Can the IRS Shut Down the Catholic Church? Crisis Interviews Robert Destro
Dr. Robert Destro is the former interim dean of the Columbus School of Law at the Catholic University of America and is an expert on church-state relations. Crisis publisher and editor Deal W. Hudson sat down with him at our offices in Washington, D.C.
Deal W. Hudson: It’s commonly said that Catholics who are politically involved should be afraid their activity might endanger the Church’s tax-exempt status. Is this a valid fear?
Robert Destro: Well, it depends where the political involvement takes place. If political activity centers on the church, the church hall, the school auditorium—anything officially associated with the church—yes, there’s a reasonable fear that the IRS might get involved, and there’s a real fear in the Church hierarchy that the IRS will be involved.
Is that a reasonable fear? Is that based on actual interventions of the IRS in relation to the political involvement of churches?
Yes. The IRS does a lot of chain-rattling about churches, and it’s gone after the politically active ones. It’s not really evenhanded in the way it goes about it. But the courts have ruled that it doesn’t have to be. It’s even attacked the Christian Coalition.
How does the IRS actually chain-rattle? What form does that take?
The regulations governing church tax exemptions say the churches are not allowed to participate in political activity, period. So any church that has an exemption is not supposed to be involved in politics. Other charities with what we call 501 (c) (3) exemptions can be involved in politics so long as only an insubstantial amount of their assets goes to political activity.
But when you say “chain-rattling,” it must be more than regulations; there must be some form of communication that the IRS does.
The IRS investigates complaints. The ACLU and People for the American Way regularly complain that churches are involved in politics. Some Catholic organizations have also complained that other organizations are involved in politics. The bottom line is that the (c) (3) political activity restrictions are used as weapons on both sides of the political divide. If the IRS actually starts to investigate you, it can be a long, expensive, time-consuming process.
There was the case of the Church at Pierce Creek [in Binghamton, New York]. That seems to be a watershed event in the history of the relation of the IRS and churches—is that correct?
The Church at Pierce Creek is the first case in which the IRS ever took away the tax exemption of a bona fide church. Nobody ever denied that the Church at Pierce Creek was a church, and the IRS yanked its tax exemption because it published some ads questioning Bill Clinton’s moral fitness to be president.
You were on the litigation team, and it took seven years.
It did. Seven years and quite a bit of litigation—very frustrating litigation, I might add. I did it for free, and I know that some of the other people who worked on the case did it for free. If you had to pay for that kind of legal experience, it would cost you a fortune.
What did you learn from your involvement in the Pierce Creek case?
In one respect, the case confirmed what I knew already: The rules are stacked in favor of the IRS. The assumption is that a tax exemption is not an entitlement; it’s a privilege. You have to comply with all the rules. If you violate them, and somebody powerful enough—like the New York Times in the Pierce Creek case—complains, then it’ll get their attention, and the IRS will go after you.
Are you saying that the rules are stacked because the IRS intends to keep churches out of the political process?
Yes. I think that both Congress and the IRS would prefer that churches stay out of the political process.
In your opinion, is this in accord with the vision of the American founders—that people who identify themselves with churches should be dissuaded from being involved politically as members of the church?
A number of the founders, particularly Madison, were very concerned about the political power of organized churches. And even though Madison was one of the founding fathers of religious liberty in this country, he distrusted aggregations of political power. He feared the churches. At the same time, he didn’t hesitate to organize church members to go out as members of that church—as citizens—to organize for political purposes. So there’s this tension about when church members organize as the church versus when they organize as a group of concerned citizens.
Isn’t it true, though, that nonprofit groups, like churches, were relatively free to operate politically until one of them ran afoul of Lyndon Johnson?
Yes—and it wasn’t even a church. In 1954, Lyndon Johnson found out that a New York foundation was allegedly contributing to the election campaign of an opponent, so he slipped a provision into the internal revenue code revision of 1954 that forms the foundation of what we call the “political activity restriction” today.
Which didn’t exist prior to 1954?
Right. The political activity restrictions indicate that in order to be tax-exempt, no substantial part of your assets can be used for political activities.
But that’s what I find so interesting. It’s not a black-and-white principle; its a difference between “substantial” and “insubstantial,” which means that a small portion of a nonprofit’s assets, energies, and so forth can be used for political purposes.
No question about it. But the IRS makes a distinction between churches, which are not supposed to use any of their assets for politics, and other nonprofits, which are allowed to use an insubstantial portion of their assets.
So you’re saying the substantial/insubstantial distinction doesn’t apply to churches?
So why are church nonprofit groups treated differently from other advocacy nonprofits? Why is it that people with religious faith have to meet a higher standard than people who operate out of other belief systems that aren’t specifically religious?
In part, the history shows that some churches didn’t want the flexibility given to other groups, because they didn’t want the IRS rooting around in their books to figure out whether the amounts were substantial or insubstantial.
How do you know that some churches welcomed this higher standard? What proof do you have?
A number of the churches that were involved, including the Catholic Church, have made it clear from the beginning that they approved of churches just staying out of it.
We all know about the famous African-American churches, for example in New York City, that seem to hold out-and-out political rallies, and they have political candidates standing in the pulpit and giving sermons. Aren’t these examples of an institution stepping over the boundaries in the tax code?
Yes, there’s no question that they’re stepping over the boundaries. In fact, when you actually have a political candidate in your pulpit and you’re passing the hat for the candidate, you’re not stepping over the boundaries; you’re obliterating them. This is why one can say that the IRS isn’t evenhanded when it enforces the rules. The political outcry would be outrageous if they decided to crack down on those churches.
So is there a sense in which this outcry would protect not only African-American churches but also Catholic parishes if those parishes decided to follow the example of the African-American churches?
I think any attempts to do that would be put down fairly quickly by the bishop on the advice of his tax adviser.
But what if a renegade parish, as it were, started to behave like one of those African-American churches? How do you think that would actually spin out, apart from the fact that the bishops might get involved? Wouldn’t there be a public outcry against the IRS if it tried to shut down a parish that, say, allowed a presidential candidate to speak?
I think you’d have political outcry on both sides, and you would energize the community. There’s no doubt about that. But most Americans don’t like the idea of the churches getting involved with politics. They think a church is for spiritual things, and you can do your politics somewhere else. Believe me, there have been attempts since the 1980s to revoke the tax exemption of the Catholic Church through litigation and other means. So you could wind up with a very energized community without a tax exemption.
The Church isn’t prohibited from lobbying the way it’s prohibited from political activity. What’s the difference?
Lobbying is issue advocacy—explaining the position of the Church on, say, humanitarian aid to Angola or slavery in the Sudan. These are all perfectly legitimate issues. Housing in the United States, immigration these issues are fine. The IRS gets very skittish when churches get involved in political campaigns, especially if they take sides in them. That’s why they went after Pierce Creek. If they had done one ad on George Bush and one on Bill Clinton, the case might have come out differently.
Let’s talk about the 501(c)(3) status of the Catholic Church. There are thousands of parishes in the United States. Does each of these parishes have its own separate 501(c)(3) exemption?
No. The business organization of the Church varies from state to state. By and large, it’s the bishop who is the legal personification of the Church, and the Catholic organizations listed in the Official Catholic Directory are covered by what we call a group exemption. So if the organization is listed, then you’re exempt and you don’t have to go through the whole rigmarole of getting your own exemption, which can take anywhere from 6 to 15 months.
So, in other words, the parishes of the United States are covered under a group exemption that is granted to the Catholic Church in the United States? Or is it granted to the United States Conference of Catholic Bishops?
It’s granted to the United States Conference of Catholic Bishops. And its group exemption letter states that every group listed in this official directory is exempt under that group exemption. Many organizations with branches have these kinds of exemptions.
Now, if you apply through the group exemption, that means you have to play by the rules set down by the United States Conference of Catholic Bishops.
It polices its own group exemption?
Right, and it has a complete list of the rules on its Web site. If anyone wants to take a look at them, they’re right out there, and it has all the different warnings that we’re talking about here. [Visit www.usccb.org/ogc/guidelines. htm.]
Now those rules that have been published by the counsel for the United States Conference of Catholic Bishops—would you characterize those as a strict interpretation, a moderate interpretation, or a loose interpretation of IRS laws?
I’d say they’re a very careful interpretation of IRS rules. In practice, this means, err on the side of not being involved. That’s what the counsel usually will tell you.
A friend of mine told me a story the other day. We were talking about the IRS rules on Catholic political involvement, and he said, “When I get to heaven and meet St. Peter, and he asks me why I didn’t fight harder to influence the political process as a Catholic, I’ll answer, ‘Well, the IRS was the problem; it was standing in my way.’ I don’t want to have to say that, especially when I’m up there with people who have died for their faith, and I’m holding up my IRS tax return and waving it in the face of St. Peter.” What do you say to that person?
I’d say, “You didn’t have a very creative lawyer.” There are lots of different ways for Catholics to be involved in politics—all of which are perfectly legal—and some of which are tax-exempt. It’s just a question of making sure that you don’t get into trouble because you got bad advice—or no advice at all.
So, under the existing tax code, it is possible for Catholics to be fully engaged in the political process—as Catholics, as identified Catholics—without tripping over the possibility of an audit.
No question. You can do pretty much anything you want in the political process. How you do it is going to determine whether or not you’re going to get in trouble with the IRS. As a practical matter, the Church at Pierce Creek probably wouldn’t have found itself in so much trouble if it hadn’t asked for tax-deductible contributions to pay for the ad.
Do you think there are Catholics whose political activity has been minimized or diminished because of an irrational fear of the IRS?
Absolutely. In fact, I see it happen on a regular basis. Priests get very upset when people want to hand out handbills after Mass, or Father says you’re not allowed to put things on people’s cars. Now admittedly, a lot of people don’t like to have things put on their cars, but the IRS is not going to chase down a little parish somewhere unless they see a big pattern—a really overt neon sign of official church involvement.
If somebody wants to start a Catholic political organization, what can you recommend to him? What should he be reading? Are there any source books on this issue—how to set up an organization and what the basic rules are?
I would simply recommend the IRS application packet for 501 (c) (3) exemption. Much depends on what your organization wants to do. If you want to have tax-exempt contributions, where people can write off donations on their tax form, then the 501 (c) (3) route is the way to go. If you don’t care about deductions, and you just want the organization to be exempt, then you apply under (c) (4), and you can pretty much do anything you want. Once you get the forms, you look through them, fill them out, and then get a friendly lawyer to look them over and walk you through the process. The U.S. Conference of Catholic Bishops’s Web site is very useful. It walks you through the rules. The conference paid good money for the site, and the information it contains.