Branch Ministries v. Rossotti, 99-5097

Decision Date12 May 2000
Docket NumberNo. 99-5097,99-5097
Citation211 F.3d 137
Parties(D.C. Cir. 2000) Branch Ministries and Dan Little, Pastor, Appellants v. Charles O. Rossotti, Commissioner, Internal Revenue Service, Appellee
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia(No. 95cv00724)

Mark N. Troobnick, with whom Jay Alan Sekulow and Colby M. May were on the briefs, argued the cause for appellants.

Thomas J. Sawyer, Attorney, U.S. Department of Justice, with whom Loretta C. Argrett, Assistant Attorney General, and Kenneth L. Greene, Attorney, U.S. Department of Justice, and Wilma A. Lewis, United States Attorney, were on the brief, argued the cause for appellee.

Richard P. Hutchison, Mark R. Levin and Janet LaRue were on the brief for amici curiae Landmark Legal Foundation and Family Research Council 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.

Before Silberman and Henderson, Circuit Judges, and Buckley, Senior Circuit Judge.

Opinion for the court filed by Senior Judge Buckley.

Buckley, Senior Judge:

Four days before the 1992 presidential 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 authority, (2) the revocation violated its right to the free exercise 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.

I. Background
A. Taxation of Churches

The Internal Revenue Code ("Code") exempts certain organizations from taxation, including those organized and operated for religious purposes, provided that they do not engage in certain activities, including involvement in "any political campaign on behalf of (or in opposition to) any candidate for public office." 26 U.S.C. § 501(a), (c)(3) (1994). Contributions to such organizations are also deductible from the donating taxpayer's taxable income. Id. § 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 requirements of section 501(c)(3), id. § 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. § 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, §§ 2.01, 2.03. Thus, a listing in that publication will provide donors with advance assurance that their contributions will be deductible under section 170(a). If a listed organization has subsequently had its tax-exempt status revoked, 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. § 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. § 3.04; Rev. Proc. 80-24, 1980-1 C.B. 658, § 6 (discussing taxpayers' obligations in seeking a ruling or determination letter).

The unique treatment churches receive in the Internal Revenue Code is further reflected in special restrictions on the IRS's ability to investigate the tax status of a church. The Church Audit Procedures Act ("CAPA") sets out the circumstances under which the IRS may initiate an investigation of a church and the procedures it is required to follow in such an investigation. 26 U.S.C. § 7611. Upon a "reasonable belief" by a high-level Treasury official that a church may not be exempt from taxation under section 501, the IRS may begin a "church tax inquiry." Id. § 7611(a). A church tax inquiry is defined, rather circularly, as

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 reasonof its status as a church, or

(B) is ... engaged in activities which may be subjectto taxation....

Id. § 7611(h)(2). If the IRS is not able to resolve its concerns 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. § 7611(b)(1)(A), (B).

B. Factual and Procedural History

Branch Ministries, Inc. operates the Church at Pierce Creek ("Church"), a Christian church located in Binghamton, New York. In 1983, the Church requested and received a letter from the IRS recognizing its tax-exempt status. On October 30, 1992, four days before the presidential election, the Church placed full-page advertisements in USA Today and the Washington Times. Each bore the headline "Christians Beware" and asserted that then-Governor Clinton's positions concerning abortion, homosexuality, and the distribution of condoms to teenagers in schools violated Biblical precepts. The following appeared at the bottom of each advertisement:

This advertisement was co-sponsored by the Church atPierce Creek, Daniel J. Little, Senior Pastor, and bychurches and concerned Christians nationwide. Tax-deductible donations for this advertisement gladly ac-cepted. Make donations to: The Church at PierceCreek. [mailing address].

Appendix ("App.") at Tab 5, Ex. E.

The advertisements did not go unnoticed. They produced hundreds of contributions to the Church from across the 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 Intensifies 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. Coleman, 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 meetings 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.

The Church and Pastor Little (collectively, "Church") commenced this lawsuit soon thereafter. This had the effect of suspending the revocation of the Church's tax exemption until the district court entered its judgment in this case. See 26 U.S.C. § 7428(c). The Church challenged the revocation of its tax-exempt status, alleging that the IRS had no authority to revoke its tax exemption, that the revocation violated its right to free speech and to freely exercise its religion under the First Amendment and the Religious Freedom Restoration Act of 1993, 42 U.S.C. § 2000bb (1994) ("RFRA"), and that the IRS engaged in selective prosecution in violation of the Equal Protection Clause of the Fifth Amendment. After allowing discovery on the Church's selective prosecution claim, Branch Ministries, Inc. v. Richardson, 970 F. Supp. 11 (D.D.C. 1997), the district court granted summary judgment 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. § 1291. We review summary judgment 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).

II. Analysis

The Church advances a number of arguments in support of its challenges to the revocation. We examine only those that warrant analysis.

A. The Statutory Authority of the IRS

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 requirement of applying...

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