Although on the surface, the ruling may appear to be a blow to churches, the decision is actually a victory by showing that the IRS has almost no teeth. The ads opposed then-Governor Bill Clinton for president, and noted that the ads where sponsored by the church and solicited donations. In response, the IRS revoked the Church's tax exempt letter ruling. Although the Federal Court of Appeals upheld the decision, the decision shows that IRS has almost little or no teeth. Churches are the only institution that are not required to apply for tax exempt status in order to be tax exempt.
Churches are automatically tax exempt.
Churches may also apply for the letter ruling but are not required to do so. If a letter ruling is in place, the donor can simply point to the letter ruling. The Court pointed out that IRS only revoked the letter ruling, but the Church can continue to operate as a tax exempt organization without the letter ruling so long as it does not endorse or oppose political candidates. In this manner the Church would retain it's tax exempt status. The Church could also reapply for a separate letter ruling by promising not to oppose or endorse political candidates.