NonBelief Relief and Form 990

By Sam Brunson

Speaking of the Freedom From Religion Foundation, last Thursday it filed suit challenging the constitutionality of section 6033(a)(3)(A) of the Code.

What does that first sentence mean? Broken down roughly: the tax law requires most entities exempt under section 501 to file an annual information return. That information return—currently Form 990—is filed with the IRS, but must also be made available to the public. It allows both the IRS and the general public a window into the financial workings of tax-exempt organizations, and provides a basis for administrative and public oversight of tax-exempt organizations. (For purposes of this lawsuit, it’s also worth noting that if a tax-exempt organization that is required to file a Form 990 doesn’t for three consecutive years, it automatically loses its exemption.)

Section 6033(a)(3)(A) provides a mandatory exception to the filing requirement, though. Under the Code, churches, their integrated auxiliaries, and conventions of churches don’t have to file a Form 990. While the IRS can still get access to them through an audit (though note that the steps the IRS must take to audit a church are really stringent), the general public has no way to see financial information about a U.S. church unless the church voluntarily discloses that information (which some do).

In 2015, the Freedom From Religion Foundation incorporated NonBelief Relief, a charitable organization, and followed all of the rules applicable to 501(c)(3) organizations except one: it never filed a Form 990. As a result, after three years and nearly $600,000 of charitable giving, NonBelief Relief lost its exemption.[fn2] It’s using that loss of exemption as a hook for standing, to challenge the different treatment of churches and other tax-exempt organizations as a violation of the Establishment Clause.

So with that introduction, some preliminary thoughts on the case. (And note that these are truly preliminary: the parties haven’t briefed the case yet, and I’ve only done enough research to justify a blog post. With more thought and research, it’s clearly possible that I’ll change my mind.)

I think this is a much harder case for Freedom From Religion Foundation. The parsonage allowance strikes me as a relatively easy constitutional question: it almost certainly violates the Establishment Clause.[fn3] But the exemption from Form 990 at least implicates the question of entanglement, in a way that, frankly, the parsonage allowance doesn’t.

I do think there is a case here. After all, it’s at least possible (and, I suspect, likely) that if Congress did require churches to file a Form 990,[fn4] they wouldn’t be able to argue that that requirement violated the Establishment Clause. In Jimmy Swaggart Ministries v. California Board of Equalization, the Supreme Court held that California could require Jimmy Swaggart Ministries to collect sales tax. The Court explained that “The fact that appellant must bear the cost of collecting and remitting a generally applicable sales and use tax … does not enmesh government in religious affairs.” To unconstitutionally enmesh government, an administrative requirement could require “neither the involvement of state employees in, nor on-site continuing inspection of, appellant’s day-to-day operations.” The requirement that a church file an annual information return might not rise to the level of “official and continuing surveillance,” and would thus likely not violate the Establishment Clause.

On the other hand, it might. In Church of Scientology Flag Service Organization v. City of Clearwater, the Eleventh Circuit looked at an ordinance which required organizations that solicited money in the city to provide a wide array of public disclosures about both itself and the solicitation in question. The court held that this disclosure requirement excessively entangled the government with religion. The Eleventh Circuit read the Jimmy Swaggart decision to prohibit both the involvement of state employees and the on-site continuing inspection of a church’s day-to-day operations. And it acknowledged that Clearwater’s disclosure requirement did not technically involve state employees in the on-site continuing inspection of Scientology’s day-to-day operations. But, it held, the disclosure requirement “subjects religious organizations to the continuous surveillance of their own members by requiring disclosure of all records underlying the statements upon request.” Because the government can’t delegate to citizens things it cannot constitutionally do, the disclosure requirement unconstitutionally enmeshed the government in church affairs. Moreover, the court held, the disclosure shifted the balance of power between church hierarchy and laity, in a manner that was impermissible.

It strikes me that this analysis at least potentially applies to the Form 990 disclosures. And even if it doesn’t clearly apply, it seems like Congress could enact an exemption like this to avoid the risk of impermissible entanglement. See, as I discuss in my book, the tax law doesn’t have any mandatory religious accommodations, since the government has a compelling interest in raising revenue.[fn5] But the government can still, in at least some circumstances, accommodate religion. And this seems like at least a viable candidate for that accommodation.[fn6]


[fn1] Freedom From Religion Foundation v. Werfel, 2013 WL 4830749 (W.D. Wisc. 2013).

[fn2] Why, btw, did the Freedom From Religion Foundation go through the whole rigamarole of forming a new tax-exempt organization? Well, it tried to challenge the exemption in 2012, but its suit was dismissed for lack of standing.  And I’m sure it didn’t want to risk losing the main organization’s tax exemption.

[fn3] That’s not to say that FFRF is definitely going to win next week; I’m still a little skeptical of its standing argument, even though it did exactly what the Seventh Circuit said, in dicta, that it should do. But if the court arrives at the merits, it’s hard for me to think of a way that the parsonage allowance survives the Establishment Clause.

[fn4] If you want a really, really abbreviated history of the information return exception for churches, look at pages 4–7 of this article I wrote.

[fn5] Though query whether that precedent holds in the case of tax-exempt organizations. While the government does have an interest in oversight, it may not be as compelling as its interest in revenue is, so maybe, in the case of churches, there could be mandatory accommodations.

[fn6] h/t to Robert Baty and Peter Reilly for initially bringing this suit to my attention.

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