I wrote last year about a lawsuit that was brought by the group Freedom From Religion Foundation to require the IRS to enforce its current rule against religious organizations that engage in direct politicking and revoke their tax exempt status if they were found to be engaged in blatant politicking.
Meanwhile some religious organizations have felt that the rule itself is unconstitutional and have sought to challenge it by organizing an annual event known as Pulpit Sunday in which explicitly political sermons endorsing political candidates were made and the tapes sent to the IRS, daring them to revoke their tax-exempt status.
The IRS seems to want to duck this issue and filed a motion to dismiss the FFRF lawsuit, saying that taxpayers usually have no standing to sue other taxpayers over their tax status. But a federal judge has rejected that argument and said that the FFRF does have standing, although some observers think that FFRF will ultimately lose the case.
On Monday (Aug. 19), U.S. District Judge Lynn Adelman in Wisconsin denied the motion, writing that FFRF “has standing to seek an order requiring the IRS to treat religious organizations no more favorably than it treats the Foundation.”
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Observers found the judge’s decision significant because similar attempts in the past have failed. For instance, groups have tried to sue over the Catholic Church’s involvement in anti-abortion activism. “It is a tactic that’s been used before, but without success,” said Lloyd Hitoshi Mayer, a law professor at the University of Notre Dame. “I can’t see it going anywhere.”
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“The case is interesting but it remains to be seen how significant it is,” said Erik Stanley of ADF. “I will be surprised if FFRF is ultimately successful.”
(Incidentally the article does not mention that ADF stands for the Alliance Defending Freedom, formerly known as the Alliance Defense Fund, a conservative religious anti-gay group.)
Although I am not a lawyer, I argued before that this is one of those cases where the Establishment Clause may actually favor the churches’ position that politicking should not threaten their tax exempt status. As I said in a different post, the ultimate and best solution would be to eliminate the tax-exempt status for all non-profits, not just religious ones, because the current system is so easy to abuse.
The problem is that eliminating the tax-exempt status for all non-profits would create a great deal of problems. Many non-profits do a lot of good work in communities (I was the treasurer for a small non-profit). Donations are made to non-profits largely because they get to write off the donations themselves…the mission of our association didn’t change at all, but the moment we got our non-profit status, we suddenly had no issues getting donations to help out our community (which also puts to bed, for me at least, the lie that businesses will do good things of their own…they weren’t donating until they could get something out of it).
It really isn’t that hard for the IRS to police the abusers. The problem isn’t the rules; the problem is that there are very powerful people in congress that are getting a lot of money from the non-profits or leveraging them heavily (in the case of churches) just for the votes.
Doesn’t this confuse two tax exemptions?
There is the exemption for the donor who contributes to a nonprofit entity: the donor can exclude the donation amount from her taxable income. That makes donations to nonprofits attractive especially for wealthy donors who can use donations, for example, to bring their taxable income below specific levels.
Then there is the complete tax exemption for the nonprofit entity itself: it pays no taxes on any income from any source: donations, bequests in people’s wills, interest on its endowment, rental of facilities, anything.
These are two separate issues, or at least, I would think they could be made separable.
I don’t think taxing food closets is a good idea. How do you even tax an organization that mostly is given goods to distribute? How much extra work are you going to make for them, trying to raise extra money and hire a tax accountant and so on? What about scholarship funds and so on? Sorry, orphan kid, your full ride scholarship got taxed, you’ll have to find $800 for textbooks on your own.
Churches may do charitable work, but they are not charities per se.
@Matt -- but they are typically non-for-profits.