The First Amendment provides that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” U.S. Const., amend. I.
Churches qualify for an exemption from taxation under section 501(c)(3) of the Internal Revenue Code, as do a variety of other charitable organizations. While they may be exempt from tax, charities generally must file a return, known as a Form 990. There are exceptions, however. Small organizations that generally receive less than $5,000 enjoy an exemption, unless they are a private foundation. I.R.C. § 6033(a)(3)(A)(ii). The other exemptions are for religious groups. First, the Code has an exemption from the return requirement for “churches, their integrated auxiliaries, and conventions or associations of churches.” I.R.C. § 6033(a)(3)(A)(i). For good measure, it also exempts “the exclusively religious activities of any religious order.” I.R.C. § 6033(a)(3)(A)(iii).
Does the Code violate the First Amendment by providing churches with a special exemption from the requirement of filing a Form 990? One organization sought to show that it did, but its effort failed for procedural reasons. Nonbelief Relief, Inc. v. Rettig, No. 18-2347 (TJK), 2020 U.S. Dist. LEXIS 4289 (D.D.C. Jan. 10, 2020).
Nonbelief Relief, Inc. was formed in 2015 “to improve conditions in this world, including by seeking to help remediate conditions of human suffering and injustice on a global scale, whether the result of natural disasters, human actions or adherence to religious dogma.” Id. at *2 (quoting complaint). Nonbelief Relief seeks to aid atheists “and other nonreligious individuals,” and it makes thousands of dollars in donations a year to various charities. Id. at *2-*3.
The IRS recognized Nonbelief Relief as exempt under section 501(c)(3) of the Code, but the group refused to file a Form 990 because of the exemption for churches and religious groups. Id. at *3. If an organization fails to comply with the filing requirement for three consecutive years, its exempt status is revoked. I.R.C. § 6033(j)(1).
When the IRS revoked its tax-exempt status, Nonbelief Relief filed an action in district court, asserting that the exemption of churches from the filing requirement and the revocation of its tax-exempt status violated the Establishment Clause of the First Amendment. It also asserted that the revocation of its exemption violated the Due Process Clause of the Fifth Amendment. The complaint sought both declaratory and injunctive relief; Nonbelief Relief requested a declaration that the exemption of churches and the revocation of its exemption were unconstitutional, an injunction barring the IRS from exempting churches and religious orders from the filing requirement, and an order reinstating its tax-exempt status. 2020 U.S. Dist. LEXIS 4289 at *4.
Then a church got involved. Specifically, the New Macedonia Baptist Church sought leave to intervene; the district court granted that motion, holding that its “interests might diverge from the Commissioner’s because of its intention to argue not simply that the IRS’s reporting exception is lawful, but that it is constitutionally required under the First Amendment.” Id. at *4-*5 (cleaned up) (emphasis in the original).
While the competing positions could fuel an interesting debate, the case ran afoul of some basic procedural constraints. First, the Anti-Injunction Act generally bars any “suit for the purpose of restraining the assessment or collection of any tax.” I.R.C. § 7421(a). Second, the Declaratory Judgment Act generally bars courts from entering a declaratory judgment “with respect to Federal taxes.” 28 U.S.C. § 2201(a). Accordingly, when the government filed a motion to dismiss on the basis of these two statutes, Nonbelief Relief sought to amend its complaint to eliminate the challenges to its loss of tax-exempt status. Instead, the court dismissed those claims on the merits. 2020 U.S. Dist. LEXIS 4289 at *8-*10.
Nonbelief Relief’s attack on the exemption itself fared no better. Both the New Macedonia Baptist Church and the IRS argued that Nonbelief Relief lacked standing to pursue this challenge, and the court agreed, focusing on the “redressability” requirement for Article III standing. Id. at *10-*12. As the district court explained, “[r]edressability examines whether the relief sought, assuming that the court chooses to grant it, will likely alleviate the particularized injury alleged by the plaintiff.” Id. at *11 (citations omitted).
Applying this standard, the court concluded that Nonbelief Relief lacked standing because it was no longer exempt and did not allege that it intended to reapply for exempt status:
NonBelief Relief is not currently suffering any injury caused by the Commissioner’s alleged preferential treatment of churches and religious organizations; it is being treated the same as all other non-501(c)(3) organizations. Because it is not suffering from an ongoing or imminent injury, it does not have standing to obtain the declaratory and injunctive relief at issue.
Id. at *12.
The court emphasized that its disposition did not leave Nonbelief Relief without a remedy, observing that it could pursue a refund action or could await a deficiency assessment. Id. at *14.
The court’s analysis here is correct: The Anti-Injunction Act and the Declaratory Judgment Act were plainly applicable. While the Declaratory Judgment Act does authorize certain actions relating to tax-exempt status, they are limited to actions under section 7428 of the Code relating to either initial or continuing qualification under the provisions of section 501(c)(3) and similar disputes. See I.R.C. § 7428(a). As the court properly noted, section 7428 did not apply because the revocation of Nonbelief Relief’s exempt status was automatic. 2020 U.S. Dist. LEXIS 4289 at *9 n.4; see also I.R.C. § 7428(b)(4).