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Commentary

Don't Play Poker with All Saints Church

All Saints Church in Pasadena, California is in the headlines again in its dispute with the IRS on whether it improperly intervened in a political campaign in opposition to a candidate for public office. The IRS concluded the All Saints Church improperly intervened in the election, but the IRS determined that it would not proceed further with the examination of All Saints. In short, All Saints called the IRS's hand, and the IRS folded. Here is what happened.

A retired pastor of All Saints Church gave a sermon about what Jesus would say to Bush and Kerry. The Pastor criticized the war in Iraq, Bush's policies dealing with poverty, and Bush's position on abortion or a woman's right to choose. The IRS concluded that this was implicit intervention and that All Saints had gone over the line.

In most cases such as this, Churches say they are sorry and that they won't do it again, and the IRS is satisfied. But in this case, All Saints Church hired one of the best lawyers in the field, Mark Owens with Caplin and Drysdale, and decided to take on the issue. All Saints argued both that the provision prohibiting churches from intervening in elections was unconstitutional and that, even if it was constitutional, All Saints had not violated the provision.

Then the case got interesting. All Saints indicated that it would not respond to the IRS's summons in this case (copy available on All Saints web site). The decision not to comply with the summons is a means of contesting the case because, as I explained here, the IRS, through the Justice Department, must then go to court to seek enforcement of the summons.

It appears that the IRS and/or the Justice Department decided not to try to enforce the summons and instead issued a letter to the taxpayer saying that the taxpayer violated the provision but that the IRS was not going to take further action. A big win for All Saints, but I can clearly understand why All Saints is not happy. It has been warned that the IRS views its activities as a violation of (c)(3) status and not to do it again, when All Saints has said that it would do it again and that it does not think that its actions violated the statute. Since there is now no controversy, All Saints cannot contest the IRS's determination in court.

Why would the IRS and the Department of Justice do this? If they believe that All Saints violated the provision, why not take it to court? Probably because they think that All Saints violated the provision, but are worried that they would lose the case if it went to court. The All Saints case is a very close call, and there are not many published cases on this topic. I am sure that the Department of Justice would prefer to choose its test cases more carefully. So this is likely a "prosecutorial discretion" decision by Justice and nothing more.

All Saints, however, did not stop there. Like a good poker player who has just won a big hand, All Saints is pushing back. Marcus Owens, All Saints Church's lawyer, claims that e-mails he received as part of a Freedom of Information Act request show that there may have been improper contacts between the Department of Justice and the IRS regarding the case. All Saints claims that it "is very concerned that the close coordination undertaken by the IRS allowed partisan political concerns to direct the course of the All Saints examination."

It is impossible to rule anything out, but the evidence that All Saints points to does not even come close to making its case. Because All Saints has made all the documents public, we have the ability to really see the nuts and bolts of the case.

So what do these e-mails show? They show that the IRS contacted the Justice Department (not the other way around) to discuss the All Saints case. It appears that the IRS wanted to make sure that the Justice Department was on board with the case before the IRS issued a summons. The e-mails do not indicate any intervention on the part of the Justice Department regarding whether to audit All Saints. Instead they show proper and I think advisable coordination between the Tax Division at the Department of Justice and the IRS. Although the IRS is in charge of auditing taxpayers, the Justice Department is the IRS's lawyer in Federal court (with the exception of the Tax Court). Thus it was the Justice Department, not the IRS, that would have to bring the enforcement action. It makes perfect sense to me that the IRS would consult with Justice before issuing a summons that the Justice Department would have to enforce. If Justice did not think it was advisable to bring a case to enforce the summons, then the IRS might decide not to issue it. To me, this is advisable communication between the IRS and its lawyers.

What would be unadvisable and, in my view, improper, is if political people at Justice or the IRS were trying to influence whether the IRS proceeded with the case. But the e-mails indicate no such communication. The content of the e-mails indicate that Justice was troubled with the substance of the case and had questions for the IRS. It appears from the e-mails that Justice wanted answers to some of All Saints Church's complaints and also wanted to know how the IRS distinguished this case from some contrary rulings. The substance of the e-mails shows collaboration not intervention. The e-mails posted on All Saints' web site reference discussions with two Justice Department employees. One is Claire Fallon, the Deputy Assistant Attorney General in 2006. Ms. Fallon had an over 30 year career at Justice as a non-political appointee. She started as a line attorney and was promoted over the years all the way to Deputy Assistant Attorney General of the Tax Division. She was appointed to that position by President Clinton.

The second name mentioned in the e-mails is David Hubbert. In 2006, he was the chief of one of the tax division’s civil trial sections. He is also a long-time career employee with over 20 years of experience. He is known in the Tax Division as one of its experts in the tax-exempt area.

Fallon and Hubbert are exactly the types of people that I would want the IRS to be consulting in a case like this. They are not political appointees and have worked for both Republican and Democratic administrations. They are the exact type of people we want around to protect against political manipulation of tax administration. In All Saints Church's world, the IRS and the Justice Department could not consult on a case until the case was formally transferred to the Justice Department by the IRS. In my view, such a policy would be a big mistake. A client needs to be able to talk with its attorney, and communication between the IRS and the Department of Justice is essential for coherent and efficient tax enforcement.

While I think All Saints played its hand almost flawlessly in this controversy, I think it has overplayed its hand with regard to the alleged political intervention by the Justice Department. There is simply no evidence that the Justice Department attempted to influence this case for political reasons. But thanks to All Saints Church's decision to make all documents public, you can decide for yourself.

My disclosure: I worked in the Appellate Section of the Tax Division at the Department of Justice from 1997 - 2001. I left the Department of Justice in 2001 and was never involved in any proceeding regarding All Saints Church.

Donald Tobin is an expert on the intersection of tax and campaign finance laws. He served on Capitol Hill and in the U.S. Department of Justice before arriving at the Moritz College of Law in 2001. His two articles on the relationship of tax and campaign finance laws concerning the regulation of political groups having tax-exempt status under section 527 of the Internal Revenue Code, his work on charities and their involvement in political campaigns, as well as his co-authored work with EL@M Director Edward B. Foley, have been widely recognized as leading publications on this topic. View Complete Profile

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