Thursday, June 22, 2017
As anyone who has represented a house of worship knows, they are subject to many legal exceptions and special rules. One of the more obscure but also more important ones is the exemption of church benefit and pension plans from the incredibly complex requirements of the Employee Retirement Income Security Act of 1974 (ERISA). At issue in Advocate Health Care Network v. Stapleton was whether this statutory "church plan" exemption extends to pension plans offered by church-affiliated nonprofits that run hospitals and other healthcare facilities, as had been longstanding interpretation of the IRS, the Department of Labor, and the Pension Benefit Guaranty Corporation. The plaintiffs in these consolidated cases were current and former employees of the nonprofits who had successfully argued in the lower courts that the exemption is limited to plans established by churches and so the plans established by these church-affiliated nonprofits were subject to ERISA.
In a unanimous opinion (Justice Gorsuch not participating), the Supreme Court reversed the lower court decisions. Based on a careful reading of the statutory text, as well as consideration of the congressional intent with respect to the amendments to that text at issue in the case, the Court concluded that plans maintained by church-affiliated entities for their employees fell within the exemption, regardless of what type of entity had established the given plan. The case therefore resolved the uncertainty created by the lower court decisions in these consolidated cases, which had thrown the scope of the church plan exemption into doubt. While Justice Sotomayor wrote separately to highlight her concerns about the effect of the decision, she agreed with the Court's reading of the statute and so joined the Court's opinion in full. For more detailed coverage, see SCOTUSblog.
Tuesday, June 20, 2017
This Article uncovers and names a phenomenon of pressing importance for healthcare policy and religious liberty law: the rise of zombie religious institutions without attachments to churches or associations of religious people. It argues that when religion and commerce combine, commercial transactions shape religious compliance and identity. Contract creates religion—sometimes in perpetuity—for facilities that are not, or never have been, religious and for providers who do not share the institution’s religious precepts. “Religious” institutions far-removed from the paradigm of the church populate the marketplace.
The Article details religion’s spread across healthcare through affiliations, mergers, and—most surprisingly—sales of hospitals that continue religious practice after their connection to a church ends. Secular and religious, public and private, for-profit and non-profit hospitals comply with religion by contract. Private law impedes public policy by expanding the universe of institutions eligible for religious exemption from otherwise applicable laws, including employment antidiscrimination law and the Employee Retirement Income Security Act. As the category of religious institution loses its specialness, theories of religious institutionalism founder. The presumption of autonomy of religious institutions from regulation cannot survive in the marketplace, where religious identity can be bought and sold.
Friday, March 17, 2017
Samuel D. Brunson (Loyola-Chicago) and David Herzig (Valparaiso) have posted A Diachronic Approach to Bob Jones: Religious Tax Exemptions after Obergefell, Indiana Law Journal (forthcoming). Here is the abstract:
In Bob Jones v. U.S., the Supreme Court held that an entity may lose its tax exemption if it violates a fundamental public policy, even where religious beliefs demand that violation. In that case, the Court held that racial discrimination violated fundamental public policy. Could the determination to exclude same-sex individuals from marriage or attending a college also be considered a violation of fundamental public policy? There is uncertainty in the answer. In the recent Obergefell v. Hodges case that legalized same-sex marriage, the Court asserted that LGBT individuals are entitled to “equal dignity in the eyes of the law.” Constitutional law scholars, such as Lawrence Tribe, are advocating that faith groups might lose their status, citing that this decision is the dawning of a new era of constitutional doctrine in which fundamental public policy will have a more broad application.
Regardless of whether Obergefell marks a shift in fundamental public policy, that shift will happen at some point. The problem is, under the current diachronic fundamental public policy regime, tax-exempt organizations have no way to know, ex ante, what will violate a fundamental public policy. We believe that the purpose of the fundamental public policy requirement is to discourage bad behavior in advance, rather than merely punish it after it occurs. As a result, we believe that the government should clearly delineate a manner for determining what constitutes a fundamental public policy. We suggest recommended three safe harbor regimes that would allow religiously-affiliated tax-exempt organizations to know what kinds of discrimination are incompatible with tax exemption. Tying the definition of fundamental public policy to strict scrutiny, to the Civil Rights Act, or to equal protection allow a tax-exempt entity to ensure compliance, ex post. In the end, though, we believe that the flexibility attendant to equal protection, mixed with the nimbleness that the Treasury Department would enjoy in crafting a blacklist of prohibited discrimination, would provide the best and most effective safe harbor regime.
Tuesday, May 3, 2016
Targeting Religious Organization Tax Benefits, Religious Orgs Pushing Back, and the Scandal of the Month
A flurry of litigation targets the tax benefits enjoyed by religious organizations and their ministers, including the parsonage allowance exclusion and property tax exemptions. At the same time, religious organizations are pushing back on government regulation by challenging the IRS enforcement of the political campaign intervention prohibition. And of course news outlets are continually searching for possible behavior by religious groups and sometimes finding it.
In the courts, the Freedom From Religion Foundation has refiled its complaint challenging on Establishment Clause and Due Process Clause grounds the parsonage allowance exclusion provided to ministers by Internal Revenue Code section 107. In an attempt to remedy the standing issue that doomed its earlier challenge, FFRF's new complaint asserts that it provides a housing allowance to its officers but solely because they are not ministers that allowance is subject to federal income tax. It remains to be seen whether these changed facts are sufficient to overcome the general prohibition on taxpayer standing, although the Seventh Circuit's earlier decision on this issue indicates they may be.
At the same time, the Massachusetts Supreme Court has taken up the question of what counts as sufficiently "religious" use of real property to qualify that property for tax exemption. Areas of the property at issue include a maintenance shed, a coffee shop, conference rooms, a religious bookstore, and part of a forest preserve. A recent Atlantic article (hat tip: Above the Law) details the possible significant ramifications of the case, both in Massachusetts and nationally, given the increasing financial pressure on local tax assessors to narrowly interpret property tax exemptions. Additional Coverage: WBUR.
Religious organizations are not solely on the defensive, however. The Alliance Defending Freedom, not satisfied with its increasingly popular Pulpit Freedom Sunday challenge to the Internal Revenue Code section 501(c)(3) prohibition's application to churches and other religious organizations, has now filed a Freedom of Information Act lawsuit to force the IRS to disclose its rules for investigating churches. ADF is basing its lawsuit on the disclosure by the IRS, in response to a FFRF lawsuit, that it was actively enforcing the prohibition as against churches. For a discussion of the bind ADF and FFRF are putting the IRS in, see this Surly Subgroup blogpost by Sam Brunson.
Finally, religious organizations continue to be fruitful sources for news outlets looking for scandals. Most recently, the City Church of New Orleans was the subject of a story by WWLTV detailing an ongoing state criminal investigation. The allegations against the church include both ones that are sadly familiar - financial mismanagement and use of church resources to benefit the private business interests of church leaders - and ones that are less common - lying to collect federal education grants and film tax credits. It remains to be seen, of course, whether these allegations are shown to be accurate or not.
Wednesday, February 3, 2016
Kadir Nagac (Zirve University, Department of Economics) has posted "Religiosity and Tax Compliance" to SSRN:
The intention of this paper is to analyze religiosity as a factor that potentially affects tax compliance. Studies in the 90s have shown that the puzzle of tax compliance is "why so many individuals pay their taxes" and not "why people evade taxes". It has been noted that compliance cannot be explained entirely by the level of enforcement (Graetz and Wilde, 1985; Efflers, 1991). Countries set the levels of audit and penalty so low that most individuals would evade taxes, if they were rational, because it is unlikely that cheaters will be caught and penalized. Nevertheless, a high degree of compliance is observed. Therefore, studies that analyze a variety of factors other than detection and punishment are need. Religiosity can play an important role in determining one's tax compliance decision. I use religious adherence data from the American Religious Data Archive and reported income data from IRS to analyze independent effects of church adherence rates on tax compliance in the United States at the county-level. Tax compliance at the county-level is measured as discrepancy in reported income between IRS data and census data. Existing studies focus on effect of religiosity on tax fraud acceptability (tax morale), not the actual tax fraud or tax compliance behavior. To writer's knowledge, this study is the first study that analyzes the effect of religiosity on actual tax compliance behavior.
(Hat tip: TaxProfBlog)
Thursday, December 17, 2015
Every year in my Nonprofits class, in lieu of a standard exam, I give my students a project: take a hypothetical charitable client through the organizational stages of state law creation and preparation of the Form 1023. Typically, I give my students a client based on superheroes, comic books, movies, etc. I do this for a number of reasons - it provides a rich back drop of characters and info for those who wish to use it (but they need not); it engages some students that are often unengaged; it makes reading 20 Forms 1023 that much more bearable; and most importantly, it teaches students to think about clients as they are and to apply general principles of law to even the most outlandish situations. So maybe Charles Xavier isn't coming into your office to form a mutants' rights organizations any time soon, but the issues of politics, lobbying and advocacy remain the same. Clients are clients, the law is the law, and you just never know what will come through the office door.
I really wanted to do a church this year. With all the news around the Satanic Temple and abortion, the Indiana pot church, and the renewed focus on what is a bona fide religious belief brought to you courtesy of Hobby Lobby, I thought the timing was perfect. Trying to find a church was rather difficult, however, as you want something robust enough to be engaging as a teaching tool but you also have to tread pretty lightly around the topic. I toyed with Apocalypse and the Four Horsemen of X-Men fame, but thought it might be too obscure. The pot church was taken.
So, in honor of The Force Awakens, this year my class formed the First Church of the Jedi Knights in America. Many kudos to my colleague Atiba Ellis (go check him out at the Race and the Law Prof Blog) who appeared in class in full Jedi robe as Mace Windu, Jr., the organizer of the First Church, available for student interrogation. As with every project, it had fits and starts. For example, the class soon discovered that the West Virginia Constitution prohibits churches from organizing in corporate form. Who knew? Most shockingly, I had students who hadn't yet seen Star Wars... oh, the humanity!
Life imitates art. Some of you may know that there are actual Jedi Churches in the U.K. especially, so this particular fact pattern wasn't quite as far from reality as say, dealing with the corporate governance issues that arise when members of your board morph into evil lizards (I'm looking at you, Doc Connors!) in that after the final project was done, one of my students emailed me the following article from The Telegraph:
So who knows? Maybe one of my student really will represent Mace Windu, Jr. one day....
Wednesday, May 13, 2015
The oral argument before the Supreme Court in Obergefell v. Hodges (the same-sex marriage case) included the following exchange between Justice Alito and Solicitor General Verrilli (on page 38 of the transcript):
JUSTICE ALITO: Well, in the Bob Jones [University v. United States, 461 U.S. 574 (1983)] case, the Court held that a college was not entitled to tax-exempt status if it opposed interracial marriage or interracial dating. So would the same apply to a university or college if it opposed same-sex marriage?
GENERAL VERRILLI: You know, I -- I don't think I can answer that question without knowing more specifics, but it's certainly going to be an issue. I -- I don't deny that. I don't deny that, Justice Alito. It is -- it is going to be an issue.
The possibility that the contrary to fundamental public policy limitation found by the Court in Bob Jones to be included in Internal Revenue Code section 501(c)(3) might prohibit 501(c)(3) organizations from engaging in discrimination based on sexual orientation had been raised before this argument, including by fellow blogger Nicholas Mikay (Creighton) in a 2007 article (where he concluded a statutory amendment prohibiting discrimination would provide a stronger legal basis for such a prohibition). This exchange highlights the fact that how the Supreme Court decides the same-sex marriage case could have strong ripple effects for tax-exempt organizations, even though the IRS has for more than 30 years been reluctant to apply Bob Jones beyond the context of racial discrimination and even though any supporters of LGBT rights will have difficulty establishing their standing to force the IRS' hand in this area.
In another court in DC, the government found itself on the defensive as a three-judge panel expressed shock that the Justice Department would even assert that the IRS' treatment of applications for recognition of exemption under section 501(c)(3) during the 270 days before such applicants gained the right to go to court (assuming no substantive interaction with the IRS during that period) could somehow escape scrutiny under the Constitution. During oral argument (large MP3 file) before the U.S. Court of Appeals for the D.C. Circuit in case involving the application of Z Street, judges repeatedly expressed skepticism that somehow the application process was shielded from constitutional requirements, including First Amendment concerns. Additional coverage: Wall Street Journal (opinion); see also previous blog post.
Finally, the U.S. Court of Appeals for the Sixth Circuit recently upheld a preliminary injunction barring the enforcement of a local ordinance that banned outdoor, unattended donation bins. The court found that plaintiff Planet Aid (a 501(c)(3) organization) had demonstrated a strong likelihood of success on the merits of its constitutional claim under the First Amendment, finding that the ordinance was a content-based regulation of speech because it only applied to outdoor receptacles with an express message relating to charitable solicitation and giving. As such, it is subject to strict scrutiny, and the court concluded that the ordinance likely would not survive such scrutiny given the weak relationship between the ban and the city's interest in aesthetics and preventing blight and the availability of other, lesser content-neutral restrictions that could further the same interest.
Monday, January 19, 2015
In the wake of U.S. Court of Appeals for the Seventh Circuit dismissing on standing grounds a lawsuit challenging the minister housing allowance available under IRC section 107, the U.S. District for the Western District of Wisconsin revisited its 2013 decision finding standing to challenge the church exemption from having to file annual information returns (Form 990) with the IRS. Following the Seventh Circuit's lead, the District Court concluded that the plaintiffs in the Form 990 case (one of which, the Freedom from Religion Foundation, is common to both cases) lacked standing because they had never sought and been denied an exemption from having to file Form 990 for themselves (as opposed to objecting to other organizations emjoying an exemption). Indeed, the District Court noted that the plaintiffs stated in their complaint that they intended to continue to file the Form 990 and did not seek to amend their complaint in this regard even afer the defendant identified this issue in its motion to dismiss.
Therefore while it appears the Seventh Circuit left open a way for plaintiffs to obtain standing in this case and similar cases - claim the exemption or tax benefit that churches enjoy and then file suit if and when the IRS denies that claim - it is not clear that at least the plaintiffs in this case are willing to make such a claim. This path appears to still be available for others with similar concerns about the provision of such exemptions and benefits to churches to the exclusion of other types of nonprofits, however.
Thursday, March 27, 2014
On Monday, Christian relief organization World Vision announced that its employee conduct manual would no longer define marriage as being between a man and a woman. According to a report from the Religious News Service, the organization's U.S. branch would henceforth recognize same-sex marriage as being within the norms of "abstinence before marriage and fidelity in marriage" discussed in World Vision's conduct code for its 1,100 employees.
In a letter to employees issued on Monday, World Vision President Rich Stearns stated that the organization was not endorsing same-sex marriage, but had "chosen to defer to the authority of local churches on this issue."
In an interview with Christianity Today, Stearns said that the organization's board was "overwhelmingly in favor" of the change. However, he stressed that the decision was not driven by theology. He added: "There is no lawsuit threatening us. There is no employee group lobbying us. This is simply a decision about whether or not you are eligible for employment at World Vision U.S., based on a single issue, and nothing more."
Today's NonProfitTimes is reporting that just two days after making its big announcement, World Vision reversed it. In a letter to supporters yesterday, Stearns and Chairman of the World Vision U.S. Board, Jim Bere, announced that the organization was reversing its recent decision to change its "national employment policy."
According to the "Dear friends" letter sent to the organization's "trusted partners,"
The board acknowledged they made a mistake and chose to revert our longstanding conduct policy requiring sexual abstinence for all single employees and faithfulness within the Biblical covenant of marriage between a man and a woman.
Speaking directly to the organization's "trustred partners," Stearns and Bere stated: "We have listened to you and want to say thank you and to humbly ask for your forgiveness."
The initial decision was greeted with both criticism and support. The reversal has drawn the same types of responses. One skeptic posted the following comment on World Vision's Facebook page: "I can see that your board has got its priorities right -- money talked, and you not only listened, you obeyed."
That may not be necessarily true. It is highly probable that upon prayerful reconsideration of its "new policy" and heated discusions concerning the change, the World Vision board reversed itself. Either decision would be popular with some, unpopular with others. In the final analysis, World Vision must do what it believes best helps the organization achieve its mission.
Thursday, November 28, 2013
The NonProfitTimes is reporting that a recent study on charitable giving reveals that charitable giving increases significantly when the recipients are religiously-linked nonprofits. According to the Times:
Some 41 percent of all U.S. donations go to religious congregations. That number jumps to 73 percent when religiously-linked nonprofits such as Catholic Charities, the Salvation Army and Jewish federations are included. Those are some results from the Lilly Family School of Philanthropy at Indiana University study called “Connected to Give: Faith Communities.”
The study, carried out by the Lilly School in conjunction with Los Angeles, Calif. nonprofit research lab Jumpstart and GBA Strategies in Washington, D.C., is the third of six reports. It surveyed 4,862 American households of various religious traditions.
Four out of five Americans identify themselves with a particular religion. Of those, 65 percent give to congregations or charities. Of those who do not identify with a religion, 56 percent give. “The 9-point difference is due largely to contributions from (religiously) affiliated Americans to organizations with religious ties,” wrote the study’s authors.
“It’s like putting on 3-D glasses,” said one of the study’s authors, Shawn Landres, Ph.D., CEO and research director of Jumpstart, via a statement from the Lilly School. “In addition to looking at congregations, when we also look at the religious identity of the organization and the religious or spiritual orientation of the donor, it turns out that a majority of Americans contribute to organizations with religious ties and a majority of Americans cite religious commitments as key motivations for their giving.”
Almost two-thirds, or 63 percent, of Americans gave to congregations or charitable organizations in 2012, with a median gift of $660. Congregations saw the highest median gift at $375. The median gift to not religiously identified organizations (NRIOs) was greater than that of religiously identified organizations (RIOs), at $250 to $150.
“When it comes to religious identity and giving, demographic categories like income and age resist generalization,” wrote the report’s authors. While the report says that religious denomination alone does not affect giving, other factors help shape rates of giving among the denominations, according to the authors. Jews give at the highest rate to religious and charitable denominations, at 76 percent. Christians — black Protestants, Evangelical Protestants, mainline Protestants and Roman Catholics — all give at similar rates, between 61 percent and 68 percent. Those identifying as not religiously affiliated give at the lowest rate, 46 percent.
The study also examined people's motivation for giving. As reported by the NonProfitTimes, the study revealed that
More than half of Americans who give, or 55 percent, said that religion is an important or very important motivation for charitable giving. Other common motivations include believing they can make a change through giving (57 percent) and thinking they should help others who have less (55 percent).
What a heart-warming story. Happy Thanksgiving to all.
Monday, September 23, 2013
Today's Washington Post features an op-ed by Sally Quinn titled "The Pope Francis Miracle." Quinn joins many around the world who are marveling about the things the pope said in his lengthy interview released over the weekend. Quinn puts it this way:
Pope Francis stunned Catholics last week with his lengthy interview in which he talked about how the church should no longer be “obsessed” with issues like abortion, gay marriage and contraception. “We have to find a new balance,” Francis said. “Otherwise even the moral edifice of the church is likely to fall like a house of cards, losing the freshness and fragrance of the Gospel.”
Quinn reveals the contents of her interview with father Jim Martin, editor-at-large of America, the Jesuit magazine, who is apparently elated by what the relatively new pope is saying. Yet, Martin maintains that the pope's words do not signal a change in the church's teaching. Rather, he says, “There has been a shift in emphasis. His comments on those things have a different tone and language. He is moving us away from some of the issues that have bedeviled the church back to God, Jesus, love, forgiveness and mercy. It’s very beautiful. It’s like Jesus.”
Indeed, we do not know where things are headed for one of the world's largest religious organizations and one of America's largest nonprofits. We must wait for the future to unfold itself. As Father Jim Martin puts it, "Who knows? The Holy Spirit blows where it will."
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.
The nation's second largest charity, The Salvation Army USA, yesterday announced that Commissioner David Jeffery will serve as the new National Commander of The Salvation Army USA effective November 1. Jeffrey will succeed William Roberts, who will become the next chief of staff of the International Salvation Army. Jeffrey's wife, Commissioner Barbara Jeffrey, will become National President of Women’s Ministries, also effective Nov. 1.
The announcements come in the wake of the August 3 election of Andre Cox as the 20th General and world leader of The Salvation Army. Cox's election set in motion a series of executive turnovers. Roberts will succeed Cox, who served as chief of staff, the second-highest position within the International Salvation Army, since February. He will begin his new position on October 1. His wife, Nancy Roberts, will become World Secretary of Women’s Ministries.
The new National Commander is not new to high level service within the Salvation Army. Since 2011, Commissioner Jeffery served as territorial commander for The Salvation Army Southern territory. Previously, he was National Chief Secretary for the USA National Headquarters in Arlington, Virginia. As National Commander, Jeffery will be chairman of the national board of trustees, responsible for presiding over tri-annual commissioners’ conferences, bringing together executives from the Salvation’s Army’s four U.S. territories.
The 59-year-old Cox shares his ministry with his wife, Commissioner Silvia Cox, who is the World President of Women’s Ministries. Together, they will lead The Salvation Army’s 1.5 million member churches.
Cox was himself appointed as chief of staff in February. Prior to that, he was a territorial commander in the Southern African Territory, the Finland and Estonia Territory, and the United Kingdom Territory with the Republic of Ireland. As general, he is the international leader of The Salvation Army, and the only person elected to office within the organization. He directs operations throughout the world through administrative departments of the international headquarters in London.
All the best to the new team.
Friday, December 28, 2012
Brett Bloom has published a student comment titled The Rise of the Virtual Church: Is It Really a Church Under I.R.C. Section 170(b)(1)(A)(I)?, 6 Liberty U. L. Rev. 495 (available through Westlaw). Here is a summary of the article from its introduction:
This Note begins with a background discussion of tax exemption for religious organizations, including historical and constitutional concerns, along with a brief discussion of the rationale for tax-exempt organizations. This Note then discusses the distinctions between religious organizations and churches. Next, this Note presents the problem with the Service's and courts' application of their respective tests with respect to the Foundation of Human Understanding. Finally, this Note proposes (1) that the Service and courts abandon their respective tests for determining church status; and (2) that the United States Department of Treasury (the “Treasury”) provide guidance to the meaning of church through Treasury regulations.
One of my students, Brittany Brantley, has published Beyond Politics in the Pulpit: When Pastors Use Social Networks to Preach Politics, 38 J. Legis. 275 (available through Westlaw). Here is a summary of the article from it's introduction:
Part II of this note will provide an overview of the history of the political campaign prohibition. Part III will explain how churches have attempted to be completely exempt from the prohibition. Part IV will discuss the acts of Individuals of a section 501(c)(3) organization in their individual capacities. Part V will discuss how the development of the Internet has broadened the scope of the prohibition. It will also discuss how pastors use their websites and social media pages. Finally, Part VI will suggest some steps that the Internal Revenue Service and the Federal Election Commission can take to ensure that section 501(c)(3) organizations are aware of what constitutes a violation on social media pages.
Wednesday, September 26, 2012
Christianity Today reports that the U.S. District Court for the Western District of Wisconsin has concluded that the Freedom from Religion Foundation (FFRF) has standing to challenge the income tax exemption for parsonages and pastor housing allowances provided by Internal Revenue Code section 107 because FFRF has altered its salary structure to provide housing allowances, but those allowances do not qualify for exemption since the recipients are not ministers. According to a FFRF press release about the decision, its lawsuit seeks a declaration that section 107 violates the First Amendment's Establishment Clause. The case, which is only the latest attack by FFRF on section 107, raises the interesting question of whether the Supreme Court's recent narrowing of the Establishment Clause exception to the general rule that taxpayers lack standing to challenge tax provisions benefiting others can be avoided by creating a fact pattern that is identical to the one required under the challenged provision except for the lack of a religious element. For example, could a non-religious nonprofit that functions in a manner very similar to a church challenge the exemption for churches from having to file annual information returns (the Form 990)? The outcome of this lawsuit could therefore have even larger ramfications than the possible end of the pastor housing allowance exemption.
(Hat tip: ECFA)
Correction: The original version of this post gave the Washington Ethical Society as an example of a non-religious nonprofit that appears to function in a manner very similar to a church. An astute reader brought to my attention that the Washington Ethical Society is in fact actually classified as a church by the IRS, so I have corrected the post by removing that reference. My thanks for the fact checking.
Wednesday, February 22, 2012
I just came across this interesting commentary by Kevin Clarke, an associate editor at America Magazine, a weekly Jesuit publication. The commentary was posted on the Washington Post's Website this morning.
Tuesday, December 20, 2011
As I have mentioned before on this blog, I supervise my law school's Community Development Law Clinic, which really should be called a Nonprofit Law Clinic. As the semester ends, I have been engaging in my usual practice of reviewing our progress, and it occurs to me that, in this season of religious celebration, we have taken on several projects for religious organizations.
One project is for a well established religious organization in North Carolina that is concerned about liabilty and wishes to explore incorporating under state law. The interesting challenge for the clinic students is that the congregation is strictly committed to non-hierarchical decision making on all aspects of its governance. The legal question, then, is how to devise a board comprised of any congregant who feels moved to show up to the business meeting and express his/her opinion in any given month, and where corporate actions will only be taken when the congregation arrives at "consensus," which is defined vaguely. As nonprofit law folks can imagine, this led to a close analysis of the North Carolina General Statutes on nonprofit governance and to some interesting and precise custom language in the organization's bylaws. Rather than describe the solution we devised, I will leave it up to you imagination.
(The tax folks in the crowd may be interested to hear that the same congregation was renting parking spaces for weekend football games and was completely unaware that UBIT might apply. A clinic student, upon discovering this, correctly pointed out that these exact facts are one of the examples in the IRS UBIT regs.)
Another project involves a group of nuns who wish to establish a 501(c)(3) nunnery. At first blush, the legal issues looked straight-forward, but as we dug in, we realized that we had a potential private inurement/benefit issue. The problem is that the nunnery would be formed by, and would initially house, a small group of nuns. To avoid the inurement issue, we advised that they populate the board with people who will not participate in or benefit from the nunnery's programs. This proved difficult, however, because their religious principles require that organizational decisions be made only by ordained (not sure that's the correct term) nuns, and they are the only ones in the region. Resolving that problem required significant creative, collaborative work between the students and the nuns. The private benefit issue was easier, since the client had no problem making its benefits available to an indefinite class.
Friday, September 9, 2011
We previously blogged about the creation of a Commission on Accountability and Policy for Religious Organzations by the Evangelical Council for Financial Accountability (ECFA) at the request of Senator Charles Grassley. Now ECFA has announced that 66 nonprofit and religious organization experts have been named three panels to aid the Commission in its work. The panels include a Panel on Religious Sector Representatives with members from a variety of faiths, a Panel of Nonprofit Sector Representatives from a variety of nonprofit associations and groups, and a Panel of Legal Experts with a variety of law firm practitioners, in-house counsel, and one academic (Professor Thomas Berg (University of St. Thomas, Minneapolis)). I am personally aware that other academics were invited to join the last Panel but declined because of other commitments, which may explain the low level of academic involvement.
Monday, August 8, 2011
Summer Court Update: 7th Circuit Applies Franchise Law to Girl Scouts; Pastor Housing Allowance Suit Dropped
There were two notable federal court developments recently.
In Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United States of America, Inc., the U.S. Court of Appeals for the Seventh Circuit concluded the Wisconsin Fair Dealership Law applied with equal force to nonprofit organizations as well as for-profit organizations. Writing for a unanimous panel, Judge Posner rejected a First Amendment challenge to the application of the law and then stated, in concluding that the dissolution of the local chapter by the national Girl Scouts organization violated the law, the following:
"No gulf separates the profit from the nonprofit sectors of the American economy. There are nonprofit hospitals and for-profit hospitals, nonprofit colleges and for-profit colleges, and, as we have just noted, nonprofit sellers of food and for-profit sellers of food. When profit and nonprofit entities compete, they are driven by competition to become similar to each other. The commercial activity of nonprofits has grown substantially in recent decades, fueled by an increasing focus on revenue maximizing by the boards of these organizations, and this growth has stimulated increased competition both among nonprofit enterprises and with for-profit ones." He then reasoned: "Dealer protection laws are aimed at such abuses, though they also and perhaps predominantly reflect the political influence of local businessmen seeking advantages over franchisors likely to be located in other states. . . . . Either way the concerns that motivate the laws seem applicable to nonprofit enterprises that enter into dealership agreements as defined in the laws, and so, as in our previous opinion, we decline to read an exception for nonprofit enterprises into the Wisconsin law." (citations omitted) For a detailed commentary on this decision, see this Charity Governance blog post by Jack Siegel.
As for the other case, the Evangelical Council for Financial Accountability reported that the Freedom from Religion Foundation and other plaintiffs had voluntarily agreed with the defendant federal and state government officials to dismiss (without prejudice) their lawsuit challenging the constitutionality under the Establishment Clause and the California Constitution of the ministerial housing allowance exemptions found in Internal Revenue Code section 107 and a parallel state tax provision. The ECFA press release provided a link to the stipulation of dismissal. We previously blogged about the case, and about the Supreme Court's recent decision in Arizona Christian School Tuition Organization v. Winn that we predicated likely would lead to dismissal of this case because the Court sharply limited standing to bring Establishment Clause challenges to tax provisions. The Freedom from Religion Foundation has not yet updated its public listing of information regarding this lawsuit, however, so it is not clear if they will try to overcome this standing issue at some point in the future.