Court Shuts Down Atheists' Challenge to Religion-Related Code Provisions.
(Parker Tax Publishing June 14, 2014)

A suit by several atheist organizations to stop the IRS from enforcing certain Code provisions was dismissed because they lacked standing in federal court, American Atheists, Inc. v. Shulman, 2014 PTC 250 (E.D. Ky 5/19/14).

American Atheists, Inc. and two other atheist organizations (the Atheists) filed suit in a Kentucky district court, seeking to stop the IRS from enforcing certain provisions of the Internal Revenue Code that the Atheists asserted were discriminatorily enforced. Among the provisions challenged were the following: (1) under Code Sec. 508, churches are not required to file an application for recognition of tax-exempt status; (2) under Code Sec. 6033, churches are not required to file an annual information return; (3) under Code Sec. 107, ministers of the gospel can receive a parsonage allowance tax free; and (4) under Code Secs. 1402, 3121, and 3401, salaries of ministers of the gospel are exempted from income tax withholding and FICA taxes. The Atheists also noted that, under Code Sec. 7611, the IRS may begin a church tax examination only if an appropriate high-level Treasury official reasonably believes, on the basis of facts and circumstances recorded in writing, that the church may not be exempt from tax or may be carrying on an unrelated trade or business or otherwise subject to tax.

According to the Atheists, the IRS's differing treatment of churches and other tax-exempt entities violates the Equal Protection laws of the Fifth Amendment, the First Amendment, and the Religious Test Clause of Article VI of the Constitution. The Atheists claimed that a number of atheist organizations have tried to obtain IRS classification as religious organizations or churches under Code Sec. 501(c)(3) or to otherwise obtain equal treatment, and most of those applications and attempts were rejected by the IRS. The Atheists argued that they suffered from unconstitutional discrimination and coercion arising from their inability to satisfy the IRS test to gain classification to secure the same treatment as religious organizations or churches under Code Sec. 501(c)(3). The Atheists admitted that they have never sought recognition as a religious organization or church under Code Sec. 501(c)(3); rather, they asserted, it would violate their sincerely held believe to seek classification as a religious organization or church from the IRS.

As its form of relief, the Atheists requested the court issue a judgment declaring that all Tax Code provisions treating religious organizations and churches differently than other Code Sec. 501(c)(3) entities are unconstitutional violations of the equal protection of the laws required pursuant to the Due Process Clause of the Fifth Amendment, the Religious Test Clause of Art. VI, and the Establishment Clause of the First Amendment of U.S. Constitution and enjoining the IRS from continuing to allow preferential treatment of religious organizations and churches under Code Sec. 501(c)(3).

The district court held that the Atheists lacked standing to assert their claims. The court noted that to have standing, the Atheists were required to allege personal injury fairly traceable to the IRS's allegedly unlawful conduct and likely to be redressed by the requested relief. The Atheists' complaint, the court observed, conceded that some atheist organizations have obtained classification as a religious organization or church under Code Sec. 501(c)(3). Thus, the court concluded, the Atheists' assertion that they are subjected to unconstitutional discrimination and coercion due to their alleged inability to gain classification as religious organizations or churches under Code Sec. 501(c)(3) was mere speculation.

For a discussion of tax-exempt organizations that are exempt from the annual return requirement, see Parker Tax ¶65,515. (Staff Editor Parker Tax Publishing)

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