Section of Taxation Publications
  VOL. 60
NO. 2

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Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Leslie Garthwaite


The Service treads on delicate ground whenever it inquires into the activities of a church, given the federal government’s historically sensitive relationship with organized religion. This uneasy situation is reflected in the Service’s pending investigation into All Saints Episcopal Church (“ASE”) of Pasadena, California, a large and progressive church. In the weekend before the 2004 elections, ASE hosted a sermon that allegedly endorsed presidential candidate Senator John Kerry over the more conservative sitting President George W. Bush. As politicking from the pulpit is prohibited by the Code, this endorsement would have been a violation of the terms of ASE’s tax exempt status. The Service was supposedly tipped off to this potential violation through the publication of an article about the sermon in a Los Angeles newspaper.

Not all such tips actually become formal investigations at the Service. It is not clear how some tips are pursued and others are not. The fact that a single sermon resulted in the Service’s targeting ASE raises a series of legal questions. Beyond questions under the Establishment Clause’s separation between church and state, such an inquiry raises questions about the clarity and integrity of the entire tax system. This Comment suggests that the Service’s investigation process for churches suspected of violating the political prohibition for tax exempt entities under section 7611 is flawed. It argues that one way to improve the process is through more vigorous use of and modification to section 7217, an omnibus safeguard prohibiting high-level political intrusion by the Executive branch into audits or investigations.

The procedural requirements of section 7611 purport to protect churches against violations of their First Amendment rights as well as protection from arbitrary and capricious harassment. As such, section 7611 is important to maintaining public confidence in the Service and its honor-based reporting. Section 7611 also is the source of important guidance to Service employees who need clarity to guide them in handling allegations of improper activities by tax exempt entities.

The first part of this Comment introduces the Code’s ban on political activities by tax exempt entities, including churches, and the specific controversy surrounding ASE. Part II discusses section 7611’s process for conducting an audit of a church. It examines how the use of anonymous tips opens the Service to allegations of selective enforcement based on improper motives. It argues that so long as anonymity is the rule, highly publicized and potentially politically motivated investigations—like that of ASE—will likely continue to undermine public confidence in the Service. Part III briefly discusses the history behind section 7217 and examines amending it to improve the handling of future investigations like that of ASE. To the extent that all provisions of the Code compliment each other, section 7217 already serves as a warning to agents conducting section 7611 searches. But as it is currently written and applied, section 7217 does not directly address investigations under section 7611. This misses the opportunity to create an explicit prohibition against politically motivated church audits. If section 7217 were amended to apply directly to section 7611 audits, it could act to dismiss public skepticism in the fairness of the overall tax system. This Comment concludes that the Service acts at its peril when the appearance of political influence is present in auditing decisions.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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