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Justia › US Law › Case Law › Federal Courts › Courts of Appeals › D.C. Circuit › 2000 › Br Mnstry Inc, et al v. Rossotti, Charles O.
tice, and Wilma A. Lewis, United States Attorney, were on the brief, argued the cause for appellee.
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.
Buckley, Senior Judge: Four days before the 1992 presi- dential 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 au- thority, (2) the revocation violated its right to the free exer- cise 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.
paign on behalf of (or in opposition to) any candidate for public office." 26 U.S.C. s 501(a), (c)(3) (1994). Contribu- tions 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 require- ments 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 C.B. 759, ss 2.01, 2.03. Thus, a listing in that publication will provide donors with advance assurance that their contribu- tions will be deductible under section 170(a). If a listed organization has subsequently had its tax-exempt status re- voked, 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).
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 con- cerns 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).
This advertisement was co-sponsored by the Church at Pierce Creek, Daniel J. Little, Senior Pastor, and by churches and concerned Christians nationwide. Tax- deductible donations for this advertisement gladly ac- cepted. Make donations to: The Church at Pierce Creek. [mailing address]. Appendix ("App.") at Tab 5, Ex. E.
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 Intensi- fies 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. Cole- man, IRS Regional Commissioner, to The Church at Pierce 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 meet- ings 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.
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 judg- ment 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).
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 require- ment of applying for advance recognition of tax-exempt sta- tus, 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 organiza- tion. 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.
organized and operated exclusively for religious ... pur- poses ... 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 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 gov- ernment 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.") (in- ternal quotation marks and brackets omitted); 42 U.S.C. s 2000bb-1(a), (b) ("Government shall not substantially bur- den 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 main- tains 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.
upon conduct proscribed by a religious faith, or ... denie[d] ... because of conduct mandated by religious belief, thereby putting substantial pressure on an adher- ent to modify his behavior and to violate his beliefs. Jimmy Swaggart Ministries, 493 U.S. at 391-92 (internal quotation marks and citation omitted). Although its adver- tisements reflected its religious convictions on certain ques- tions of morality, the Church does not maintain that a with- drawal 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 limita- tion").
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 assur- ance 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. Con- tributions 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 coun- sel 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.
We also reject the Church's argument that it is substantial- ly 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 constitu- tionality 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 orga- nized for profit but operated exclusively for the promotion of social welfare"). Such organizations are exempt from taxa- tion; but unlike their section 501(c)(3) counterparts, contribu- tions 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 contribu- tions and make expenditures in a political campaign.").
At oral argument, counsel for the Church doggedly main- tained 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.
Should the Church proceed to do so, however, it must under- stand that the related 501(c)(4) organization must be sepa- rately 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 conduct- ed 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) ("Peti- tioners 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 restric- tive 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 inter- vention in favor of all candidates for public office by all tax- exempt organizations, regardless of candidate, party, or view- point. 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).
prosecution. In support of its claim, the Church has submit- ted 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 candi- dates by clergymen as well as many instances in which favored candidates have been invited to address congrega- tions 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 Ser- vice'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 cita- tion omitted).
[i]f ... there was no one to whom defendant could be compared in order to resolve the question of [prosecuto- 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 pros- ecutorial decisions with respect to them.") (internal quotation marks and citation omitted).

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