrases like "financial necessity" and "sound medical practices."
And finally, the real problem here is that most nonprofit hospitals aren't charities, and hence the real solution is to withdraw exemption from nonprofit hospitals completely (again, with the exception that hospitals could meet other tests of exemption - see my post from yesterday).
I get all this. It is likely that my idea may be completely impractical, though I'm going to spend some time thinking about it and maybe even writing a full-fledged article on it. But I am rapidly getting tired of the hypocrisy of the Catholic hierarchy, despite the fact that I am Catholic myself. If you don't want "government intervention," then don't take government handouts, either. If you're going to talk the talk, walk the walk.