Timely Topics

The Internal Revenue Service (IRS) issued on Dec. 17, 2015, a memorandum instructing its examiners not to conduct employment tax audits of churches without getting in touch with a high-ranking Treasury Department official. The change puts an additional burden on the IRS if the agency seeks to examine employment tax compliance. The requirement grounded in 26 U.S.C. §7611 had been applied exclusively to examinations involving churches' tax-exempt statuses and unrelated business income. Section 7611 requires a high-level Treasury official to confirm that he or she reasonably believes on the basis of the facts and circumstances recorded in writing that the church may not be exempt, by reason of its status as a church, or that the church may be carrying on an unrelated trade or business or otherwise engaged in activities subject to taxation. The rule also requires written notice to the church allowing the church an opportunity to participate in a pre-examination conference and restricts the nature of the examination that can be made. The examination may be made only, in the case of church records, to the extent necessary to determine the liability for and the amount of any tax and, in the case of religious activities, to the extent necessary to determine whether an organization claiming to be a church is a church. If the IRS fails to adhere to these procedures, the church may request a stay of the proceeding. The IRS must complete an examination within two years of the examination notice date.

Key Cases

Courts Disagree About Whether Hospitals May Establish a Church Plan

Con: In Kaplan v. St. Peter's Healthcare Sys., No. 15-1172, 2015 WL 9487719 (3d Cir. Dec. 29, 2015), the court affirmed the ruling of the district court denying a religiously affiliated hospital's motion to dismiss a putative class-action claim alleging that the hospital was precluded from establishing a church plan approved by the IRS and entitled to certain exemptions under the Employee Retirement Income Security Act (ERISA). The court ruled that the terms of the ERISA statute are unambiguous in requiring a "church" to establish a church exempt plan. In addition, the court ruled that legislative history supports this interpretation. The court rejected the relevance of any Free Exercise Clause challenge to this interpretation.

Pro: In Medina v. Catholic Health Initiatives, No. 13-cv-01249, 2015 WL 8144956 (D. Colo. Dec. 8, 2015), the court granted a religiously affiliated hospital's motion for summary judgment, finding it exempt from the requirements of ERISA. The court found that the "church" is not merely a "house of worship," but "may be used to denote 'the whole body of Christian believers' or 'any division of this body.'" The court concluded that the defendant is at least a constituent part of the Catholic Church. The defendant has as its mission to "embody the mission of the healing ministry of Jesus in the Church" and is listed in The Official Catholic Directory. In addition, the court ruled the church plan exemption constitutional under the Establishment Clause.

Courts Disagree Whether They May Exercise Jurisdiction Over Alleged Wayward Leaders

Con: In Mt. Pilgrim Baptist Church v. Bishop, No. L-14-1206, 2015 WL 8538439 (Ohio App. Dec. 11, 2015), the court affirmed the trial court's ruling that it lacked subject matter jurisdiction over this dispute between church factions. A board of deacons persuaded the congregation to conditionally adopt a code of regulations according it power to investigate alleged financial abuses by the bishop. They terminated him. The bishop responded by asking the congregation to dissolve the board of deacons and the code of regulations and to adopt an alternative governance document. They did both. In between, deacons on behalf of the church sued the bishop to enforce the code of regulations. Initially, the court asserted jurisdiction, then demurred when the congregation asked the court to dismiss the case. The court of appeals affirmed, finding that, "Although seemingly secular, we find that the issues in this case concerning the adoption of internal governance documents, the resolution of conflicts in competing governance documents, and the enforcement of action taken to remove a pastor, fall within the ambit of the ecclesiastical abstention doctrine as they essentially relate to who should preach from the pulpit."

Pro: In Family Federation for World Peace v. Hyun Jin Moon, No. 14-cv-94, 2015 WL 9433515 (D.C. App. Dec. 24, 2015), the court ruled that the trial court prematurely concluded that it could not exercise jurisdiction over claims that the Rev. Preston Moon usurped the Unification Church International (UCI) and its corporate assets, wrested control of UCI from the Unification Church and engaged in self-dealing transactions. Plaintiffs included ousted directors, an entity that asserted it is the successor in interest to Moon in his role as settlor of the trust and nominations of directors, major beneficiaries and a major donor who allegedly made restricted gifts to the charitable corporation. The court ruled that they have standing as persons with special interests in the charitable trust. The court acknowledged certain hazards of proceeding, but concluded that under a "neutral principles of law" approach, it may be possible for the plaintiffs to establish their case without depending on interpretation of religious documents or orthodoxy. In particular, "[d]etermining who the intended beneficiaries of a trust were and whether corporate assets were used in accordance with corporate laws are normally governed by neutral principles of law." Likewise, "the allegation that corporate funds were used here to benefit one of the directors personally would appear readily subject to court review."

Release-Time Bus Drivers Exempt from Special Endorsement

In CBM Ministries of S. Cent. Penn., Inc. v. Penn. Dep't of Transp. and Penn. State Police, No. 1:15-cv-2147, 2015 WL 7755666 (M.D. Penn. Dec. 2, 2015), the court granted an injunction to the plaintiff preventing the defendants from enforcing state regulations governing school bus safety against CBM's vehicles used to transport children to release-time education. The defendants cited CBM for not: 1) identifying CBM as the owner of the bus on externally visible decals, 2) failing to paint the bus "National School Bus Yellow" and 3) failing to mark the vehicle with the words "school bus." But during the hearing, the defendants acknowledged that because the vehicle was a multifunction activity bus, CBM was not required to comply with those requirements, but disagreed over whether drivers must obtain "S endorsements." The court ruled that the plaintiff is likely to succeed on the merits because the defendants' jurisdiction is limited to vehicles that are owned by or under contract with any school district or parochial or private school. The court also ruled that the plaintiff met the other requirements for an injunction, including that it would suffer irreparable harm if the S endorsement was required because of the imposition upon the plaintiff and the volunteers upon whom it relies to operate the program.

Individuals State RFRA Claim Against Contraceptive Coverage Mandate

In Wieland v. U.S. Dep't of Health and Human Servs., No. 4:13-cv-01577, 2016 WL 98170 (E.D. Mo. Jan. 8, 2016), the court denied the government's motion to dismiss the plaintiffs' claim under the Religious Freedom Restoration Act (RFRA) that the contraceptive coverage mandate contained within the Affordable Care Act (ACA) forces them to: 1) violate their religious opposition to contraceptives by paying to make such services available to their daughters, 2) forfeit the benefit of employer-sponsored health insurance for themselves and their daughters and purchase more expensive coverage, or 3) forego health insurance for themselves and their daughters. Plaintiff Paul Wieland is a Missouri General Assembly representative eligible to receive health insurance coverage for his family. Until 2013, he exercised his right under state law to opt out of coverage for contraceptives, but the opt out was discontinued when the ACA preempted state law. Defendants argued that the mandate applies to insurers, thus, plaintiffs were not substantially burdened by it. The court rejected this argument as a thinly veiled attack on the plaintiffs' beliefs. The court expressed no opinion as to whether the government could ultimately prove that the burden on the plaintiffs' religious beliefs satisfies strict scrutiny. The court did dismiss all of the plaintiffs' constitutional challenges to the mandate under the Free Exercise, Due Process and Free Speech claims, as well as his Administrative Procedure Act (APA) claim.

Secular Nonprofit Fails to State Claim Against the Mandate

In Real Alternatives, Inc. v. Burwell, No. 1:15-cv-0105, 2015 WL 8481987 (M.D. Pa. Dec. 10, 2015), the court granted the defendants' motion for summary judgment against a nonreligious, nonprofit pregnancy resource center and its officers. The center's insurance plan excluding contraceptive coverage was canceled in the wake of the ACA. Defendants argued that the plaintiffs lack standing to bring the case because they had an expectation, but not proof that coverage would be available if the plaintiff received a court order permitting it to obtain such coverage. The court ruled the plaintiffs have standing to assert challenges other than RFRA anyway because their prior provider was willing to provide this type of insurance until the ACA was adopted, and other insurance providers in Pennsylvania offer this type of insurance. Plaintiffs argued that they are treated differently than religious organizations, which are exempt from the contraceptive coverage mandate, and that the different treatment violates Equal Protection. The court disagreed on the grounds that the government has a rational basis in advancing religious liberty for the different treatment of religious and nonreligious organizations. The court rejected the plaintiffs' argument that certain moral philosophies should be treated on par with religion for the additional reason that this would open a watershed of objections. The court also rejected challenges based on 1) the APA for similar reasons, 2) the Weldon Amendment and ACA because federal law has not equated contraceptives with abortion and 3) the Church Amendment for lack of standing as the amendment relates to grant funding for family planning projects. The court doubted that a nonreligious nonprofit had standing to assert RFRA, but ruled that even if it did, the mandate does not substantially burden its beliefs and that any burden satisfies strict scrutiny.

Religious Institutions in the News

Alabama's Chief Justice has forbidden probate judges to issue gay marriage licenses.

Wheaton College indicated its intent to terminate a professor over theological differences, but the school's faculty council has unanimously recommended that termination proceedings be dropped.