Challenge to IRS “Nonenforcement” of Church Political Activity Ban Survives

Challenge to IRS "Nonenforcement" of Church Political Activity Ban SurvivesThe U.S. District Court for the Western District of Wisconsin declined to dismiss a nonprofit foundation’s lawsuit against the United States Internal Revenue Service (IRS), challenging what it characterized as that agency’s policy of not enforcing a legal requirement that tax-exempt churches and religious organizations not not participate in or intervene in political campaigns on behalf of, or in opposition to, candidates for public office. Freedom from Religion Foundation v. Shulman, No. 12-C-0818 (W.D. Wis. Aug. 19, 2013).

Challenge to IRS Nonenforcement of Church Political Activity Ban SurvivesTHE FOUNDATION’S CLAIM. The U.S. Internal Revenue Code, 26 U.S.C. § 501(c)(3), provides that entities exempt from federal income taxation as charities must not participate in or intervene in any political campaign on behalf of, or in opposition to, any candidate for public office. The Freedom from Religion Foundation (the “Foundation”), itself a 501(c)(23) charity, sued the IRS, alleging that it had a policy of not enforcing this requirement against tax-exempt churches and religious organizations. According to the Foundation, the IRS “is conferring a benefit on religious organizations (the ability to participate in political campaigns) that it denies to all other § 501(c)(3) organizations, including the Foundation.”

Challenge to IRS "Nonenforcement" of Ban on Church Political Activity SurvivesTHE IRS’S ARGUMENTS. The IRS moved to dismiss the Foundation’s lawsuit, arguing that (1) the Foundation did not have legal standing to pursue the action; and (2) the action was barred by sovereign immunity. With regard to standing, the IRS cited court decisions establishing that although individual taxpayers can challenge the IRS’s actions that directly affect them, it is difficult for anyone to establish its standing to challenge a broadly applicable IRS practice.

Challenge to IRS "Nonenforcement" of Church Political Activity Ban SurvivesRULING ON STANDING. The court rejected the IRS’s argument that the Foundation lacked standing. Citing the U.S. Supreme Court’s decision in Summers v. Earth Island Institute, 555 U.S. 488, 498 (2009), the court explained that,

[A] plaintiff must show that he is under threat of suffering “injury in fact” that is concrete and partcularized; the threat must be actual and imminent, not conjectural or hypothetical; it must be fairly traceable to the challenged action of the defendant; and it must be likely that a favorable judicial decision will prevent or redress the injury.

Among other things, the court in the instant case disagreed with the Service’s contention that the Foundation was not “personally affected by the challenged policy,” but rather was “seeking to vindicate a generalized interest in making sure that the government is administered in accordance with the Constitution.” To the contrary, the court concluded that the Foundation was “suing to vindicate its own right to equal treatment”–a circumstance which distinguished the Foundation’s lawsuit from those in which standing was denied to taxpayers merely interested in ensuring that the agency is administered in accordance with the law.

RULING ON SOVEREIGN IMMUNITY. The court found that the Foundation’s lawsuit was not barred by sovereign immunity because it was brought pursuant to a provision of the Administrative Procedures Act, 5 U.S.C. § 702, which provides in part that,

An action in a court of the United States seeking relief other than money damages and stating a claim that an agency or an officer or employee thereof acted or failed to act in an official capacity or under color of legal authority shall not be dismissed nor relief therein be denied on the ground that it is against the United States….


 by Shawn N. Sullivan, August 28, 2013

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