Tax-exempt bodies fearful of unclear IRS standard
During his campaign for president, Barack Obama was called to account frequently for his association with the controversial pastor of his Chicago church.
A prior incident that energized an inquiry by the Internal Revenue Service against the United Church of Christ (UCC) received less coverage in the media, despite its potential threat to all tax-exempt organizations.
Although the IRS subsequently dropped the inquiry, Deerfield attorney Donald C. Clark Jr. said the situation illustrates a need for Congress to revisit Section 7611 of the code, which he called “almost meaningless.”
Clark summarized the proceedings during a recent Chicago breakfast forum sponsored by the Center for Church/State Studies at the DePaul University College of Law.
Months before Obama officially announced his candidacy, he was invited to be one of 60 speakers during the UCC’s 50th anniversary synod in Hartford, Conn., on June 23, 2007.
By then Obama, who has belonged to the church for more than 20 years, was a confirmed candidate. So he was reminded by church officials to speak in a “non-candidate capacity,” as required by the IRS Code.
Obama’s message to 10,000 members of the denomination reportedly dwelled on his personal spiritual journey and the misuse of faith in the past to divide Americans.
Eight months later, the UCC received a letter from the Department of the Treasury that “a reasonable belief exists” that it “has engaged in political activities that could jeopardize its tax-exempt status as a church…”
The letter was “notice of the beginning of a church tax inquiry described in IRC section 7611(a).” The concerns, it said, were “based on articles posted on several websites” that described Obama’s presentation.
Clark, who is special counsel nationally for the church, called the inquiry “an opportunity for the (UCC) to correct any factual inaccuracies and misperceptions that may have prompted the underlying concern, and to reaffirm the importance of the constitutional rights of free speech and association that have been implicated.”
He enlisted the help of WilmerHale, a Washington, D.C., firm, which turned the matter over to former U.S. solicitor general Seth P. Waxman and said it would not charge attorney fees.
The inquiry languished from last February until May, when the IRS announced its determination that the UCC had not violated its tax-exempt status by inviting Obama to speak, and had taken necessary steps to avoid appearing to endorse his candidacy.
The decision stated, in part: “The activity about which we had concern did not constitute an intervention or participation in a political campaign in violation of the requirements of section 501(c)(3).”
Clark responded to the Washington Post that “Congress should require that the (IRS) communicate with the church before an inquiry, with its attendant costs and chilling effect on constitutionally protected associational rights, is launched.”
Sen. Joseph I. Lieberman had written to the IRS in March to express his concern “about the chilling effect on legitimate activity by religious organizations that results from initiating a church tax inquiry without first satisfying the reasonableness standard…”
Clark told his Chicago audience that no other inquiries were pending about candidates’ appearances in churches. He noted the perception of a previous IRS focus on congregational and evangelical faith communities.
Citing an “All Saints case,” Clark pointed out that the IRS did find a violation but applied no sanctions that could be appealed in court. He added that the same vague rules and lack of guidance apply to all tax-exempt institutions.
A former litigation partner in Isham, Lincoln & Beale and McDermott, Will & Emery, Clark teaches legal issues in contemporary parish ministry and is chair of the Chicago Theological Seminary Board of Trustees.