Nonreligious Charity Has Standing To Challenge Preferential Treatment Of Tax-Exempt Religious Organizations, District Court Finds Freedom From Religion Foundation v. Werfel, D.C.-Wis., August 22, 2013; Freedom From Religion Foundation v. Shulman, D.C.-Wis., August 19, 2013 A federal district court has found, in two separate cases, that a Code Sec. 501(c)(3) organization (a "charity") not involved in the practice of religion has standing to sue the IRS to challenge the preferential tax treatment of religious Code Sec. 501(c)(3) organizations. In the Shulman case, the plaintiff alleged that the IRS is allowing religious charities to participate in political activity, contrary to the Tax Code. In the Werfel case, the plaintiff alleged that the IRS discriminates by requiring annual reports from charities not involved in religion while not requiring annual reports from religious charities. CCH Take Away.The cases survived the government’s motions to dismiss for lack of standing. The court found that the plaintiff charity had adequately alleged injury in fact. To win either case, however, the organization must prove that it actually suffered a legal injury. Political activity As a condition of being a tax-exempt charity under Code Sec. 501(c)(3), an organization must not participate in any political campaign for or against a candidate for office. The plaintiff, a Code Sec. 501(c)(3) charity, alleged that the IRS has a policy of not enforcing this requirement against churches and religious organizations, while fully enforcing the condition against other charities. The plaintiff claimed that the IRS’s disparate treatment violates the Establishment Clause of the First Amendment and the equal-protection component of the Fifth Amendment. Standing upheld The court found that the plaintiff had standing because it would be injured if the IRS had a policy of not enforcing the prohibition on political activity against religious organizations. Discrimination is an injury in fact, and the organization could challenge it, the court concluded. The plaintiff was personally affected as a 501(c)(3) organization and sought to vindicate its own right to equal treatment. The lawsuit was appropriate because, if the allegations were true, an injunction prohibiting the IRS policy would prevent further injury. Annual reports The plaintiff and other nonreligious charitable organizations must file Form 990, the annual information report required of nonprofit organizations. Churches are not required to file Form 990. The plaintiff claimed that the government is relieving an ongoing burden from some taxpayers on the basis of religion and is providing unequal treatment. The court noted that standing may be derived from discrimination in the Tax Code, if a tax exemption is conditioned on religious affiliation. Thus, the IRS’s unequal treatment can cause injury. Comment The court concluded that the injury can be remedied by eliminating the exemption; it is not necessary to provide the same benefit to the plaintiff. References: 2013-2 ustc ¶50,482; TRC EXEMPT: 3,200.
Posted on: Fri, 30 Aug 2013 03:32:25 +0000
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