Originally published on Forbes.com.
On October 24, the Seventh Circuit will be hearing oral arguments in Gaylor V. Mnuchin, the challenge that Robert Baty provoked the Freedom From Religion Foundation to take up against tax-free cash housing allowances for “ministers of the gospel”. As it turns out, FFRF is starting another case against the privileging of churches in tax law. Churches, unlike other 501(c)(3) organizations do not have to file Form 990 which provides transparency to their transactions. And that is FFRF’s next project with Nonbelief Relief Inc v Kautter.
Form 990
Form 990 is a required filing that creates significant transparency for exempt organizations. In 1971, it was harder to get your hands on Form 990, but a team of reporters working for Warren Buffet’s Omaha Sun took the trouble which allowed them to expose the extent to which fundraising had outstripped service delivery at the venerable Boys Town.
The Evangelical Council for Financial Accountability recommends financial transparency for churches:
The financial statements (and the disclosure of the financial statements) are key components of transparency, both within the ministry and to donors and the public. This flows directly from biblical principles: “This is the verdict: Light has come into the world, but men loved darkness instead of light because their deeds were evil. Everyone who does evil hates the light, and will not come into the light for fear that his deeds will be exposed” (John 3:19–20 NIV).
But, in contrast to other not-for profits, the Internal Revenue Code does not require reporting for churches. Reverend Frank Benson Jones in Stop The Prosperity Preachers argues that a 990 requirement would help root out church financial abuse.
I am calling upon all Americans to insist on full financial disclosure by churches and religious organizations, and the first step towards full disclosure is to insist that churches and religious organizations file an IRS form 990.
The Problem of Standing
This is not FFRF’s first run at this issue. They took a shot with Freedom From Religion Foundation and Triangle FFRF. Judge Barbara Crabb ruled that the Seventh Circuit decision that had overturned her decision on the parsonage allowance on standing grounds also applied to the 990 case.
Just as in Lew, there has been no determination by the Internal Revenue Service whether plaintiffs are entitled to the exemption because plaintiffs have never asked to receive an exemption from filing a report
Establishing standing ended up being something of a project. Nonbelief Relief was established, applied for and was granted exempt status. It raised money – over $500,000-, which was donated to various charities. Some are familiar like Doctors Without Borders and UNICEF. But the Secular Underground Railroad and Foundation Beyond Belief are new ones to me.
One thing that Nonbelief Relief did not do is file Form 990. That yielded an automatic revocation of exempt status issued on August 20, 2018. That should serve as a standing ticket. We’ll see how this develops.
Comments
Patrick Elliott of FFRF responded to my request for comment with a link to the news release which includes:
“Tax-exempt groups, whether religious or nonreligious, must be treated equally by our government,” says Annie Laurie Gaylor, Nonbelief Relief administrator and FFRF co-president. “The IRS has revoked Nonbelief Relief’s tax exemption for failure to file information returns, even though virtually all churches in America fail to file such returns while not endangering their tax exemption. That’s invidious discrimination and favoritism toward religion.”
Professor Samuel Brunson, author of God And The IRS, responding to this story, wrote me:
First, buried in the middle, Gaylor asserts that when her organization lost its exemption, not only did donors lose their deduction, but that Nonbelief Relief had to start paying taxes on the donations. That strikes me as tremendously unlikely. The donations Nonbelief Relief receives would very likely be characterized as gifts, and thus continue to be excluded from NB’s gross income.
And second, I think this is a harder question than the parsonage allowance question. In this case, Congress can say (with a straight face), “We’ve exempted churches from filing tax returns to avoid excessive entanglement, so we don’t violate the Establishment Clause of the Constitution.” I don’t know that requiring a 990 represents excessive entanglement, and I’m pretty sure it wouldn’t violate the Constitution if Congress did require churches to file a 990. After all, when it comes to tax, there are no mandatory accommodations. But the Constitution allows for permissive accommodations, and I think, in this case, the government can, in good faith, assert that it believed this accommodation was necessary. Whether or not the court ultimately agrees with its necessity, I’m not sure that the court will second-guess it.
Finally, if FFRF is really going to engage in this kind of tax litigation, they really need to not call it the “IRS Code.”
Bob Baty could not resist giving himself a pat on the back.
It is my opinion that my success in getting Annie to take up the IRC 107 issue was what brought Annie and the FFRF into the arena as to suing the IRS. It was a rocky and slow start, but they warmed up to the task and the current Form 990 case, I think, is the 4th such lawsuit (though I think the IRC 107 the best and most successful).
I don’t blame him. He deserves it.
Other Coverage
Paul Streckfus ran the Religion News Service Story – Freedom form Religion Foundation group sues IRS over tax exemption in EO Tax Journal 2018-201, which is where I picked it up.
Annie Laurie Gaylor, president of the charity and FFRF co-president, said the suit is “part and parcel” of an ongoing legal strategy of the Wisconsin-based atheist group that has challenged an “IRS code that uniquely advantages religion over nonreligion
World Religion News had a brief summary. Hemant Mehta at Friendly Atheist has An Atheist Charity is Suing the IRS After Having Its Exemption Revoked.
Religion News Service asked FFRF’s co-president Annie Laurie Gaylor if she wanted the IRS to drop Form 990 requirements for all non-profits (including churches), or if she wanted all non-profits to be required to fill them out. Gaylor said she had no preference; it was up to the courts to choose the remedy. But if the IRS ends up forcing churches to submit 990s just like everybody else, you can bet there will be an outcry from the Religious Right. They love pretending they’re victims, and they would be furious at the prospect of having to play by the same rules as everybody else.
Eliminating reporting requirements for all charities would be a really interesting outcome. What would Congress do then? Mr. Mehta also had a podcast on the subject. Howard Friedman had a brief mention on Religion Clause.
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