Two separate lawsuits have been filed against the IRS, one by American Atheists and one by the Freedom From Religion Foundation, over preferential treatment for churches compared to other non-profit organizations. The particular arguments being offered are fascinating. You can read the complaint for the FFRF’s suit, which also includes the Triangle Freethought Society, here.
FFRF and churches are classified as non-profits under section 501(c)(3) of the Internal Revenue Code, but churches are treated differently in several ways from non-church 501(c)(3) groups. As the complaint says:
The plaintiffs are tax-exempt 501(c)(3) non-profit organizations that must file detailed, intrusive, and expensive annual reports to maintain tax-exempt status, but such reports are not required for churches and certain other affiliated religious organizations in order to remain tax-exempt…
All non-profit organizations, except churches and certain other affiliated religious organizations, must first file an application and fee with the IRS in order to qualify for the benefits of §501(c)(3) status…
Churches and certain other affiliated religious organizations are exempted from the IRS requirement of filing the detailed application, Form 1023, necessary in order to be considered a tax-exempt organization under §501(c)(3).
All organizations recognized as tax-exempt under §501(c)(3), except churches and certain affiliated religious organizations, also are required to file an annual information return, Form 990, in order to maintain their tax-exempt status.
Churches and affiliated religious organizations are exempted from having to file the detailed annual information return, Form 990, in order to maintain their tax-exempt status…
The plaintiffs expend substantial time and resources in making the detailed annual information filing, including the annual expense of engaging and paying a certified professional accountant to prepare and file the required Form 990.
Form 990 requires organizations, including the plaintiffs, to provide detailed information, including information about governance, composition of governing body, information about governance and management policies, and disclosure practices.
Form 990 also requires organizations, including the plaintiffs, to list their officers, directors, trustees, and key employees, and they must also report compensation paid by the organization to such persons.
Form 990 further requires organizations, including the plaintiffs, to provide information regarding the organization’s mission, activities, and current and prior years’ financial results.
Form 990 additionally requires reporting of each organization’s new, ongoing and discontinued exempt purpose, achievements, and reports of revenue and expenses.Form 990 also requires organizations, including the plaintiffs, to file detailed financial schedules, including information about donations and whether donations are spent on programs or management and fundraising.
Finally, Form 990 requires that detailed statements of revenue and functional expenses, as well as organizational balance sheets, comprising the financial statements of the organization, be filed each year.
The preferential treatment of churches and certain other affiliated religious organizations by the IRS, under the direction and control of the defendant Miller, directly benefits churches and other religious organizations, while discriminating against other non-profit organizations, including the plaintiffs, solely on the basis of religious criteria.
The preferential treatment of churches and other affiliated religious organizations by the defendant results in obligations imposed on secular non-profits, including the plaintiffs, that are not imposed on churches.
The preferential treatment provided to churches and other affiliated religious organizations constitutes an exclusive and discriminatory benefit to religion in violation of the Establishment Clause, as well as the equal protection rights required by the Due Process Clause of the Fifth Amendment to the United States Constitution.
The complaint in the American Atheists suit can be found here. AA’s suit challenges many of the same disparities in treatment between religious and secular non-profits but also adds a couple more:
Churches are able to take advantage of the “parsonage exemption” or “parish exemption,” allowing them to deduct housing costs for “licensed, commissioned, or ordained” ministers. Also, churches need not withhold income tax from compensation to “licensed, commissioned, or ordained” ministers.
There is no limit on the size of the parsonage allowance each church may deduct or the amount of cash a church may give a religious leader to use for housing costs.
FFRF actually has a separate lawsuit over the parsonage allowance, which it filed in November. These will be very interesting lawsuits to watch. The government’s defense will be that the Free Exercise clause requires such disparate treatment because otherwise the government would be interfering in the internal workings of churches. And that’s not a frivolous argument. In fact, if I was a betting man — and I am — I would bet that the ruling will come down exactly that way.