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Thursday, December 15, 2005

All Saints Church's Attorney Claims IRS Violated § 7611 in Investigation into Whether Pastor's Sermon Constituted Illegal Political Campaign Intervention

Tax_analysts_212 In a four-page letter to the IRS, Marcus S. Owens (Caplin & Drysdale), the attorney representing All Saints Church (Pasadena, CA), the IRS did not follow the § 7611 procedural safeguards when it launched an inquiry into whether an anti-war sermon delivered by Rev. George Regas the Sunday before the 2004 Presidential election violated the § 501(c)(3) ban on political campaign intervention:

Section 7611(a)(2) requires that, before initiating a church tax inquiry, an appropriate high-level Treasury Department official must reasonably believe (on the basis of facts and circumstances recorded in writing) that a church may not be tax-exempt under section 501(a). Section 7611(h)(7) defines "appropriate high-level Treasury official" as "the Secretary of the Treasury or any delegate of the Secretary whose rank is no lower than that of a principal Internal Revenue officer for an internal revenue region." This requirement is a key component of the set of the statutory safeguards that Congress enacted to ensure that churches are protected from overly intrusive IRS review.

Despite the clear language of the Code and regulations referencing the need for very high-level decision making, in a recently released internal memorandum, dated March 31, 2005, the Director of EO Examinations made an explicit delegation of the "reasonable belief" decision even lower within the IRS as part of procedures for the IRS' Political Intervention Project. In an attachment to the memorandum entitled, "Political Intervention Procedures," a directive is set out that "the EO Referral Committee will make the determination. . . whether a reasonable belief exists under Section 7611. " The EO Referral Committee is comprised of first-line technical employees in the EO Division including senior examiners, classification specialists, and group managers.1 With all due respect to these employees, their positions within the agency are not those of a "high-level Treasury official," and thus the delegation of authority from the Director of EO Examinations down to the EO Referral Committee would seem to further contradict the Congressional intent of section 7611.

These procedural flaws are of great importance in the All Saints case as we do not believe the IRS has articulated a sufficient explanation of the basis for its "reasonable belief" that the Church engaged in political campaign intervention.

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