God's Storehouse Topeka Church v. United States

• Court: U.S. District Court — District of Colorado
• Writing for the Court: SCOTT T. VARHOLAK UNITED STATES MAGISTRATE JUDGE
• Docket Number: Civil Action 22-mc-00046-PAB
• Decision Date: 06 January 2026
• Citation: God's Storehouse Topeka Church v. United States, Civil Action 22-mc-00046-PAB (D. Colo. Jan 06, 2026)
• Parties: GOD'S STOREHOUSE TOPEKA CHURCH, Petitioner, v. UNITED STATES OF AMERICA, Respondent.

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GOD'S STOREHOUSE TOPEKA CHURCH, Petitioner, v. UNITED STATES OF AMERICA, Respondent.

Civil Action No. 22-mc-00046-PAB

United States District Court, D. Colorado

January 6, 2026

RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

SCOTT T. VARHOLAK UNITED STATES MAGISTRATE JUDGE

This matter comes before the Court on three motions Petitioner's Verified Petition to Quash Internal Revenue Service (“IRS”) Third-Party Summons (the “Petition”) [#1], Respondent's Motion for Summary Denial of Petition to Quash (the “Motion for Summary Denial”) [#9], and Petitioner's Motion for Limited Discovery (the “Motion for Discovery”) [#27]. These Motions have been referred to this Court. [##16 28] This Court has carefully considered the Petition, the Motions, the related briefing, the entire case file, and the applicable case law, and has heard oral argument on the Petition and the Motion for Summary Denial [#25]. For the following reasons, the Court respectfully RECOMMENDS that the Motion for Discovery be DENIED, the Motion for Summary Denial be GRANTED, and the Petition be DENIED.

I. BACKGROUND^[1]

Petitioner is a not-for-profit corporation incorporated in the state of Kansas. [#1, ¶ 5] Petitioner self-declares as a church for tax purposes. [#9-1, ¶ 8] Richard Kloos serves as Petitioner's president and is a member of the Board of Directors. [#12-1, ¶ 2] ¶ 2020, Mr. Kloos ran a successful campaign for the Kansas Senate. [##1, ¶ 11; 9-1, ¶ 12] During the campaign, Mr. Kloos distributed and posted campaign signs that stated: “Rick Kloos-Kansas Senate,” and “Founder of God's Storehouse.” [##1, ¶ 11; 9-1, ¶ 12]

On February 24, 2021, the Internal Revenue Service (the “IRS”) assigned Agent Kesroy Henry to determine whether Petitioner may have engaged in political campaign intervention and if further investigation was warranted.^[2][#9-1, ¶ 4] Agent Henry noted that Petitioner operates a thrift store and coffee shop. [Id. at ¶ 8] He failed to discover any information online about church services held by Petitioner. [Id. at ¶ 9] Based on his review of Petitioner's records, Agent Henry determined that Petitioner did not withhold and pay to the IRS any employment taxes on the gross wages for either Mr. Kloos or his wife, Pennie Kloos, in 2019 or 2020. [Id. at ¶ 11]

Based on this information and the campaign signs, Agent Henry sought and received approval to open a church tax inquiry^[3] from Sunita B. Lough-the Commissioner of the Tax Exempt and Government Entities Division of the IRS. [#9-1, ¶¶ 13-14] Pursuant to this approval, Agent Henry issued to Petitioner a Notice of Church Tax Inquiry (“NCTI”). [Id. at ¶ 14] The NCTI advised Petitioner that the IRS had concerns that Petitioner: (1) “was operating a thrift shop rather than a church;” (2) “may have engaged in prohibited political campaign intervention in 2020;” (3) “may be liable for unrelated business income tax (“UBIT”) from the operation of a coffee shop;” and (4) “may be liable for additional . . . employment taxes for wages paid to Mr. and Mrs. Kloos.” [Id.] The NCTI asked Petitioner to respond to a number of questions. [Id.] Petitioner responded to the questions and provided copies of various documents. [Id. at ¶ 15]

After reviewing Petitioner's response, Agent Henry still had concerns about Petitioner's “tax-exempt status as a church, possible liability for UBIT, and liability for additional taxes.” [Id. at ¶ 16] He sought and received approval from Commissioner Lough to begin a church tax examination^[4] regarding Petitioner, and issued a Notice of Church Tax Examination (“NCTE”), which explained the IRS's continued concerns and provided a description of church records and activities that may need to be examined. [#9-1, ¶ 17] After a failed pre-examination conference between the IRS and Petitioner, the IRS moved forward with the church tax examination. [Id. at ¶ 18] Agent Henry also informed Petitioner that the IRS intended to contact third parties as part of its investigation. [Id. at ¶ 22] Agent Henry identified that FISERV processed credit card payments for Petitioner, primarily for thrift-store transactions. [Id. at ¶ 26] Agent Henry issued a summons to FISERV (the “FISERV Summons”), directing a FISERV representative to produce all documents in FISERV's possession concerning Petitioner's merchant account. [##9-1, ¶ 27; 9-3, 13] To date, FISERV has not complied with the summons, and the documents sought are not otherwise in the possession of the IRS. [#9-1, ¶¶ 31-32]

The IRS gave Petitioner notice of the FISERV Summons. [#9-1, ¶ 29] Petitioner filed the Petition before the Court, seeking to quash the FISERV Summons. [#1] The IRS filed the Motion for Summary Denial. [#9] That Motion has been fully briefed, and both parties have submitted notices of supplemental authority. [##12; 13; 14; 15; 22] On December 21, 2022, this Court heard oral argument on the Petition and Motion for Summary Denial. [#25] Subsequently, Petitioner filed supplemental affidavits of Mr. and Mrs. Kloos [#26], and filed the Motion for Discovery [#27]. That Motion has been fully briefed. [##29, 30]

II. Legal Standards

A. The IRS's Third-Party Summons Authority and Standard of Review

The IRS is “authorized and required to make the inquires, determinations, and assessments of all taxes” imposed by law. 26 U.S.C. § 6201(a). This includes the ability to “issue summonses ‘[f]or the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax . . ., or collecting any such liability.'” United States v. Clarke, 573 U.S. 248, 250 (2014) (quoting 26 U.S.C. § 7602(a)). “The IRS has authority to issue summonses to the subject taxpayer and to third parties who may have relevant information.” Standing Akimbo, LLC v. United States, 955 F.3d 1146, 1154 (10th Cir. 2020) (citing 26 U.S.C. § 7602(a)(2) and High Desert Relief, Inc. v. United States, 917 F.3d 1170, 1181 (10th Cir. 2019)). In issuing a third-party summons under Section 7602(a)(2), the IRS must follow specific notice procedures prescribed by Section 7609. See 26 U.S.C. §§ 7609(c)(1) (“[Subject to exceptions not applicable here], this section shall apply to any summons issued under paragraph (2) of section 7602(a).”). The taxpayer at issue may file a petition to quash the third-party summons in federal court. Id. § 7609(b)(2).

The IRS bears the initial burden of showing the summons' prima facie validity in a proceeding on a petition to quash. High Desert Relief, 917 F.3d at 1182. This requires the IRS to make a showing of each of the so-called “Powell factors,” which require that: (1) “the investigation will be conducted pursuant to a legitimate purpose;” (2) “the inquiry may be relevant to [that] purpose;” (3) “the information sought is not already within the [IRS's] possession;” and (4) “the administrative steps required by the Code have been followed-in particular, that the ‘Secretary or his delegate,' after investigation, has determined the further examination to be necessary and has notified the taxpayer in writing to that effect.” United States v. Powell, 379 U.S. 48, 57-58 (1964).^[5] The IRS's initial burden to show “that it meets the Powell factors ‘is a slight one,' primarily because the tax code ‘must be read broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted.'” High Desert Relief, 917 F.3d at 1182 (quoting United States v. Balanced Fin. Mgmt., Inc., 769 F.2d 1440, 1443 (10th Cir. 1985)). “The requisite [Powell] showing is generally made by affidavit of the agent who issued the summons and who is seeking enforcement.” Id. at 1182-83 (quoting Balanced Fin. Mgmt., 769 F.2d at 1443). Upon making this prima facie showing of validity, “[t]he burden then shifts to the taxpayer to factually refute the Powell showing or factually support an affirmative defense-conclusory allegations are insufficient.” Standing Akimbo, 955 F.3d at 1155 (citing Balanced Fin. Mgmt., 769 F.2d at 1444). “This is a heavy burden.” Id. (citing Balanced Fin. Mgmt., 769 F.2d at 1444).

Because the IRS's Motion for Summary Denial requires the review of declarations and affidavits outside of the Petition, the Court treats the Motion as one for summary judgment under Federal Rule of Civil Procedure 56 and applies the traditional summaryjudgment standards in assessing the Motion. Id. Accordingly, the Court will “view the record in the light most favorable to [Petitioner] and ask whether the IRS has shown that there are no genuine disputes of material fact and that it is entitled to judgment as a matter of law.” Id. at 1156 (quoting High Desert Relief, 917 F.3d at 1181). “Notably, [the] traditional summary-judgment standard of review precludes [Petitioner] from resting on conclusory statements because ‘such statements “do not suffice to create genuine issue of material fact.”'” Id. (first quoting High Desert Relief, 917 F.3d at 1181, then quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 674 (10th Cir. 1998)).^[6]

B. The Provisions of 28 U.S.C. § 7611 Do Not Apply

“Section 7611 of the tax code affords churches special protection in the audit context.” United States v. C.E. Hobbs Found. for Religious Training & Educ., Inc. (“Hobbs”), 7 F.3d 169, 171 (9th Cir. 1993). Section 7611 creates two distinct levels of investigation into a “church”^[7]-a “church tax inquiry” and a “church tax examination.” A church tax inquiry is “any inquiry to a church (other than an examination)” regarding its status as a church or tax liabilities for unrelated trade or business or other activities. 26 U.S.C § 7611(h)(2). A church tax inquiry may only begin if “an appropriate high-level Treasury official reasonably believes” that the organization at issue may...