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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