American Atheists and FFRF Sue Internal Revenue Service – Again

On December 21, American Atheists, Atheists of Northern Indiana, and Atheist Archives of Kentucky joined together and filed suit against the Commissioner of Internal Revenue for giving preferential tax treatment to churches and religious organizations. Last Thursday, the Freedom From Religion Foundation (FFRF) and Triangle Freethought Society, a North Carolina group, filed a similar suit.

FFRF also filed suit against the Internal Revenue Service in November because of the IRS’s failure to enforce prohibitions against electioneering by churches. That suit focused on only one aspect of the preferential treatment churches and religious organizations get under the federal tax code.

The new suit that they filed, which is similar to the American Atheists lawsuit, is much broader. Both of these new lawsuits attack the entire structure of preferential treatment afforded to religious organizations and churches by Congress. Basically, both lawsuits claim that this preferential treatment promotes religion and violates Equal Protection. They ask essentially that churches be treated like other nonprofits, or that other nonprofits be treated like churches.

The Internal Revenue Code treats churches and religious entities differently than any other tax-exempt entity. Even organizations that organize specifically to comply with 501(c) tax exemptions have to submit extensive paperwork to the IRS to back up their tax exemption. Not churches. They are presumed to be tax exempt unless their status is challenged, and even then, as we know all too well, the IRS doesn’t investigate.

From the AA Complaint:

“Religious organizations” and “churches” are treated differently from all other organizations entitled to tax exemptions under I.R.C. § 501(c)(3). Additionally, under the IRS’s application of I.R.C. § 501(c)(3), churches receive certain preferences that even religious organizations do not.

In violation of the Equal Protection of the Laws required by the Due Process Clause of the Fifth Amendment, the First Amendment, and the Religious Test Clause of Article VI, § 3 of the Constitution of the United States, differing treatment of tax exempt entities flows solely from arbitrary discrimination without reason, turning solely upon a particular organization’s members’ supernatural religious beliefs or lack thereof, or whether such an organization self-identifies as a church or religious organization.

The Equal Protection argument is a crucial one. There has to be a rational basis for treating churches and religious organizations differently for the law to pass muster, and there has to be a rational basis for giving churches the added benefit that other religious organizations so not. The Supreme Court may also apply the “strict scrutiny” test, which is a much higher standard to meet.

The problem is not just that the IRS enforces the law differently when it comes to religious organizations and churches: discrimination in favor of churches and religious organizations was built into the law by Congress. Essentially, any organization can claim to be a church or religious organization and avoid taxes, and unless a “high-ranking official” within the IRS hierarchy – and that official can be no more than one level removed from the Commissioner – investigates, nothing will be done to verify that the organization is what it says it is or that it benefits the public in any way. That’s how Westboro Baptist Church, as obvious a hate organization as ever existed – remains tax-exempt. All it takes is the word “church” in its name. All other non-profit organizations must pay a fee and apply to the IRS for permission to claim 501(c)(3) status. No other organizations have the benefit of any legal presumption of entitlement to tax-exempt status.

According to the American Atheists lawsuit, the tax exemption costs the American economy $71 billion annually. (In its November lawsuit against the IRS for not enforcing the electioneering provisions of the Internal Revenue Code against churches and religious organizations, FFRF cited a number of $100 billion annually in lost tax revenue.) Among the tax-free perks enjoyed by churches an no other organizations are that they need not withhold taxes on salaries paid to their ministers, and they can provide lavish homes or cash to their ministers over and above salaries for the ministers’ “parsonages” or homes. FFRF has already sued and been found to have standing to challenge the parsonage law. The American Atheists lawsuits claims that the parsonage exemption alone costs the government up to $1.2 billion in lost tax revenue every year. These are untaxed dollars paid to or on behalf of religious leaders over and above their regular salaries. While most ministers probably do not live lavish lifestyles, there are those who have multiple homes and whose churches pay to keep them in such a comfortable lifestyle.

The standing for the plaintiffs is much stronger on the Equal Protection claims, because they are nonprofits and are required to jump through hoops to enjoy that status that churches do not have to jump through. They not only have to establish their entitlement of 501(c) status on the front end, they have to report annually on their income and activities, something all churches do not have to do. The government is discriminating based on religion, and religion is a suspect classification for purposes of discrimination. Furthermore, the Establishment Clause of the First Amendment to the United States Constitution prohibits governmental preferences for, endorsement of, and discrimination in favor of churches and religious organizations. On the face of it, it seems that the Internal Revenue Code provisions permitting preferential treatment of churches and religious organizations violates the Establishment Clause in this respect.

The goal of the American Atheists lawsuit, according to their press release, is for “all tax-exempt organizations, including those characterized as religious by the IRS, have the same requirements to achieve tax-exempt status.” A level playing field: what a concept! And, as one commenter put it on AtheistNexus, “Why should a ‘magic guy in the sky’ non-profit be treated differently from, say, a ‘flying spaghetti [monster]‘ non-profit?”

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Got a legal question? Email me at anne@aramink.com. I’m a lawyer, but there’s only a 2% chance I’m licensed in your state. Whether I answer your question or not, sending me an email or reading this blog post does not create an attorney-client relationship between us. I’m on Twitter as @aramink, and you can see my regular blog at www.aramink.com, where I write book reviews, ruminate on Life, the Universe, and Everything, and occasionally – frequently – rant about Stuff.

About Anne

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Got a legal question related to religion? Contact me at anne@aramink.com

  • eric

    According to the American Atheists lawsuit, the tax exemption costs the American economy $71 billion annually.

    I believe this is saying: we would collect $71 billion in taxes on churches if they were not treated as charities. That, however, it a completely irrelevant fact. All churches suddenly becoming for-profit organizations is not really an outcome anyone thinks is going to happen, not even the plaintiffs I would guess.

    If the plaintiffs win, what would likely happen is the IRS would reduce filing requirements for non-church charities, or they would make churches obey those requirements, or they come up with a new set of requirements less onerous than the current ones for nonreligious charities but more onerous than what churches have to do now. But in any of those scenarios, the IRS is not going to collect $71 billion in new 510(c)(3) filing fees. A quick googling tells me there are 450k churches in the US. I very much doubt the filing fees are $158,000 per charity.

    So this is a somewhat specious number. In reality, even if the plaintiffs win, the government might actually gain 1/1,000 of that as churches start filing for regular 510(c)(3) status.

    • Kela

      It is more than just the filing fees. All other forms of 501(c)3 organizations have to give a complete accounting of where their money is spent and who the money comes from (over $5000) and to prove that they are providing a service to the community. That is why organization get the non-profit tax-exempt status is because they are providing a service that will now not have to be done by the government.

      So, no they are not likely to start collecting all of the $71 billion dollars but some churches will lose their status because they cannot prove that they provide a community service and will have to begin paying taxes. Or if the government makes it easier on other secular organization then they will be able to do more good with more money (but will leave them open to more corruption).

    • John Horstman

      I think the reasoning is along the lines that most churches, if held to the same standards of tax exemption as other non-profits, would fail to meet those standards as they currently exist. Churches aren’t going to “becom[e] for-profit organizations”, they already are; they might just be recognized as such. Alternately, they can cease being for-profit institutions and comply with the law, which would also be dandy.

    • eric

      Kela, John, I think you’re being incredibly (and unrealistically) optimistic. If the courts rule for the plaintiffs, what will likely happen is that the IRS (or executive branch) will request time to update their rules, which the courts will grant. It will then take the IRS several years to do so, and then they will ask for several years to phase in any new reporting requirements. There will be plenty of time for any churches who currently wouldn’t pass 501(c) requirements to figure out how to do so without significantly changing their operations.
      Now, I admit its possible for the courts to take a very hardline stance in favor of the plaintiffs and tell the IRS they must come up with some instant/interim fix – like giving instant relief to other 501(c) organizations while they figure out the rules. But I think that’s highly unlikely. If I had to rank outcomes in terms of likeliness, it would probably be: court passes bad ruling supporting the status quo (most), court tells executive branch to fix difference but with long timetable (less), court orders executive branch to fix difference right now (least).

  • Ken

    “There has to be a rational basis for treating churches and religious organizations differently for the law to pass muster”

    I’ve always understood that the freedom of religion clause of the First Amendment grants the government the right to treat churches differently, on the side of protections from undue interference. Wouldn’t the argument be that having to follow all of the current 501C3 rules wouldn’t be “undue interference”? Or is that what is meant by rational basis in this case?

    • http://www.aramink.com Anne

      The government cannot show preference to religion, nor can it inhibit it. Essentially, that means religion can’t be singled out for any special treatment, either positive or negative. What FFRF and American Atheists argue in their suits is that government has singled out religion for positive special treatment – preferential treatment – and that’s illegal.

      • Ken

        Then I’m missing something. It’s considered legal to not apply discrimination laws equally to places of worship, meaning we can’t force the Catholic Church to hire women as priests (priestesses?). They can also turn away members based on race. I’ve always assumed that not giving churches that kind of special treatment would be considered undue interference in the workings of the church, justified by the freedom of religion clause. Perhaps that would be considered inhibiting religion?

        I know there are exceptions for churches, so a blanket Equal Protection argument doesn’t apply in some circumstances. Are such exceptions always on a rational basis (I don’t see a rational basis or compelling secular purpose for discriminating against women), or are some exceptions because of the special status of religion due to the Freedom of Religion clause? What will likely be the government’s defense argument?

        Sorry about all the questions (I actually edited a few out)…

        • advent-gred

          practice of religious belief is different from tax exemption, I think.

          • Ken

            They get federal tax exemption status because they are a non-profit. The question is what specific rules about filing their status they need to follow and if they should get special treatment in those filings.

        • baal

          “Rational basis” is legal jargon that appears to have a normal meaning. It doesn’t mean quite what it appears to. The courts pick a ‘standard of review’ and that standard then has implications on how likely it is that a law will stand (or not). This is entirely separate from the question of the Establishment Clause & Freedom of Exercise Clause from Article I of the US Constitution. Equal protection is under the 14th amendment and is handled separately from a legal (linguistic even) perspective.
          You might also be getting hung up on the distinction between the plaintiff’s right to bring a case (which is the point of the OP) and the defendant’s defenses (which will likely cite the same Constitutional phrases and laws) and the likelyhood of the plaintiff winning.
          The court record is very mixed on religion cases and often (to me) looks like a matter of who is on the court rather than what’s being argued.
          The context here is that the IRS is either unwilling or unable to follow the law that churches cannot be political institutions and churches at the same time. Hundreds of Churches have sent the IRS 100% incontrovertible proof that they are flouting the law. The OP is somewhat of a weeds eye view of how trying to fix those illegal acts is carried out in the court system. The FFrF would have a much harder time winning if they were just generally aggrieved and didn’t have this kind of egregious violation to buttress their argument with.

          • baal

            hrm, apologies on my wall-of-text ™. I had line breaks in there that the comment system ate.

          • baal

            Also note that it’s good news that they were granted standing and that standing was explicitly discussed. I was originally concerned that they’d get bounced on that ground alone (legal punting the case out of the courts in such a way that there isn’t any change to the status quo).

          • Ken

            “The context here is that the IRS is either unwilling or unable to follow the law that churches cannot be political institutions and churches at the same time.”

            Sorry, I wasn’t talking about the November law suit. I was asking about the new ones. I should have made that clear. I assumed Anne was referring to the Equal Protection claim in the December 21 suit from AA.

  • http://www.aramink.com Anne

    The new FFRF suit and the AA suit both make Equal Protection claims, and they essentially make many of the same complaints. If their timelines track properly, I can see both of these suits being resolved about the same time and getting appealed about the same time, which may ultimately result in the US Supreme Court hearing them about the same time.

    And apologies – I had added info to this post about the new FFRF suit, but evidently I didn’t save it before publishing it. Sorry.

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