Eric R. Swibel, Churches and Campaign Intervention: Why the Tax Man Is Right and How Congress Can Improve His Reputation

• Citation: Vol. 57 No. 6
• Publication year: 2008

COMMENT

CHURCHES AND CAMPAIGN INTERVENTION: WHY THE TAX MAN IS RIGHT AND HOW CONGRESS CAN IMPROVE HIS REPUTATION

INTRODUCTION

If Jesus were to debate John Kerry and George W. Bush, Jesus would win.¹

At least, Jesus would win according Reverend Dr. George F. Regas, former rector of All Saints Church in Pasadena, California. Regas made this claim as part of a sermon that he delivered as a guest preacher at the liberal²church two days before the 2004 presidential election.³The sermon immediately became the center of controversy.⁴

During the sermon, Reverend Regas singled out President Bush for criticism eight times.⁵Senator Kerry received no individual attention.⁶At one point, Reverend Regas told churchgoers, "Jesus turns to President Bush again with deep sadness[:] 'Is what I hear really true? . . . Are you really going to resume nuclear testing? That is sheer insanity. This only encourages nations to build their nuclear arsenal in defense against you. This is morally indefensible.'"⁷Reverend Regas also addressed national security policy: "Mr.

President, your doctrine of preemptive war is a failed doctrine."⁸Finally, just before telling congregants to "take all that [they knew] about Jesus, the peacemaker,"⁹Reverend Regas addressed President Bush and lamented "the cost of your war."¹⁰

The Internal Revenue Code ("IRC" or "Code") prohibits tax-exempt organizations from "participat[ing] in, or interven[ing] in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office."¹¹The restriction applies to all religious, charitable, and educational organizations that benefit from

Sec. 501(c)(3)'s tax exemption.¹²

One key aspect of the rule is what it does not govern. Section 501(c)(3) organizations may speak freely on matters of public concern, including controversial and timely political issues. A common question, then, is whether the restriction applies in a given situation. Does a sermon that forcefully denounces abortion violate the rule? The answer is most likely no, since churches may discuss issues, as long as they do not mention specific candidates or political parties. What if the clergyman also suggests to congregants that they review the church's voter guide, which identifies major candidates' stances on abortion?¹³Even that may not violate Sec. 501(c)(3).¹⁴

Historically, the restriction did not play a significant role in churches'¹⁵decisionmaking or the Internal Revenue Service's ("IRS" or "Service") enforcement policies.¹⁶A recent increase¹⁷in investigations reflects the growth of an influential and politically active religious movement.¹⁸The dual developments have ignited a political, social, and legal firestorm of constitutional dimensions.

At the heart of the restriction's constitutionality is the inherent conflict between the Free Exercise¹⁹and Establishment²⁰Clauses.²¹Underlying the debate is the understanding that "political division along religious lines was one of the principal evils against which the First Amendment [religion clauses were] intended to protect."²²That fear has manifested itself in countless claims that the IRS's enforcement is politically motivated and inconsistent.²³

This Comment demonstrates first that the IRC's campaign intervention provision is constitutional. It then argues that, although the IRS has acted within the scope of its authority, amending the Code would benefit exempt organizations and enhance the process's legitimacy. Part I studies the history of the Sec. 501(c)(3) political speech restriction, culminating with a discussion of the recent IRS investigation of All Saints. Part II examines the constitutionality of the Sec. 501(c)(3) limitations on political speech. After analyzing the First Amendment religion clauses and the support that they provide to advocates on both sides, Part II concludes that the restriction is facially constitutional. Part III argues first that the IRS has enforced the Code fairly. It then proposes four changes to the Code that Congress should make to improve the process's legitimacy: (1) the imposition of a requirement that the IRS publish comprehensive reports of its investigations of churches; (2) the codification of the IRS's current practice of relying on independent referrals for discovering potential violations; (3) the formalization of Sec. 501(c)(3)'s penalty scheme; and (4) the creation of a judicial remedy for IRS failures to follow the Code's enforcement procedures.

I. THE CAMPAIGN INTERVENTION PROHIBITION

A. The Restriction's Origins

1. The Privilege of Tax Exemption

The Code has exempted certain organizations, including churches, from income tax since its 1913 inception.²⁴As a corollary to excusing the payment of taxes, the IRC permits taxpayers to make tax-deductible donations to churches and other qualifying organizations.²⁵Plainly, tax exemption is a major advantage for its beneficiaries.²⁶

It is important to recognize that tax-exempt status is a privilege²⁷that "is not perpetual or immutable."²⁸The Supreme Court has acknowledged that principle both expressly²⁹and implicitly.³⁰

2. The Section 501(c)(3) Campaign Intervention Restriction

The campaign intervention restriction ensures that government subsidization of organizations through forbearance from tax collection does not extend to certain partisan activity.³¹The IRS walks a fine line as it enforces the rule. If the Service is overzealous, it risks placing an unconstitutional burden on churches' legitimate exercise of religion. Yet, "it seems irrefutable that continuation of the exemption . . . depends in part on the ability of the I.R.S. to police the exemption," both to protect exempt organizations and to comport with the First Amendment.³²

The campaign intervention restriction limits church representatives' political speech only to the extent that they are acting in an official capacity representing the church.³³Although a pastor or rabbi may therefore support a candidate in his private capacity, the rule extends to situations where a church representative gives the mere appearance of church endorsement.³⁴In practice, the distinction is not always clear, but comparing circumstances sheds light on the relationship. For instance, Reverend Regas's appearance at his former church suggested a high degree of endorsement because he retains the title of Rector Emeritus and the current clergy listened with the congregation. By contrast, there is less risk of perceiving endorsement by a university whose dean unilaterally sent an inappropriately political letter on school stationery.³⁵

3. The IRS's Procedures for Investigating Potential Infractions

Because IRS protocol for investigating potential infractions determines, to a large extent, Sec. 501(c)(3)'s constitutionality, the enforcement provisions merit study.³⁶The Code is lean in substance, offering minimal guidance for interpreting the scope of the campaign intervention restriction. Although

Congress did not explicitly dismiss a bright-line rule for revocations, the IRS applies a fact-sensitive, case-by-case standard.³⁷

The IRS investigates potential infractions according to IRC Sec. 7611.³⁸

Although courts generally defer to the IRS's judgment when assessing its enforcement of the Code, "[t]he unique status afforded churches by Congress requires that the IRS strictly adhere to [Sec. 7611] when delving into church activities."³⁹The Code prescribes an initial "church tax inquiry," followed by an in-depth "church tax examination."⁴⁰Section 7611 delineates requirements and restrictions for each step of the audit process.⁴¹For example, the IRS must give proper notice to a church of the Service's belief that the church may not be tax-exempt.⁴²

However, the Code is silent on the most important, and controversial, aspect of the investigation process: how the IRS should select churches to investigate. In fact, the only hint as to when a church might be subject to investigation is the Code's inclusion of a "reasonable belief" standard.⁴³This ostensible guide to the Service defines "reasonable belief" circularly: "[whether] an appropriate high-level Treasury official reasonably believes (on the basis of facts and circumstances recorded in writing)" that the church may have violated the Sec. 501(c)(3) conditions for tax exemption.⁴⁴It is not surprising that such a nebulous, and patently subjective,⁴⁵standard has engendered skepticism regarding the IRS's investigations.⁴⁶

Finally, apart from the standard's lack of clarity, the IRC does not provide a judicial remedy for the IRS's failure to follow the Code's procedures.⁴⁷

While organizations may judicially challenge adverse determinations,⁴⁸they have no recourse if the IRS does not abide by the required method of investigation.⁴⁹In cases where the IRS disobeys the Code, a court may go no further than to stay the enforcement proceedings, pending the Service's curing its noncompliance.⁵⁰

4. IRS Efforts to Educate Exempt Organizations

Despite dating to 1954, the political speech provision remains unclear to many affected organizations.⁵¹For the most part, church officials know that they cannot explicitly endorse candidates.⁵²"[H]owever, some apparently [do] not realize that political intervention is much broader than just express endorsements."⁵³In a report detailing the IRS's enforcement of the provision following the 2004 election season, the Service found that voter guides, other printed materials, and information on church websites accounted for the majority of violations.⁵⁴The single most common infraction, however, was using the pulpit itself for impermissibly political purposes.⁵⁵

Seeking to raise awareness, the IRS publishes educational materials describing its interpretation of Sec. 501(c)(3).⁵⁶The IRS also publishes revenue rulings and private letter rulings to facilitate organizations' interpretations of the Code.⁵⁷

The guides' hypothetical situations are detailed and usually precise in their...