Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-05097/USCOURTS-caDC-99-05097-0/pdf.json

Parties Involved:
Americans United for Separation of Church and State
Amicus Curiae for Appellee
Branch Ministries
Appellant
Family Research Council
Amicus Curiae for Appellant
Landmark Legal Foundation
Amicus Curiae for Appellant
Dan Little
Appellant
People for the American Way
Amicus Curiae for Appellee
Charles O. Rossotti
Appellee

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 20, 2000 Decided May 12, 2000

No. 99-5097

Branch Ministries and Dan Little, Pastor,

Appellants

v.

Charles O. Rossotti, Commissioner,

Internal Revenue Service,

Appellee

Appeal from the United States District Court

for the District of Columbia

(No. 95cv00724)

Mark N. Troobnick, with whom Jay Alan Sekulow and

Colby M. May were on the briefs, argued the cause for

appellants.

Thomas J. Sawyer, Attorney, U.S. Department of Justice,

with whom Loretta C. Argrett, Assistant Attorney General,

and Kenneth L. Greene, Attorney, U.S. Department of JusUSCA Case #99-5097 Document #516564 Filed: 05/12/2000 Page 1 of 13
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tice, and Wilma A. Lewis, United States Attorney, were on

the brief, argued the cause for appellee.

Richard P. Hutchison, Mark R. Levin and Janet LaRue

were on the brief for amici curiae Landmark Legal Foundation and Family Research Council

Ayesha N. Khan, Elliot M. Mincberg and Alma C.

Henderson were on the brief for amici curiae Americans

United for Separation of Church and State and People for the

American Way Foundation.

Before Silberman and Henderson, Circuit Judges, and

Buckley, Senior Circuit Judge.

Opinion for the court filed by Senior Judge Buckley.

Buckley, Senior Judge: Four days before the 1992 presidential election, Branch Ministries, a tax-exempt church,

placed full-page advertisements in two newspapers in which it

urged Christians not to vote for then-presidential candidate

Bill Clinton because of his positions on certain moral issues.

The Internal Revenue Service concluded that the placement

of the advertisements violated the statutory restrictions on

organizations exempt from taxation and, for the first time in

its history, it revoked a bona fide church's tax-exempt status

because of its involvement in politics. Branch Ministries and

its pastor, Dan Little, challenge the revocation on the

grounds that (1) the Service acted beyond its statutory authority, (2) the revocation violated its right to the free exercise of religion guaranteed by the First Amendment and the

Religious Freedom Restoration Act, and (3) it was the victim

of selective prosecution in violation of the Fifth Amendment.

Because these objections are without merit, we affirm the

district court's grant of summary judgment to the Service.

I. Background

A. Taxation of Churches

The Internal Revenue Code ("Code") exempts certain organizations from taxation, including those organized and operated for religious purposes, provided that they do not engage in

certain activities, including involvement in "any political campaign on behalf of (or in opposition to) any candidate for

public office." 26 U.S.C. s 501(a), (c)(3) (1994). Contributions to such organizations are also deductible from the

donating taxpayer's taxable income. Id. s 170(a). Although

most organizations seeking tax-exempt status are required to

apply to the Internal Revenue Service ("IRS" or "Service")

for an advance determination that they meet the requirements of section 501(c)(3), id. s 508(a), a church may simply

hold itself out as tax exempt and receive the benefits of that

status without applying for advance recognition from the IRS.

Id. s 508(c)(1)(A).

The IRS maintains a periodically updated "Publication No.

78," in which it lists all organizations that have received a

ruling or determination letter confirming the deductibility of

contributions made to them. See Rev. Proc. 82-39, 1982-1

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C.B. 759, ss 2.01, 2.03. Thus, a listing in that publication will

provide donors with advance assurance that their contributions will be deductible under section 170(a). If a listed

organization has subsequently had its tax-exempt status revoked, contributions that are made to it by a donor who is

unaware of the change in status will generally be treated as

deductible if made on or before the date that the revocation is

publicly announced. Id. s 3.01. Donors to a church that has

not received an advance determination of its tax-exempt

status may also deduct their contributions; but in the event

of an audit, the taxpayer will bear the burden of establishing

that the church meets the requirements of section 501(c)(3).

See generally id. s 3.04; Rev. Proc. 80-24, 1980-1 C.B. 658,

s 6 (discussing taxpayers' obligations in seeking a ruling or

determination letter).

The unique treatment churches receive in the Internal

Revenue Code is further reflected in special restrictions on

the IRS's ability to investigate the tax status of a church.

The Church Audit Procedures Act ("CAPA") sets out the

circumstances under which the IRS may initiate an investigation of a church and the procedures it is required to follow in

such an investigation. 26 U.S.C. s 7611. Upon a "reasonable belief" by a high-level Treasury official that a church

may not be exempt from taxation under section 501, the IRS

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may begin a "church tax inquiry." Id. s 7611(a). A church

tax inquiry is defined, rather circularly, as

any inquiry to a church (other than an examination) to

serve as a basis for determining whether a church-

(A) is exempt from tax under section 501(a) by reason

of its status as a church, or

(B) is ... engaged in activities which may be subject

to taxation....

Id. s 7611(h)(2). If the IRS is not able to resolve its concerns through a church tax inquiry, it may proceed to the

second level of investigation: a "church tax examination." In

such an examination, the IRS may obtain and review the

church's records or examine its activities "to determine

whether [the] organization claiming to be a church is a church

for any period." Id. s 7611(b)(1)(A), (B).

B. Factual and Procedural History

Branch Ministries, Inc. operates the Church at Pierce

Creek ("Church"), a Christian church located in Binghamton,

New York. In 1983, the Church requested and received a

letter from the IRS recognizing its tax-exempt status. On

October 30, 1992, four days before the presidential election,

the Church placed full-page advertisements in USA Today

and the Washington Times. Each bore the headline "Christians Beware" and asserted that then-Governor Clinton's

positions concerning abortion, homosexuality, and the distribution of condoms to teenagers in schools violated Biblical

precepts. The following appeared at the bottom of each

advertisement:

This advertisement was co-sponsored by the Church at

Pierce Creek, Daniel J. Little, Senior Pastor, and by

churches and concerned Christians nationwide. Taxdeductible donations for this advertisement gladly accepted. Make donations to: The Church at Pierce

Creek. [mailing address].

Appendix ("App.") at Tab 5, Ex. E.

The advertisements did not go unnoticed. They produced

hundreds of contributions to the Church from across the

country and were mentioned in a New York Times article and

an Anthony Lewis column which stated that the sponsors of

the advertisement had almost certainly violated the Internal

Revenue Code. Peter Applebome, Religious Right Intensifies Campaign for Bush, N.Y. Times, Oct. 31, 1992, at A1;

Anthony Lewis, Tax Exempt Politics?, N.Y. Times, Dec. 1,

1992, at A15.

The advertisements also came to the attention of the

Regional Commissioner of the IRS, who notified the Church

on November 20, 1992 that he had authorized a church tax

inquiry based on "a reasonable belief ... that you may not be

tax-exempt or that you may be liable for tax" due to political

activities and expenditures. Letter from Cornelius J. Coleman, IRS Regional Commissioner, to The Church at Pierce

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Creek (Nov. 20, 1992), reprinted in App. at Tab 5, Ex. F.

The Church denied that it had engaged in any prohibited

political activity and declined to provide the IRS with certain

information the Service had requested. On February 11,

1993, the IRS informed the Church that it was beginning a

church tax examination. Following two unproductive meetings between the parties, the IRS revoked the Church's

section 501(c)(3) tax-exempt status on January 19, 1995, citing

the newspaper advertisements as prohibited intervention in a

political campaign.

The Church and Pastor Little (collectively, "Church") commenced this lawsuit soon thereafter. This had the effect of

suspending the revocation of the Church's tax exemption until

the district court entered its judgment in this case. See 26

U.S.C. s 7428(c). The Church challenged the revocation of

its tax-exempt status, alleging that the IRS had no authority

to revoke its tax exemption, that the revocation violated its

right to free speech and to freely exercise its religion under

the First Amendment and the Religious Freedom Restoration

Act of 1993, 42 U.S.C. s 2000bb (1994) ("RFRA"), and that

the IRS engaged in selective prosecution in violation of the

Equal Protection Clause of the Fifth Amendment. After

allowing discovery on the Church's selective prosecution

claim, Branch Ministries, Inc. v. Richardson, 970 F. Supp. 11

(D.D.C. 1997), the district court granted summary judgment

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in favor of the IRS. Branch Ministries, Inc. v. Rossotti, 40

F. Supp. 2d 15 (D.D.C. 1999).

The Church filed a timely appeal, and we have jurisdiction

pursuant to 28 U.S.C. s 1291. We review summary judgment decisions de novo, see Everett v. United States, 158 F.3d

1364, 1367 (D.C. Cir. 1998), cert. denied, 526 U.S. 1132 (1999),

and will affirm only if there is no genuine issue as to any

material fact and the moving party is entitled to judgment as

a matter of law. Fed. R. Civ. P. 56(c).

II. Analysis

The Church advances a number of arguments in support of

its challenges to the revocation. We examine only those that

warrant analysis.

A. The Statutory Authority of the IRS

The Church argues that, under the Internal Revenue Code,

the IRS does not have the statutory authority to revoke the

tax-exempt status of a bona fide church. It reasons as

follows: section 501(c)(3) refers to tax-exempt status for

religious organizations, not churches; section 508, on the

other hand, specifically exempts "churches" from the requirement of applying for advance recognition of tax-exempt status, id. s 508(c)(1)(A); therefore, according to the Church, its

tax-exempt status is derived not from section 501(c)(3), but

from the lack of any provision in the Code for the taxation of

churches. The Church concludes from this that it is not

subject to taxation and that the IRS is therefore powerless to

place conditions upon or to remove its tax-exempt status as a

church.

We find this argument more creative than persuasive. The

simple answer, of course, is that whereas not every religious

organization is a church, every church is a religious organization. More to the point, irrespective of whether it was

required to do so, the Church applied to the IRS for an

advance determination of its tax-exempt status. The IRS

granted that recognition and now seeks to withdraw it.

CAPA gives the IRS this power.

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That statute, which pertains exclusively to churches, provides authority for revocation of the tax-exempt status of a

church through its references to other sections of the Internal Revenue Code. The section of CAPA entitled "Limitations on revocation of tax-exempt status, etc." provides that

the Secretary [of the Treasury] may "determine that an organization is not a church which [ ] (i) is exempt from taxation

by reason of section 501(a), or (ii) is described in section

170(c)." 26 U.S.C. s 7611(d)(1)(A)(i), (ii). Both of these

sections condition tax-exempt status on non-intervention in

political campaigns. Section 501(a) states that "[a]n organization described in subsection (c) ... shall be exempt from taxation...." Id. s 501(a). Those described in subsection (c)

include

corporations ... organized and operated exclusively for

religious ... purposes ... which do[ ] not participate in,

or intervene in (including the publishing or distributing

of statements), any political campaign on behalf of (or in

opposition to) any candidate for public office.

Id. s 501(c)(3). Similarly, section 170(c) allows taxpayers to

deduct from their taxable income donations made to a corporation

organized and operated exclusively for religious ... purposes ... which is not disqualified for tax exemption

under section 501(c)(3) by reason of attempting to ...

intervene in (including the publishing or distributing of

statements), any political campaign on behalf of (or in

opposition to) any candidate for public office.

Id. s 170(c)(2)(B), (D).

The Code, in short, specifically states that organizations

that fail to comply with the restrictions set forth in section

501(c) are not qualified to receive the tax exemption that it

provides. Having satisfied ourselves that the IRS had the

statutory authority to revoke the Church's tax-exempt status,

we now turn to the free exercise challenges.

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B. First Amendment Claims and the RFRA

The Church claims that the revocation of its exemption

violated its right to freely exercise its religion under both the

First Amendment and the RFRA. To sustain its claim under

either the Constitution or the statute, the Church must first

establish that its free exercise right has been substantially

burdened. See Jimmy Swaggart Ministries v. Board of

Equalization, 493 U.S. 378, 384-85 (1990) ("Our cases have

established that the free exercise inquiry asks whether government has placed a substantial burden on the observation

of a central religious belief or practice and, if so, whether a

compelling governmental interest justifies the burden.") (internal quotation marks and brackets omitted); 42 U.S.C.

s 2000bb-1(a), (b) ("Government shall not substantially burden a person's exercise of religion" in the absence of a

compelling government interest that is furthered by the least

restrictive means.). We conclude that the Church has failed

to meet this test.

The Church asserts, first, that a revocation would threaten

its existence. See Affidavit of Dan Little dated July 31, 1995

at p 22, reprinted in App. at Tab 8 ("The Church at Pierce

Creek will have to close due to the revocation of its tax

exempt status, and the inability of congregants to deduct

their contributions from their taxes."). The Church maintains that a loss of its tax-exempt status will not only make its

members reluctant to contribute the funds essential to its

survival, but may obligate the Church itself to pay taxes.

The Church appears to assume that the withdrawal of a

conditional privilege for failure to meet the condition is in

itself an unconstitutional burden on its free exercise right.

This is true, however, only if the receipt of the privilege (in

this case the tax exemption) is conditioned

upon conduct proscribed by a religious faith, or ...

denie[d] ... because of conduct mandated by religious

belief, thereby putting substantial pressure on an adherent to modify his behavior and to violate his beliefs.

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Jimmy Swaggart Ministries, 493 U.S. at 391-92 (internal

quotation marks and citation omitted). Although its advertisements reflected its religious convictions on certain questions of morality, the Church does not maintain that a withdrawal from electoral politics would violate its beliefs. The

sole effect of the loss of the tax exemption will be to decrease

the amount of money available to the Church for its religious

practices. The Supreme Court has declared, however, that

such a burden "is not constitutionally significant." Id. at 391;

see also Hernandez v. Commissioner, 490 U.S. 680, 700 (1989)

(the "contention that an incrementally larger tax burden

interferes with [ ] religious activities ... knows no limitation").

In actual fact, even this burden is overstated. Because of

the unique treatment churches receive under the Internal

Revenue Code, the impact of the revocation is likely to be

more symbolic than substantial. As the IRS confirmed at

oral argument, if the Church does not intervene in future

political campaigns, it may hold itself out as a 501(c)(3)

organization and receive all the benefits of that status. All

that will have been lost, in that event, is the advance assurance of deductibility in the event a donor should be audited.

See 26 U.S.C. s 508(c)(1)(A); Rev. Proc. 82-39 s 2.03. Contributions will remain tax deductible as long as donors are

able to establish that the Church meets the requirements of

section 501(c)(3).

Nor does the revocation necessarily make the Church liable

for the payment of taxes. As the IRS explicitly represented

in its brief and reiterated at oral argument, the revocation of

the exemption does not convert bona fide donations into

income taxable to the Church. See 26 U.S.C. s 102 ("Gross

income does not include the value of property acquired by

gift...."). Furthermore, we know of no authority, and counsel provided none, to prevent the Church from reapplying for

a prospective determination of its tax-exempt status and

regaining the advance assurance of deductibility--provided,

of course, that it renounces future involvement in political

campaigns.

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We also reject the Church's argument that it is substantially burdened because it has no alternate means by which to

communicate its sentiments about candidates for public office.

In Regan v. Taxation With Representation, 461 U.S. 540,

552-53 (1983) (Blackmun, J., concurring), three members of

the Supreme Court stated that the availability of such an

alternate means of communication is essential to the constitutionality of section 501(c)(3)'s restrictions on lobbying. The

Court subsequently confirmed that this was an accurate

description of its holding. See FCC v. League of Women

Voters, 468 U.S. 364, 400 (1984). In Regan, the concurring

justices noted that "TWR may use its present s 501(c)(3)

organization for its nonlobbying activities and may create a

s 501(c)(4) affiliate to pursue its charitable goals through

lobbying." 461 U.S. at 552.

The Church has such an avenue available to it. As was the

case with TWR, the Church may form a related organization

under section 501(c)(4) of the Code. See 26 U.S.C. s 501(c)(4)

(tax exemption for "[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of

social welfare"). Such organizations are exempt from taxation; but unlike their section 501(c)(3) counterparts, contributions to them are not deductible. See 26 U.S.C. s 170(c); see

also Regan, 461 U.S. at 543, 552-53. Although a section

501(c)(4) organization is also subject to the ban on intervening

in political campaigns, see 26 C.F.R. s 1.501(c)(4)-1(a)(2)(ii)

(1999), it may form a political action committee ("PAC") that

would be free to participate in political campaigns. Id.

s 1.527-6(f), (g) ("[A]n organization described in section

501(c) that is exempt from taxation under section 501(a) may,

[if it is not a section 501(c)(3) organization], establish and

maintain such a separate segregated fund to receive contributions and make expenditures in a political campaign.").

At oral argument, counsel for the Church doggedly maintained that there can be no "Church at Pierce Creek PAC."

True, it may not itself create a PAC; but as we have pointed

out, the Church can initiate a series of steps that will provide

an alternate means of political communication that will satisfy

the standards set by the concurring justices in Regan.

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Should the Church proceed to do so, however, it must understand that the related 501(c)(4) organization must be separately incorporated; and it must maintain records that will

demonstrate that tax-deductible contributions to the Church

have not been used to support the political activities conducted by the 501(c)(4) organization's political action arm. See 26

U.S.C. s 527(f)(3); 26 C.F.R. s 1.527-6(e), (f).

That the Church cannot use its tax-free dollars to fund such

a PAC unquestionably passes constitutional muster. The

Supreme Court has consistently held that, absent invidious

discrimination, "Congress has not violated [an organization's]

First Amendment rights by declining to subsidize its First

Amendment activities." Regan, 461 U.S. at 548; see also

Cammarano v. United States, 358 U.S. 498, 513 (1959) ("Petitioners are not being denied a tax deduction because they

engage in constitutionally protected activities, but are simply

being required to pay for those activities entirely out of their

own pockets, as everyone else engaging in similar activities is

required to do under the provisions of the Internal Revenue

Code.").

Because the Church has failed to demonstrate that its free

exercise rights have been substantially burdened, we do not

reach its arguments that section 501(c)(3) does not serve a

compelling government interest or, if it is indeed compelling,

that revocation of its tax exemption was not the least restrictive means of furthering that interest.

Nor does the Church succeed in its claim that the IRS has

violated its First Amendment free speech rights by engaging

in viewpoint discrimination. The restrictions imposed by

section 501(c)(3) are viewpoint neutral; they prohibit intervention in favor of all candidates for public office by all taxexempt organizations, regardless of candidate, party, or viewpoint. Cf. Regan, 461 U.S. at 550-51 (upholding denial of tax

deduction for lobbying activities, in spite of allowance of such

deduction for veteran's groups).

C. Selective Prosecution (Fifth Amendment)

The Church alleges that the IRS violated the Equal Protection Clause of the Fifth Amendment by engaging in selective

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prosecution. In support of its claim, the Church has submitted several hundred pages of newspaper excerpts reporting

political campaign activities in, or by the pastors of, other

churches that have retained their tax-exempt status. These

include reports of explicit endorsements of Democratic candidates by clergymen as well as many instances in which

favored candidates have been invited to address congregations from the pulpit. The Church complains that despite

this widespread and widely reported involvement by other

churches in political campaigns, it is the only one to have ever

had its tax-exempt status revoked for engaging in political

activity. It attributes this alleged discrimination to the Service's political bias.

To establish selective prosecution, the Church must "prove

that (1) [it] was singled out for prosecution from among

others similarly situated and (2) that [the] prosecution was

improperly motivated, i.e., based on race, religion or another

arbitrary classification." United States v. Washington, 705

F.2d 489, 494 (D.C. Cir. 1983). This burden is a demanding

one because "in the absence of clear evidence to the contrary,

courts presume that [government prosecutors] have properly

discharged their official duties." United States v. Armstrong,

517 U.S. 456, 464 (1996) (internal quotation marks and citation omitted).

At oral argument, counsel for the IRS conceded that if

some of the church-sponsored political activities cited by the

Church were accurately reported, they were in violation of

section 501(c)(3) and could have resulted in the revocation of

those churches' tax-exempt status. But even if the Service

could have revoked their tax exemptions, the Church has

failed to establish selective prosecution because it has failed

to demonstrate that it was similarly situated to any of those

other churches. None of the reported activities involved the

placement of advertisements in newspapers with nationwide

circulations opposing a candidate and soliciting tax deductible

contributions to defray their cost. As we have stated,

[i]f ... there was no one to whom defendant could be

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rial] selection, then it follows that defendant has failed to

make out one of the elements of its case. Discrimination

cannot exist in a vacuum; it can be found only in the

unequal treatment of people in similar circumstances.

Attorney Gen. v. Irish People, Inc., 684 F.2d 928, 946 (D.C.

Cir. 1982); see also United States v. Hastings, 126 F.3d 310,

315 (4th Cir. 1997) ("[D]efendants are similarly situated when

their circumstances present no distinguishable legitimate

prosecutorial factors that might justify making different prosecutorial decisions with respect to them.") (internal quotation

marks and citation omitted).

Because the Church has failed to establish that it was

singled out for prosecution from among others who were

similarly situated, we need not examine whether the IRS was

improperly motivated in undertaking this prosecution.

III. Conclusion

For the foregoing reasons, we find that the revocation of

the Church's tax-exempt status neither violated the Constitution nor exceeded the IRS's statutory authority. The judgment of the district court is therefore

Affirmed.

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