Category: church taxation

DON’T IGNORE THE MAIL

City, county, state and federal taxing authorities still use the mail to notify of tax obligations.  While these notices are not always correct, and even some correct ones may be challenged, simply ignoring them does not make them go away.  Reciting mantra’s like, “they can’t tax a church,” or “I’ll just give them a call to fix it,” are often the first words spoken in a church legal or financial disaster.

In Wings as Eagles Deliverance Ministry v City of Detroit, Opinion and Order (USDC, ED Michigan 2022), the city imposed property taxes on property owned by the ministry.  The Plaintiff received from the City notices of taxes owed in several consecutive years.  Finally, the City sought and received a Judgment of Foreclosure and transferred ownership of the property to a subsequent owner.  (The federal trial court opinion does not explain the tax collection system in detail.  But, somehow, the property ownership was transferred without an auction for zero dollars, implying not even the taxes were collected, and leaving no Excess Proceeds for the prior owner to collect.  But, a more detailed study of the property tax collection system of Michigan is beyond the scope of this report.)  The federal court entered judgment for the City because the state level Judgment was final and precluded review by the federal trial court.  (Apparently, the Plaintiff took no action against the state level Judgment, such as an appeal to the Michigan court system.  However, that is not completely clear from the federal trial court’s opinion.)  Constitutional claims based on the Establishment Clause were unavailable because they were not asserted against the state level Judgment.

The Plaintiff in the reported case should have taken definitive action as to the first notice of tax delinquency and every notice thereafter.  The state level Judgment should have been appealed.  The best method of dealing with such matters, if a diplomatic visit to the taxing authority does not result in a written withdrawal of the notice in a timely way, is to pay the delinquent tax under protest and then sue to recover the money paid.

OBTAINING FAVORED TAX TREAMENT

Church and parachurch organizations should be outside of and not liable to most United States tax structures simply because the taxing government would be required to involve itself in church governance to determine what is “income,” “gifts,” “bequests,” or other types of income for tax purposes.  However, and rightly so, the taxing authority must have the church or parachurch organization identified and its status as a church or other non-profit entity verified in an application process.

In Alearis, Inc. v United States, Order and Opinion (US Claims 2022), the federal Court of Federal Claims dismissed the Plaintiff’s challenge to certain actions by the Internal Revenue Service (“IRS”).  The Plaintiff was a parachurch organization and its sole owner and “member” was allegedly a church.  The Plaintiff sought from the IRS a classification as a non-profit foundation and requested an official determination.  After six months without a response, the Plaintiff contacted IRS and learned that IRS was trying to determine why the Plaintiff sought a “reclassification” rather than a classification.  The Plaintiff clarified their application as one for “classification.”  The IRS refunded the fee for the request for classification because the Plaintiff never obtained a formal exemption as a non-profit by submitting the correct form and user fee.  Rather than trying again, the Plaintiff sued in the federal Court of Claims.  The federal court held because the Plaintiff never obtained a determination or a denial as to its classification as a non-profit foundation, there was no IRS decision to review.  The Plaintiff argued that it should be exempt under the Ecclesiastical Abstention Doctrine from completing the IRS application process because to do so would disclose publicly “protected church information.”  The Court held it could not determine whether or not Plaintiff was a “church” as defined by the Internal Revenue Code on the information provided.  Plaintiff sought to have the record of its application permanently sealed but, again, failed to provide so much as an Affidavit alleging that disclosure would harm Plaintiff.  As a result, the record was unsealed and available to the public.

For those who generally disdain taxes, their necessity and the procedures for determining what is owed, nothing said here would be useful.  Generally, while to the uninitiated IRS forms are byzantine, tax and legal professionals are available to assist for reasonable fees.  Secret religious doctrines need not be disclosed.  Typically, even new and alternative religious groups can successfully describe themselves so as to generically qualify for tax exempt status.  Most tax and legal professionals are fully capable of the creative writing it may be required to describe in truthful generic terms a new or alternative religious belief for completion of IRS forms.