Thursday, September 26, 2019
While the recent House Ways and Means Oversight Subcommittee hearing focused on whether current tax benefits provided to charities also subsidize hate speech, readers may remember that a different controversy arose a couple of years ago when several groups identified as "hate groups" by the Southern Poverty Law Center (SPLC) filed lawsuits challenging that identification. Federal district courts recently dismissed two of those lawsuits, one against SPLC and the other against Amazon for using the SPLC labels.
In Center for Immigration Studies v. Cohen et al., the nonprofit Center for Immigration Studies (CIS) filed suit against two SPLC leaders, Richard Cohen (now former SPLC President) and Heidi Beirich (currently SPLC Intelligence Project Director), alleging a RICO violation. The U.S. District Court for the District of Columbia dismissed the lawsuit earlier this month, concluding that "plaintiff has
not sufficiently alleged a predicate offense or a pattern of racketeering." More specifically, the court found that while SPLC's designation of CIS as a hate group was "debatable" under the facts alleged in the complaint, it was not fraudulent and so did not constitute wire fraud, the asserted RICO predicate offense. The court also found that the complaint only alleged a single scheme, which was insufficient to constitute a pattern of racketeering.
Coverage: Yahoo! News.
In Coral Ridge Ministries Media, Inc., d/b/a James Kennedy Ministries v. Amazon.com, Inc. et al., the nonprofit (Coral Ridge) sued not only SPLC but also Amazon.com, Inc. and AmazonSmile Foundation because they allegedly excluded Coral Ridge from receiving donations through the AmazonSmile charitable-giving program because of the SPLC's "hate group" designation. The U.S. District Court for the Middle District of Alabama in a lengthy opinion dismissed the lawsuit earlier this month for several reasons. First, the court dismissed the state defamation claim and federal Lanham Act claims against SPLC because it concluded that Coral Ridge was a public figure (which Coral Ridge conceded) and given the debatable meaning of the term hate group Coral Ridge could not prove it was false as assigned to Coral Ridge, much less that the designation actually was false, or that SPLC had made the designation with actual malice, as required under the First Amendment for the claims to be sustained. (The court also rejected the Lanham Act claims on statutory grounds.) Second, the court dismissed the Civil Rights Act Title II claims of religious discrimination against the Amazon defendants. While the court found that whether the Amazon defendants were places of public accommodation within the meaning of Title II to be a difficult issue of first impression, it ultimately did not reach that issue. Instead, it concluded that even if they were places of public accommodation the denial of Coral Ridge's ability to receive donations through the AmazonSmile program was not a denial of "goods, services, facilities, privileges, advantages, [or] accommodations" within the meaning of Title II because the AmazonSmile program is not open to the public because the program is limited to certain section 501(c)(3) organizations. The court also concluded that Coral Ridge failed to plead sufficient facts to support either a claim of intentional discrimination or a claim of disparate impact on religious or Christian groups.
Monday, July 22, 2019
Over the past several years, the Freedom From Religion Foundation has been litigating over the constitutionality of the parsonage allowance. (The parsonage allowance, codified in section 107 of the Code, provides that "ministers of the gospel" can exclude in-kind housing or cash housing allowances from their income.)
In March, the Seventh Circuit ruled against FFRF, holding that tax-free housing allowances available exclusively to clergy didn't violate the Establishment Clause. Then, a month ago or so, FFRF announced that it wouldn't seek review by the Supreme Court.
But the battle isn't over, it turns out. Last week, the Humanist Society of Greater Phoenix announced that it was going to challenge the constitutionality of the parsonage allowance.
The article doesn't provide a ton of details, but it looks to me like it's going to follow the FFRF's playbook by designating a portion of its executives' salary as a housing allowance. (Note that, contrary to its assertion, the Humanist Society wouldn't claim any kind of exemption: the exemption belongs to the minister.) Because the Humanist Society is both a nonprofit and tax-exempt, it's in a similar position to FFRF vis-à-vis the parsonage allowance.
I assume that it believes that the IRS will reject the claim, giving it standing to challenge the provision's constitutionality in court.
I've said before that I'm not completely convinced that this grants standing, the Seventh Circuit notwithstanding. Even if it does, though, the Humanist Society may face hurdles not faced by the FFRF. Specifically, according to the article, leaders of the Humanist Society are broadly recognized as clergy. By contrast, the FFRF expressly denied by religious or quasi-religious, and rejected the IRS's assertion that maybe its executives were clergy. Because the Humanist executives are recognized as clergy, it's not clear to me that they don't qualify as "ministers of the gospel" for purposes of section 107. And, if they qualify as clergy, they're going to have a hard time getting standing to challenge the allowance.
Samuel D. Brunson
Thursday, June 27, 2019
President Trump talked about the so called "Johnson Amendment" again the other day. The Johnson Amendment, as probably most of the readers of this blog know, is the language contained in section 501(c)(3) of the Internal Revenue Code that prohibits a charity hoping to maintain its status as exempt from federal income tax from intervening in any political campaign. I say so called as it was not called that on its entry to the Code, though this article does suggest it was LBJ who was the author of the language added to the Code in 1954.
The President, speaking before the Faith and Freedom Coalition conference in Washington stated: “Our pastors, our ministers, our priests, our rabbis . . . [are] allowed to speak again . . . allowed to talk without having to lose your tax exemption, your tax status, and being punished for speaking." He then apparently jokingly cautioned that if a pastor spoke against him “we’ll bring back that Johnson Amendment so fast,” the president said to laughter, adding, “I’m only kidding.”
President Trump signed an executive order back in May. The law of course is still found within section 501(c)(3) and thus is a duly enforceable law. In my opinion, the executive order did not do anything to change the actual state of affairs of the meaning of the law or its interaction with other laws, such as the Religious Freedom Restoration Act, or constitutional rights. If anything, the current state of the law should work to protect those he jokingly threatened to use the state of the law against.
The news article I cite to above unfortunately wrongly states the following: "The president has not undone the law, like he sometimes claims he has, but rather told the Treasury Department it can enforce at its own discretion — leaving the possibility that the Trump administration could only penalize churches that oppose the president."
Although the President has not undone the law, as the article correctly states, I say wrongly in two senses: (1) he has not told the Treasury Department that it can enforce at its own discretion - he only directs Treasury to apply the law with due regard to allowing individuals and organizations to speak when speaking from a religious perspective "where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign", and (2) it would be unlawful for the administration to penalize churches that oppose the president, and his executive order did not create that possibility of such unlawful action. If you have interest in more detail on the (obvious) legal problems associated with (2), I wrote about the legal reasons why it would be unlawful for the IRS to unequally enforce the law in such a way in a longer scholarly article here considering the claims that the IRS violated conservative organizations rights when it specifically used names of groups like the Tea Party in managing its application system.
Thursday, June 20, 2019
This month brought us the spectacle of a televangelist awkwardly trying to explain why he has to fly in a private jet and a report that a Catholic bishop gave hundreds of thousands of dollars in gifts to fellow clergymen, with his diocese increasing his compensation to cover the value of the gifts. The latter story came from a leaked draft confidential report to the Vatican that led to the Bishop's resignation last fall. And the latter story also led to a call in the Washington Examiner from the head of the Center for a Free Economy for an IRS audit of the Catholic Church and in the Washington Post for churches to have to file Form 990, the IRS annual information return that almost all other tax-exempt organizations are required to file (although for financially smaller organizations shorter versions of the form are usually sufficient).
This raises a perennial issue that understandably never gains any political traction - should churches have to file some version of the Form 990, say a Form 990-CH, to allow the IRS and the public to see whether they continue to qualify for the tax benefits they enjoy? It seems unlikely that the occasional financial scandal or lavish spending by a church leader will be enough to change the political calculation that pursuing this idea legislatively is a fast way for a member of Congress to alienate many of their constituents. Nor is it obvious that the arguably rare incidents along these lines should be the basis for this change and the encroachment on church internal affairs that it would represent. However, as the proportion of Americans who associate with a formal religious organization continues to decline - including not just the "nones" but also people who consider themselves religious but do not engage with the institutional church - it should not be taken for granted that this exemption from the annual return requirement will always be invulnerable to attack. And of course there is the little matter of the Freedom from Religion Foundation's lawsuit challenging the exemption, although I would not give the lawsuit much chance of success, in part for the reasons provided by fellow blogger Sam Brunson.
Friday, May 17, 2019
Jianlin Chen (University of Melbourne) and Junyu Loveday Liu (London School of Economics & Political Science; K&L Gates) have published Managing Religious Competition in China: Regulating Provisions of Charitable Activities by Religious Organizations, in Regulating Religion in Asia: Norms, Modes and Challenges (Cambridge University Press 2019). Here is the abstract:
Drawing on the Law & Religious Market theory, this Chapter utilizes the case study ofChina to explain 1) how regulation of ostensibly non-economically motivated activities(i.e., religion and charity) can be properly conceived as a form of market regulation; and, 2) how such a conception can add a valuable dimension to the discourse. In particular, this Chapter situates China’s regulation of charitable activities by religious organizationsin the context of recent major legal reform on charity law and highlights the contradictory treatment where, on one hand, the law recognizes the self-interested motivation of participants and donors of charitable activities and accommodates their co-opting of charitable activities to promote or advance commercial interests but, on the other hand, specifically prohibits religious organizations from any religiouspropagation during provisions of charitable services. This Chapter argues that from the perspective of market regulation, such denial of religious “self-interest” hampers the purported policy objectives of promoting greater religious participation in charitableactivities but may be justified on the grounds that it promotes religious competition that is normatively desirable.
Thursday, March 28, 2019
Church Tax Benefits: Does 7th Circuit Ruling on Cash Parsonage Allowance Exclusion Protect Other Church-Specific Benefits?
In a much anticipated decision, the U.S. Court of Appeals for the Seventh Circuit concluded that the exclusion from gross income of cash parsonage allowances under Internal Revenue Code section 107(2) is constitutional, reversing a federal district court decision to the contrary. (Full disclosure: I signed an amicus brief arguing that the provision is constitutional.) Since the decision leaves the exclusion in place and there are no contrary federal appellate court decisions, it is highly unlikely that the Supreme Court will take up the case even if the plaintiffs file a cert petition. The Freedom from Religion Foundation, which instigated the challenge, or others could of course try to raise this issue in a different circuit in order to try to create a circuit split, especially since the plaintiffs here managed to overcome the standing issue that had frustrated an earlier challenge. At least one panel of the U.S. Court of Appeals for the Ninth Circuit indicated in an earlier case an interest in reaching the constitutional issue by appointing an amicus law professor who was skeptical of the provision's constitutionality (an issue that had not been raised by any party in that case). But such a split is likely years down the road, if it ever materializes.
A larger question is whether the decision provides broader protection for other tax benefits provided to churches, other religious groups, and ministers. Perhaps the most important holdings of the court in this respect are its conclusion that Congress had the secular purpose of avoiding excessive entanglement with religion when it enacted the provision (citing Taxing the Church, authored by Edward Zelinsky (Cardozo), on this point), its narrow reading of the Supreme Court's Texas Monthly decision as part of its reasoning for why the primary effect of section 107(2) is not to advance religion, and its stated deference to Congress in determining whether the provision causes excessive government entanglement with religion. (These conclusions reflect the much criticized by still applicable Lemon test.) These conclusions are not accepted by all; for a thoughtful critique of them, see this TaxProf Blog op-ed by Adam Chodorow (Arizona State), who argued against the constitutionality of section 107(2). And of course the decision only directly applies to that provision and is only precedential in the Seventh Circuit. But they likely foreshadow a difficult path for any other challenges to tax benefits enjoyed by religious groups or ministers, including the exemption from the annual information return filing requirement for churches currently being challenged by the Freedom from Religion Foundation (in the District of Columbia, not the Seventh Circuit).
Monday, January 28, 2019
Allison M. Whelan (Covington & Burling, Washington D.C), Denying Tax-Exempt Status to Discriminatory Private Adoption Agencies, 8 UC Irvine L. Rev. 711 (2018):
This Article ... argues that the established public policy at issue here is the best interests of the child, which includes the importance of ensuring that children have safe, permanent homes. In light of this established public policy, which all three branches of the federal government have recognized and support, this Article ultimately argues that, consistent with the holding in Bob Jones, private adoption agencies that refuse to facilitate adoptions by same-sex parents, thereby narrowing the pool of qualified prospective parents and reducing the number of children who are adopted, act contrary to the established public policy of acting in the best interests of the child.
This Article proceeds in five Parts. Part I first provides general information about the child welfare system, adoption, private adoption agencies, and the “best interests of the child” standard. Part II describes the emergence of state laws that allow private agencies to refuse to facilitate adoption by same-sex couples. Part III provides an overview of federal income tax exemptions and then summarizes the Supreme Court’s decision in Bob Jones University v. United States. Part IV applies the analysis and holdings of Bob Jones to private adoption agencies that discriminate against same-sex couples, and ultimately argues that such policies are contrary to the established public policy of the best interests of the child. As a result, this Article argues that the IRS should conclude that these agencies do not qualify for exemption from federal income tax. Part V concludes by offering a potential compromise and additional policies the government should consider.
(Hat tip: TaxProfBlog )
Friday, November 2, 2018
The Catholic Church is coping with mass tort liability for sexual abuse of children by priests. Since 2004, eighteen Catholic organizations have filed for relief in bankruptcy. Fifteen debtors emerged from bankruptcy after settling with sexual abuse claimants and insurers. During settlement negotiations, sexual abuse claimants and debtors clashed over the extent of the debtors’ property and ability to pay claims. Although such disputes are common in chapter 11 plan negotiations, the Catholic cases required the parties and bankruptcy courts to account for unique religious attributes of Catholic debtors. This article reviews the arguments and outcomes on property issues based on reported decisions, pleadings, plans, and disclosure statements. It explains the key characteristics of Catholic dioceses under canon and secular organization law and the bankruptcy contexts in which these characteristics became hot button issues. It offers an analysis of the legacy of the Catholic cases for bankruptcy law, religious liberty, and for the relationships among entities within a Catholic diocese.
Thursday, October 25, 2018
Columbia Law School Professor Philip Hamburger is a prodigious and iconoclastic legal scholar. ... Hamburger’s latest subject, in Liberal Suppression ([University of Chicago Press] 2018), is an inquiry into the legitimacy of restrictions on the political speech of non-profit organizations. Section 501(c)(3) exempts religious, educational, and charitable organizations from federal income tax but denies them this exemption if they engage in campaign speech for or against any candidate for public office or devote a substantial part of their activities to propaganda or other attempts to influence legislation. Section 170(c) makes contributions to qualifying non-profits tax-deductible to the donor. According to Hamburger, these exemptions and deductions amount to “many billions of dollars annually.”
Most people’s knee-jerk reaction is that section 501(c)(3)’s restrictions are justified by the tax-exempt status such non-profit organizations applied for and received. Rejecting such preconceptions in his trademark fashion, Hamburger strongly disagrees. Although non-profits are free to express a wide range of opinions—even political opinions—outside of political contests, Hamburger views section 501(c)(3) as “an extraordinary abridgement of an essential freedom,” which ought to be considered unconstitutional. Inasmuch as the Supreme Court has unanimously upheld the lobbying restrictions in section 501(c)(3), Liberal Suppression is nothing if not ambitious, but is it persuasive? Realizing that his arguments may appear to be an “uphill struggle,” early on Hamburger asks readers to “hold their skepticism in abeyance.”
After reading the book, my skepticism remains stubbornly intact.
Hamburger reminds the reader that from colonial times until the amendment of section 501(c)(3) in 1934 (and further tightening in 1954, and again in 1987), which imposed the restrictions he finds objectionable, American clergy actively participated in politics from the pulpit. The timing of the 1934 and 1954 restrictions, he points out, coincides with a period of “liberal” anti-Catholic sentiment in America. The principal culprits in Hamburger’s tale are nativists such as Ku Klux Klan imperial wizard Hiram Evans and then-Senator Lyndon B. Johnson, who faced a Catholic opponent in the 1954 senatorial primary. Hamburger portrays them as the instigators of section 501(c)(3)’s “oppressive” political restrictions. ...
Does section 501(c)(3) “threaten the core of most First Amendment freedoms,” as Hamburger claims? Liberal Suppression, despite its undeniable erudition and interesting digressions into American political (and theological) thought and historical asides, falls short of making a compelling case. Hamburger is likewise unconvincing in his attempt to make a connection between the restrictions in section 501(c)(3) and contemporary forms of censorship such as campus speech codes. While Hamburger’s theoretical arguments seem to miss their mark, they are always engaging and sometimes contains gems like this:
"American religion has increasingly been aligned with popular liberal and progressive opinion—even to the point of looking for salvation not in another world but in this one, and not so much from God as from democratic government."
My new book, Liberal Suppression, argues that section 501(c)(3)’s speech restrictions are prejudiced and unconstitutional. These conclusions run counter to widespread assumptions, and it is therefore understandable that Mark Pulliam and other thoughtful readers find them difficult to stomach. All the same, it is important at least to come to grips with the realities that underlie the book’s conclusions, and Pulliam’s review fails to do this. To evaluate the prejudice, one must understand its nature; and to judge the constitutional arguments, one must recognize their breadth and strength.
The prejudice underlying section 501(c)(3) arose from theologically liberal anxieties about the speech of churches. And as traced by my book, the prejudice gradually expanded into a broader liberal fear about the speech of all sort of idealistic organizations. Indeed, these liberal concerns have expanded to include fears about the orthodox or stereotypical speech of individuals. It is therefore disappointing that Pulliam reduces my account of prejudice to a simplistic complaint about narrow anti-Catholicism.
My book, in his view, argues that section 501(c)(3) speech restrictions were added “in order to reduce the influence of the Catholic Church.” Certainly, anti-Catholicism was the opening wedge. But as my book repeatedly emphasizes, the relevant prejudices were not narrowly anti-Catholic. Already in the early nineteenth, they were broadened out to take aim at business corporations, and in the strain that is central to my book, they soon reached not only churches—Protestant as well as Catholic—but also the full range of churchy organizations, including eventually all sort of idealistic groups that were not religious. ...
[T]he prejudiced sentiment about the speech of ecclesiastical and other idealistic organizations is painfully evident in section 501(c)(3). Pulliam protests that I have not shown this. Well, consider just one phrase—the section’s limit on “carrying on propaganda, or otherwise attempting to influence legislation.” Those words were no accident. They came directly out of nativist literature—a literature that, again, reached across much of American society, from KKK klaverns to Ivy League philosophy departments. Once more, the low and the high had more in common than the latter wanted to acknowledge.
Pulliam’s review, in short, recognizes neither the broad character of the prejudice nor its societal depth. And in taking a confined view of both, he misunderstands the antagonisms that underlay section 501(c)(3) and still undergird a host of other speech restrictions. ...
Tax lawyers and First Amendment lawyers tend to have very different sensibilities about the speech restrictions. Tax lawyers usually observe that churches etc. are only slightly quieted down, for they can convey their messages through auxiliary organizations, such as section 501(c)(4) organizations and section 527 PACs. First Amendment doctrine, however, treats even the slightest restriction on political speech with apprehension. And the freedom of speech is not merely the freedom to have one’s message come out of someone else’s mouth; most basically it is the freedom to speak—to speak through one’s own mouth, in one’s own voice.
Unlike Pulliam, most Americans, on both sides of the issue, understand that section 501(c)(3) matters for speech. It is the only subsection of the Internal Revenue Code that is widely known—even by its section number—and that is no accident. The whole point of the section’s speech restrictions was to satisfy deeply felt theo-political anxieties about speech—anxieties that remain pervasive. And this is why so many Americans care. Whether they like or fear the speech of ecclesiastical and other idealistic organizations, they understand that section 501(c)(3) chills such groups.
[Hat tip: TaxProf Blog]
Sunday, February 25, 2018
In this piece, Professors Adam Chodorow and Ellen Aprill discuss section 107(2), which permits churches and other religious organizations to provide tax-housing to their ordained ministers, in the context of litigation involving the provision. They argue that the exemption provides special benefits unavailable to laypeople and thus raises serious establishment clause concerns.
Readers please note: After this piece went to press, the court enjoined enforcement of section 107(2) beginning 180 days after the later of the conclusion of any appeals or expiration of time for filing any appeal.
Is is timely because an appeal has just been filed in Gaylor v. Mnuchin, seeking to overturn the federal district decision concluding that the parsonage allowance found in section 107 of the Internal Revenue Code is an unconstitutional establishment of religion. We therefore will eventually know whether the U.S. Court of Appeals for the Seventh Circuit agrees with Chodorow and Aprill or with those, such as Edward Zelinsky (Cardozo), who take a contrary position.
Wednesday, December 20, 2017
Goodrich & Busick: Sex, Drugs, and Eagle Feathers: An Empirical Study of Federal Religious Freedom Cases
Luke W. Goodrich (The Becket Fund for Religious Liberty; University of Utah - S.J. Quinney College of Law) and Rachel N. Busick (The Becket Fund for Religious Liberty Fellow) have written Sex, Drugs, and Eagle Feathers: An Empirical Study of Federal Religious Freedom Cases, Seton Hall Law Review (forthcoming). Below is their abstract:
This Article presents one of the first empirical studies of federal religious freedom cases since the Supreme Court’s landmark decision in Hobby Lobby. Critics of Hobby Lobby predicted that it would open the floodgates to a host of novel claims, transforming “religious freedom” from a shield for protecting religious minorities into a sword for imposing Christian values in the areas of abortion, contraception, and gay rights.
Our study finds that this prediction is unsupported. Instead, we find that religious freedom cases remain scarce. Successful cases are even scarcer. Religious minorities remain significantly overrepresented in religious freedom cases; Christians remain significantly underrepresented. And while there was an uptick of litigation over the Affordable Care Act’s contraception mandate — culminating in Hobby Lobby and Little Sisters of the Poor — those cases have subsided, and no similar cases have materialized. Courts continue to weed out weak or insincere religious freedom claims; if anything, religious freedom protections are underenforced.
Our study also highlights three important doctrinal developments in religious freedom jurisprudence. The first is a new circuit split over the Religious Freedom Restoration Act. The second is confusion over the relationship between the Free Exercise and Establishment Clauses that is currently plaguing litigation over President Trump’s travel ban. The third is a new path forward for the Supreme Court’s muddled Establishment Clause jurisprudence.
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.