Br Mnstry Inc v. Rossotti, Charles O.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 20, 2000 Decided May 12, 2000

No. 99-5097

Branch Ministries and Dan Little, Pastor,
Appellants

v.

Charles O. Rossotti, Commissioner,
Internal Revenue Service,
Appellee

Appeal from the United States District Court
for the District of Columbia
(No. 95cv00724)

Mark N. Troobnick, with whom Jay Alan Sekulow and
Colby M. May were on the briefs, argued the cause for
appellants.

Thomas J. Sawyer, Attorney, U.S. Department of Justice,
with whom Loretta C. Argrett, Assistant Attorney General,
and Kenneth L. Greene, Attorney, U.S. Department of Jus-

tice, and Wilma A. Lewis, United States Attorney, were on
the brief, argued the cause for appellee.

Richard P. Hutchison, Mark R. Levin and Janet LaRue
were on the brief for amici curiae Landmark Legal Founda-
tion and Family Research Council

Ayesha N. Khan, Elliot M. Mincberg and Alma C.
Henderson were on the brief for amici curiae Americans
United for Separation of Church and State and People for the
American Way Foundation.

Before Silberman and Henderson, Circuit Judges, and
Buckley, Senior Circuit Judge.

Opinion for the court filed by Senior Judge Buckley.

Buckley, Senior Judge: Four days before the 1992 presi-
dential election, Branch Ministries, a tax-exempt church,
placed full-page advertisements in two newspapers in which it
urged Christians not to vote for then-presidential candidate
Bill Clinton because of his positions on certain moral issues.
The Internal Revenue Service concluded that the placement
of the advertisements violated the statutory restrictions on
organizations exempt from taxation and, for the first time in
its history, it revoked a bona fide church's tax-exempt status
because of its involvement in politics. Branch Ministries and
its pastor, Dan Little, challenge the revocation on the
grounds that (1) the Service acted beyond its statutory au-
thority, (2) the revocation violated its right to the free exer-
cise of religion guaranteed by the First Amendment and the
Religious Freedom Restoration Act, and (3) it was the victim
of selective prosecution in violation of the Fifth Amendment.
Because these objections are without merit, we affirm the
district court's grant of summary judgment to the Service.

I. Background

A. Taxation of Churches

The Internal Revenue Code ("Code") exempts certain orga-
nizations from taxation, including those organized and operat-
ed for religious purposes, provided that they do not engage in
certain activities, including involvement in "any political cam-

paign on behalf of (or in opposition to) any candidate for
public office." 26 U.S.C. s 501(a), (c)(3) (1994). Contribu-
tions to such organizations are also deductible from the
donating taxpayer's taxable income. Id. s 170(a). Although
most organizations seeking tax-exempt status are required to
apply to the Internal Revenue Service ("IRS" or "Service")
for an advance determination that they meet the require-
ments of section 501(c)(3), id. s 508(a), a church may simply
hold itself out as tax exempt and receive the benefits of that
status without applying for advance recognition from the IRS.
Id. s 508(c)(1)(A).

The IRS maintains a periodically updated "Publication No.
78," in which it lists all organizations that have received a
ruling or determination letter confirming the deductibility of
contributions made to them. See Rev. Proc. 82-39, 1982-1
C.B. 759, ss 2.01, 2.03. Thus, a listing in that publication will
provide donors with advance assurance that their contribu-
tions will be deductible under section 170(a). If a listed
organization has subsequently had its tax-exempt status re-
voked, contributions that are made to it by a donor who is
unaware of the change in status will generally be treated as
deductible if made on or before the date that the revocation is
publicly announced. Id. s 3.01. Donors to a church that has
not received an advance determination of its tax-exempt
status may also deduct their contributions; but in the event
of an audit, the taxpayer will bear the burden of establishing
that the church meets the requirements of section 501(c)(3).
See generally id. s 3.04; Rev. Proc. 80-24, 1980-1 C.B. 658,
s 6 (discussing taxpayers' obligations in seeking a ruling or
determination letter).

The unique treatment churches receive in the Internal
Revenue Code is further reflected in special restrictions on
the IRS's ability to investigate the tax status of a church.
The Church Audit Procedures Act ("CAPA") sets out the
circumstances under which the IRS may initiate an investiga-
tion of a church and the procedures it is required to follow in
such an investigation. 26 U.S.C. s 7611. Upon a "reason-
able belief" by a high-level Treasury official that a church
may not be exempt from taxation under section 501, the IRS

may begin a "church tax inquiry." Id. s 7611(a). A church
tax inquiry is defined, rather circularly, as

any inquiry to a church (other than an examination) to
serve as a basis for determining whether a church-

(A) is exempt from tax under section 501(a) by reason
of its status as a church, or

(B) is ... engaged in activities which may be subject
to taxation....

Id. s 7611(h)(2). If the IRS is not able to resolve its con-
cerns through a church tax inquiry, it may proceed to the
second level of investigation: a "church tax examination." In
such an examination, the IRS may obtain and review the
church's records or examine its activities "to determine
whether [the] organization claiming to be a church is a church
for any period." Id. s 7611(b)(1)(A), (B).

B. Factual and Procedural History

Branch Ministries, Inc. operates the Church at Pierce
Creek ("Church"), a Christian church located in Binghamton,
New York. In 1983, the Church requested and received a
letter from the IRS recognizing its tax-exempt status. On
October 30, 1992, four days before the presidential election,
the Church placed full-page advertisements in USA Today
and the Washington Times. Each bore the headline "Chris-
tians Beware" and asserted that then-Governor Clinton's
positions concerning abortion, homosexuality, and the distri-
bution of condoms to teenagers in schools violated Biblical
precepts. The following appeared at the bottom of each
advertisement:

This advertisement was co-sponsored by the Church at
Pierce Creek, Daniel J. Little, Senior Pastor, and by
churches and concerned Christians nationwide. Tax-
deductible donations for this advertisement gladly ac-
cepted. Make donations to: The Church at Pierce
Creek. [mailing address].
Appendix ("App.") at Tab 5, Ex. E.

The advertisements did not go unnoticed. They produced
hundreds of contributions to the Church from across the

country and were mentioned in a New York Times article and
an Anthony Lewis column which stated that the sponsors of
the advertisement had almost certainly violated the Internal
Revenue Code. Peter Applebome, Religious Right Intensi-
fies Campaign for Bush, N.Y. Times, Oct. 31, 1992, at A1;
Anthony Lewis, Tax Exempt Politics?, N.Y. Times, Dec. 1,
1992, at A15.

The advertisements also came to the attention of the
Regional Commissioner of the IRS, who notified the Church
on November 20, 1992 that he had authorized a church tax
inquiry based on "a reasonable belief ... that you may not be
tax-exempt or that you may be liable for tax" due to political
activities and expenditures. Letter from Cornelius J. Cole-
man, IRS Regional Commissioner, to The Church at Pierce
Creek (Nov. 20, 1992), reprinted in App. at Tab 5, Ex. F.
The Church denied that it had engaged in any prohibited
political activity and declined to provide the IRS with certain
information the Service had requested. On February 11,
1993, the IRS informed the Church that it was beginning a
church tax examination. Following two unproductive meet-
ings between the parties, the IRS revoked the Church's
section 501(c)(3) tax-exempt status on January 19, 1995, citing
the newspaper advertisements as prohibited intervention in a
political campaign.

The Church and Pastor Little (collectively, "Church") com-
menced this lawsuit soon thereafter. This had the effect of
suspending the revocation of the Church's tax exemption until
the district court entered its judgment in this case. See 26
U.S.C. s 7428(c). The Church challenged the revocation of
its tax-exempt status, alleging that the IRS had no authority
to revoke its tax exemption, that the revocation violated its
right to free speech and to freely exercise its religion under
the First Amendment and the Religious Freedom Restoration
Act of 1993, 42 U.S.C. s 2000bb (1994) ("RFRA"), and that
the IRS engaged in selective prosecution in violation of the
Equal Protection Clause of the Fifth Amendment. After
allowing discovery on the Church's selective prosecution
claim, Branch Ministries, Inc. v. Richardson, 970 F. Supp. 11
(D.D.C. 1997), the district court granted summary judgment

in favor of the IRS. Branch Ministries, Inc. v. Rossotti, 40
F. Supp. 2d 15 (D.D.C. 1999).

The Church filed a timely appeal, and we have jurisdiction
pursuant to 28 U.S.C. s 1291. We review summary judg-
ment decisions de novo, see Everett v. United States, 158 F.3d
1364, 1367 (D.C. Cir. 1998), cert. denied, 526 U.S. 1132 (1999),
and will affirm only if there is no genuine issue as to any
material fact and the moving party is entitled to judgment as
a matter of law. Fed. R. Civ. P. 56(c).

II. Analysis

The Church advances a number of arguments in support of
its challenges to the revocation. We examine only those that
warrant analysis.

A. The Statutory Authority of the IRS

The Church argues that, under the Internal Revenue Code,
the IRS does not have the statutory authority to revoke the
tax-exempt status of a bona fide church. It reasons as
follows: section 501(c)(3) refers to tax-exempt status for
religious organizations, not churches; section 508, on the
other hand, specifically exempts "churches" from the require-
ment of applying for advance recognition of tax-exempt sta-
tus, id. s 508(c)(1)(A); therefore, according to the Church, its
tax-exempt status is derived not from section 501(c)(3), but
from the lack of any provision in the Code for the taxation of
churches. The Church concludes from this that it is not
subject to taxation and that the IRS is therefore powerless to
place conditions upon or to remove its tax-exempt status as a
church.

We find this argument more creative than persuasive. The
simple answer, of course, is that whereas not every religious
organization is a church, every church is a religious organiza-
tion. More to the point, irrespective of whether it was
required to do so, the Church applied to the IRS for an
advance determination of its tax-exempt status. The IRS
granted that recognition and now seeks to withdraw it.
CAPA gives the IRS this power.

 That statute, which pertains exclusively to churches, pro-
vides authority for revocation of the tax-exempt status of a
church through its references to other sections of the Inter-
nal Revenue Code. The section of CAPA entitled "Limita-
tions on revocation of tax-exempt status, etc." provides that
the Secretary [of the Treasury] may "determine that an orga-
nization is not a church which [ ] (i) is exempt from taxation
by reason of section 501(a), or (ii) is described in section
170(c)." 26 U.S.C. s 7611(d)(1)(A)(i), (ii). Both of these
sections condition tax-exempt status on non-intervention in
political campaigns. Section 501(a) states that "[a]n organiza-
tion described in subsection (c) ... shall be exempt from tax-
ation...." Id. s 501(a). Those described in subsection (c)
include

corporations ... organized and operated exclusively for
religious ... purposes ... which do[ ] not participate in,
or intervene in (including the publishing or distributing
of statements), any political campaign on behalf of (or in
opposition to) any candidate for public office.

Id. s 501(c)(3). Similarly, section 170(c) allows taxpayers to
deduct from their taxable income donations made to a corpo-
ration

organized and operated exclusively for religious ... pur-
poses ... which is not disqualified for tax exemption
under section 501(c)(3) by reason of attempting to ...
intervene in (including the publishing or distributing of
statements), any political campaign on behalf of (or in
opposition to) any candidate for public office.

Id. s 170(c)(2)(B), (D).

The Code, in short, specifically states that organizations
that fail to comply with the restrictions set forth in section
501(c) are not qualified to receive the tax exemption that it
provides. Having satisfied ourselves that the IRS had the
statutory authority to revoke the Church's tax-exempt status,
we now turn to the free exercise challenges.

B. First Amendment Claims and the RFRA

The Church claims that the revocation of its exemption
violated its right to freely exercise its religion under both the
First Amendment and the RFRA. To sustain its claim under
either the Constitution or the statute, the Church must first
establish that its free exercise right has been substantially
burdened. See Jimmy Swaggart Ministries v. Board of
Equalization, 493 U.S. 378, 384-85 (1990) ("Our cases have
established that the free exercise inquiry asks whether gov-
ernment has placed a substantial burden on the observation
of a central religious belief or practice and, if so, whether a
compelling governmental interest justifies the burden.") (in-
ternal quotation marks and brackets omitted); 42 U.S.C.
s 2000bb-1(a), (b) ("Government shall not substantially bur-
den a person's exercise of religion" in the absence of a
compelling government interest that is furthered by the least
restrictive means.). We conclude that the Church has failed
to meet this test.

The Church asserts, first, that a revocation would threaten
its existence. See Affidavit of Dan Little dated July 31, 1995
at p 22, reprinted in App. at Tab 8 ("The Church at Pierce
Creek will have to close due to the revocation of its tax
exempt status, and the inability of congregants to deduct
their contributions from their taxes."). The Church main-
tains that a loss of its tax-exempt status will not only make its
members reluctant to contribute the funds essential to its
survival, but may obligate the Church itself to pay taxes.

The Church appears to assume that the withdrawal of a
conditional privilege for failure to meet the condition is in
itself an unconstitutional burden on its free exercise right.
This is true, however, only if the receipt of the privilege (in
this case the tax exemption) is conditioned

upon conduct proscribed by a religious faith, or ...
denie[d] ... because of conduct mandated by religious
belief, thereby putting substantial pressure on an adher-
ent to modify his behavior and to violate his beliefs.

Jimmy Swaggart Ministries, 493 U.S. at 391-92 (internal
quotation marks and citation omitted). Although its adver-
tisements reflected its religious convictions on certain ques-
tions of morality, the Church does not maintain that a with-
drawal from electoral politics would violate its beliefs. The
sole effect of the loss of the tax exemption will be to decrease
the amount of money available to the Church for its religious
practices. The Supreme Court has declared, however, that
such a burden "is not constitutionally significant." Id. at 391;
see also Hernandez v. Commissioner, 490 U.S. 680, 700 (1989)
(the "contention that an incrementally larger tax burden
interferes with [ ] religious activities ... knows no limita-
tion").

In actual fact, even this burden is overstated. Because of
the unique treatment churches receive under the Internal
Revenue Code, the impact of the revocation is likely to be
more symbolic than substantial. As the IRS confirmed at
oral argument, if the Church does not intervene in future
political campaigns, it may hold itself out as a 501(c)(3)
organization and receive all the benefits of that status. All
that will have been lost, in that event, is the advance assur-
ance of deductibility in the event a donor should be audited.
See 26 U.S.C. s 508(c)(1)(A); Rev. Proc. 82-39 s 2.03. Con-
tributions will remain tax deductible as long as donors are
able to establish that the Church meets the requirements of
section 501(c)(3).

Nor does the revocation necessarily make the Church liable
for the payment of taxes. As the IRS explicitly represented
in its brief and reiterated at oral argument, the revocation of
the exemption does not convert bona fide donations into
income taxable to the Church. See 26 U.S.C. s 102 ("Gross
income does not include the value of property acquired by
gift...."). Furthermore, we know of no authority, and coun-
sel provided none, to prevent the Church from reapplying for
a prospective determination of its tax-exempt status and
regaining the advance assurance of deductibility--provided,
of course, that it renounces future involvement in political
campaigns.

 We also reject the Church's argument that it is substantial-
ly burdened because it has no alternate means by which to
communicate its sentiments about candidates for public office.
In Regan v. Taxation With Representation, 461 U.S. 540,
552-53 (1983) (Blackmun, J., concurring), three members of
the Supreme Court stated that the availability of such an
alternate means of communication is essential to the constitu-
tionality of section 501(c)(3)'s restrictions on lobbying. The
Court subsequently confirmed that this was an accurate
description of its holding. See FCC v. League of Women
Voters, 468 U.S. 364, 400 (1984). In Regan, the concurring
justices noted that "TWR may use its present s 501(c)(3)
organization for its nonlobbying activities and may create a
s 501(c)(4) affiliate to pursue its charitable goals through
lobbying." 461 U.S. at 552.

The Church has such an avenue available to it. As was the
case with TWR, the Church may form a related organization
under section 501(c)(4) of the Code. See 26 U.S.C. s 501(c)(4)
(tax exemption for "[c]ivic leagues or organizations not orga-
nized for profit but operated exclusively for the promotion of
social welfare"). Such organizations are exempt from taxa-
tion; but unlike their section 501(c)(3) counterparts, contribu-
tions to them are not deductible. See 26 U.S.C. s 170(c); see
also Regan, 461 U.S. at 543, 552-53. Although a section
501(c)(4) organization is also subject to the ban on intervening
in political campaigns, see 26 C.F.R. s 1.501(c)(4)-1(a)(2)(ii)
(1999), it may form a political action committee ("PAC") that
would be free to participate in political campaigns. Id.
s 1.527-6(f), (g) ("[A]n organization described in section
501(c) that is exempt from taxation under section 501(a) may,
[if it is not a section 501(c)(3) organization], establish and
maintain such a separate segregated fund to receive contribu-
tions and make expenditures in a political campaign.").

At oral argument, counsel for the Church doggedly main-
tained that there can be no "Church at Pierce Creek PAC."
True, it may not itself create a PAC; but as we have pointed
out, the Church can initiate a series of steps that will provide
an alternate means of political communication that will satisfy
the standards set by the concurring justices in Regan.

Should the Church proceed to do so, however, it must under-
stand that the related 501(c)(4) organization must be sepa-
rately incorporated; and it must maintain records that will
demonstrate that tax-deductible contributions to the Church
have not been used to support the political activities conduct-
ed by the 501(c)(4) organization's political action arm. See 26
U.S.C. s 527(f)(3); 26 C.F.R. s 1.527-6(e), (f).

That the Church cannot use its tax-free dollars to fund such
a PAC unquestionably passes constitutional muster. The
Supreme Court has consistently held that, absent invidious
discrimination, "Congress has not violated [an organization's]
First Amendment rights by declining to subsidize its First
Amendment activities." Regan, 461 U.S. at 548; see also
Cammarano v. United States, 358 U.S. 498, 513 (1959) ("Peti-
tioners are not being denied a tax deduction because they
engage in constitutionally protected activities, but are simply
being required to pay for those activities entirely out of their
own pockets, as everyone else engaging in similar activities is
required to do under the provisions of the Internal Revenue
Code.").

Because the Church has failed to demonstrate that its free
exercise rights have been substantially burdened, we do not
reach its arguments that section 501(c)(3) does not serve a
compelling government interest or, if it is indeed compelling,
that revocation of its tax exemption was not the least restric-
tive means of furthering that interest.

Nor does the Church succeed in its claim that the IRS has
violated its First Amendment free speech rights by engaging
in viewpoint discrimination. The restrictions imposed by
section 501(c)(3) are viewpoint neutral; they prohibit inter-
vention in favor of all candidates for public office by all tax-
exempt organizations, regardless of candidate, party, or view-
point. Cf. Regan, 461 U.S. at 550-51 (upholding denial of tax
deduction for lobbying activities, in spite of allowance of such
deduction for veteran's groups).

C. Selective Prosecution (Fifth Amendment)

The Church alleges that the IRS violated the Equal Protec-
tion Clause of the Fifth Amendment by engaging in selective

prosecution. In support of its claim, the Church has submit-
ted several hundred pages of newspaper excerpts reporting
political campaign activities in, or by the pastors of, other
churches that have retained their tax-exempt status. These
include reports of explicit endorsements of Democratic candi-
dates by clergymen as well as many instances in which
favored candidates have been invited to address congrega-
tions from the pulpit. The Church complains that despite
this widespread and widely reported involvement by other
churches in political campaigns, it is the only one to have ever
had its tax-exempt status revoked for engaging in political
activity. It attributes this alleged discrimination to the Ser-
vice's political bias.

To establish selective prosecution, the Church must "prove
that (1) [it] was singled out for prosecution from among
others similarly situated and (2) that [the] prosecution was
improperly motivated, i.e., based on race, religion or another
arbitrary classification." United States v. Washington, 705
F.2d 489, 494 (D.C. Cir. 1983). This burden is a demanding
one because "in the absence of clear evidence to the contrary,
courts presume that [government prosecutors] have properly
discharged their official duties." United States v. Armstrong,
517 U.S. 456, 464 (1996) (internal quotation marks and cita-
tion omitted).

At oral argument, counsel for the IRS conceded that if
some of the church-sponsored political activities cited by the
Church were accurately reported, they were in violation of
section 501(c)(3) and could have resulted in the revocation of
those churches' tax-exempt status. But even if the Service
could have revoked their tax exemptions, the Church has
failed to establish selective prosecution because it has failed
to demonstrate that it was similarly situated to any of those
other churches. None of the reported activities involved the
placement of advertisements in newspapers with nationwide
circulations opposing a candidate and soliciting tax deductible
contributions to defray their cost. As we have stated,

[i]f ... there was no one to whom defendant could be
compared in order to resolve the question of [prosecuto-

 rial] selection, then it follows that defendant has failed to
make out one of the elements of its case. Discrimination
cannot exist in a vacuum; it can be found only in the
unequal treatment of people in similar circumstances.

Attorney Gen. v. Irish People, Inc., 684 F.2d 928, 946 (D.C.
Cir. 1982); see also United States v. Hastings, 126 F.3d 310,
315 (4th Cir. 1997) ("[D]efendants are similarly situated when
their circumstances present no distinguishable legitimate
prosecutorial factors that might justify making different pros-
ecutorial decisions with respect to them.") (internal quotation
marks and citation omitted).

Because the Church has failed to establish that it was
singled out for prosecution from among others who were
similarly situated, we need not examine whether the IRS was
improperly motivated in undertaking this prosecution.

III. Conclusion

For the foregoing reasons, we find that the revocation of
the Church's tax-exempt status neither violated the Constitu-
tion nor exceeded the IRS's statutory authority. The judg-
ment of the district court is therefore

Affirmed.