Proposed Group Exemption Procedures Are Impolitic, Religious Orgs Say

August 14, 2020

Internal Revenue Service
CC:PA:LPD:PR (Notice 2020-36), Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

SUBJECT: IRS Notice 2020-36 Public Comments

Dear Sirs and Madams:

We represent the interests of the Evangelical Lutheran Church in America, the General Synod of the United Church of Christ, General Council on Finance and Administration of The United Methodist Church, the Protestant Episcopal Church in the United States of America (also known as The Episcopal Church), and the General Synod of the Reformed Church in America in the above referenced matter. Each is a central administrator of a group ruling tax exemption from the Internal Revenue Service that recognizes each of them and entities that are religiously affiliated with them in a faith community as public charities. Filing separate letters of comment are the Presbyterian Church (U.S.A.), the Executive Committee of the Southern Baptist Convention (and some state or regional conventions), and the United States Conference of Catholic Bishops. Each has a different self-understanding of the relationship between the religious denominations represented here and their affiliated entities that express that faith in the larger community. None of them exercises the sort of uniform control or supervision over their faith communities envisioned in the Proposed Revenue Procedure outlined in Notice 2020-36. All share the conviction that the Proposed Revenue Procedure is impractical, impolitic and impermissibly burdensome to religious organizations and the protected rights of religious communities.

In response to the proposed changes to the group exemption letter program in Notice 2020-36, we respectfully submit these comments on behalf of these national religious denominations representing some of the largest group exemption holders in the country. As central organizations, they facilitate the tax-exempt recognition of the religiously affiliated entities within their faith communities throughout the country. In total, they cover nearly 100,000 “subordinate organizations” which carry out the work of their faith in local churches, charities, schools, camps, conference centers, and other entities that express that faith through worship, education, action and service. These denominations are not identical to each other in theology, polity or structure. That they hold a “group ruling” may, for some of them, even be at odds with their own theology and how adherents and agencies see their relationships within and to the denomination. Their willingness to participate in the group ruling program has depended from the outset upon an understanding that the language employed, “subordinate”, “control”, and “supervision”, connoted merely a nomenclature of convenience for the Service and had no bearing on the internal governance of the churches themselves. But primarily these entities hold a group ruling for their faith community as an accommodation both to the Internal Revenue Service (“IRS” or “Service”) which is spared the administration of tens of thousands of church groups, and to the faith communities themselves, whose local churches and agencies lack the resources and sophistication to parse the nuances of the Internal Revenue Code, but yet are entitled by statute to exemption.

The signing denominations display a diverse range of polities and structures that reflect each of their theologies about how their religion's faith is to be carried out in the world. The Proposed Revenue Procedure, if adopted, would wreak havoc in the broader religious community in that it demands a sense of uniformity and redefines “supervision or control” in ways that are theologically anathema to them, and thus both unworkable in practice and unconstitutional in application. It would impress on them a rigid and controlling hierarchical view of polity and structure which they reject on theological grounds, and thus violate rights protected under the Religious Freedom Restoration Act (“RFRA”) and the First Amendment.

This letter asks that if the IRS adopts a revamped procedure for the administration of the group ruling exemption process, it make an accommodation to allow the faith communities to continue their status quo. Otherwise, the group ruling process would constitute such a substantial burden on these communities that litigation would result and, if unsuccessful, they would abandon the group ruling process going forward. We do not believe the IRS desires a set of modifications that would burden the expression of religious beliefs in ways that would range from making group rulings overwhelmingly unmanageable to obviously unconstitutional.

I. Background

The burden created by these requirements is substantial. And it directly contradicts the express concessions made when the group exemption letter program was begun by the IRS. No one disputes the considerable burden that would result if the Service was required to separately review the hundreds of thousands of exemption applications associated with group rulings issued to central organizations over the years. In establishing the group exemption letter program, the IRS instead opted to permit a central organization to assume responsibility for the tax-exemption review process within the parameters of the group ruling letter issued to it. In describing this process, the Service's own internal employee training documents state, “[I]t is well to remember that the entire group exemption program is an administrative procedure, devised by the Service, to ease the burden of individually processing as many as a million exemption applications, returns, and reports by processing some 3,000 group applications.”¹ This is directly reflected in the history of the group exemption process for churches.

One of the earliest group ruling determination letters granted to what was then known as the National Catholic Welfare Conference (today the United States Conference of Catholic Bishops) identifies “subordinates” of the “Roman Catholic Church in the United States” and not the exemption holder NCWC.² Further accommodation reflected the extension of the exemption process not just to those Catholic agencies “controlled by” but also “operated . . . in connection with” the Roman Catholic Church — as identified by submission of the Official Catholic Directory, accompanied by statements that “to the best of its knowledge” each organization listed was a nonprofit, did not inure net earnings to individuals, and did not lobby as a substantial activity.³ Correspondence surrounding the issuance of this determination letter indicates that the negotiation process was steered by the IRS to eliminate the burden of examining the enormous number of applications from Catholic agencies by consolidating them under a single group ruling based on their religious affiliation,⁴ and not control or supervision. A June 2007 version of IRS Publication 4573 explains that this administrative convenience continues to assist the IRS, “which need not process separate applications” and does not issue separate determination letters to the subordinate organizations, but instead refers inquiries to the central organization to verify to donors that a subordinate is on its official subordinate list.⁵

In line with their unique histories and polities, each denomination maintains and manages its group ruling in a way that is appropriate to its religious expression within the boundaries of the existing program under Revenue Procedure 80-27:

Evangelical Lutheran Church in America (ELCA)

The ELCA is a connectional polity that has characteristics of hierarchal and congregational polities. The ELCA does not govern or supervise each of its affiliated agencies in the United States. The ELCA's group ruling, held since its formation in 1988, now covers nearly 10,000 congregations, synods, colleges and universities, seminaries, social ministry organizations, camps, and conference centers along with their supporting organizations. Although the ELCA maintains an online directory of those organizations affiliated with it, those organizations are not required to be included in the group ruling but instead choose whether to participate. This approach expresses the ELCA's connectional polity. Self-governing congregations share a confession of faith and are encouraged to adopt common constitutional provisions regarding the nature of the church, its purpose, congregational powers, and on matters such as membership, property, and ministers, but the local governance structure is left to each congregation. Control by the ELCA over each of these ministries is inconsistent with the doctrine of the ELCA.

The Episcopal Church

The structure of The Episcopal Church is hierarchical, comprised of three tiers within the denomination that range from the national church to the regional dioceses then to the local congregations, numbering approximately 7,000 parishes, missions, and other congregations. The majority of these dioceses and congregations choose to be included in the denominational group ruling that dates back to the 1940s, along with many Episcopal schools, retirement homes, soup kitchens, and other charities. Dioceses and congregations are, by definition, subject to the denomination's governing documents, its Constitution and Canons; and non-ecclesiastical affiliated entities are required to expressly acknowledge the authority of these instruments. Although requiring uniformity in a number of areas, the Constitution and Canons also permit regional and local autonomy on other subjects. This allowance for local variation, along with differences in state law governing corporations and unincorporated associations, has produced a diversity of governing structures and instruments at the diocesan and local levels, all permissible within the Church's polity as long as they are not in conflict with the Church's Constitution and Canons.

Reformed Church in America (RCA)

The RCA has a presbyterian polity, in which local churches are divided into regional synods and classes, all of which fall under the General Synod as the parent organization for IRS purposes. Aside from serving as the sole member of two corporate agencies that administer benefits and lending to the denominational organizations, the General Synod exercises no governance or supervision over RCA congregations. The RCA group ruling includes nearly 900 subordinate organizations. The RCA maintains a group exemption roster that is separate from its Directory of denominational organizations. Organizations submit a written request to participate along with copies of their governing documents (which demonstrate formation and are not a denominational requirement). Congregations and other participating agencies have autonomy over their choice of governance except as it relates to the limited requirements of the religious provisions of the RCA Constitution in the Book of Church Order.

United Church of Christ (UCC)

The group ruling exemption letter for the United Church of Christ was issued in 1964 and currently includes approximately 5,000 charitable and religious organizations. These organizations are recorded in the UCC Yearbook, which includes members of the group ruling as well as other organizations affiliated with the denomination and a compilation of annual church demographic and operational information provided on a voluntary basis. Pursuant to its governance, Associations within the UCC are solely responsible for developing criteria by which a local church gains standing within the denomination. Once an Association grants standing in the denomination, the local church is automatically included in the UCC group ruling as a matter of convenience. However, as the churches are completely autonomous and self-governing, a local church could also choose to leave the group ruling of its own accord. This autonomy is more than a mere administrative option, but rooted in the sincere religious belief that congregational self-governance is the nearest approximation of the isolated and self-governing Christian churches established in the first century.

The United Methodist Church (UMC)

The group ruling determination letter granted to The United Methodist Church's Council on Finance and Administration dates back to 1974. The structuring of the group ruling under the Council came about because the connectional polity of The United Methodist Church dictates that it remain a nonjural entity under its Book of Discipline. As such, The United Methodist Church as a denomination possesses no legal capacities, cannot hold title to property, and has no officers, directors, agents or employees. The denomination's group ruling, administered by its agency now known as the General Council on Finance and Administration, now includes more than 30,000 organizations affiliated with the denomination. These include local churches, conferences, commissions, committees, and church agencies. Participation in the group ruling is discretionary, and some United Methodist organizations apply directly for tax exemption. A list of subordinate organizations is not published, but individual subordinates are given individual letters establishing their status under the group exemption.

Together these denominational agencies share an interest in the Proposed Revenue Procedure based on their historic participation in the group ruling program. They represent decades of experience under the existing system, adapting the process to accommodate their own polities and beliefs. Together there are just under 100,000 “subordinate” entities,⁶ with new “subordinates” being formed and eligible to participate under their denominational group rulings on a regular basis. Under Notice 2020-36, the changes suggested threaten their ability to continue participating in the group exemption process, immensely increase the complexity of compliance where subordinates are closely aligned by their shared faith, and present a significant risk of forcing them to choose between their religious beliefs as expressed in their organizational structure and compliance with a tax administration program.

While there are many aspects of the Proposed Revenue Procedure that must be addressed, we call attention specifically to the way the requirements for uniform governing instruments and the newly-defined control and supervision requirements will contribute to these problems unless additional modification or clarification is provided concerning their application to religious organizations.

II. The Uniform Governing Instrument Requirement is Unworkable and Impractical.

The Proposed Revenue Procedure requires that subordinate organizations participating in a group exemption ruling must adopt a uniform governing instrument. Where a group exemption letter includes subordinate organizations with different purposes under Section 501(c)(3), there must be a uniform governing instrument for each category of subordinate organizations. However, there is no clarification of what is required to meet the criteria of a uniform governing instrument or of how finely or broadly categories of organizations are to be defined. This presents significant obstacles, both from a practical and polity standpoint.

Considering the decades during which these religious organizations added first thousands, and then tens of thousands, of subordinate organizations to their group rulings, the impact of this requirement going forward is enormous. Even if it were possible to comply, it would represent an overwhelming amount of work to require subordinates to align their charitable missions within standard categories and undertake the governance process of adopting or amending documents to conform to a uniform standard that has not been set forth with any specificity.

Further, the very act of requiring uniform governing instruments is theologically untenable in these denominations that have chosen respective ecclesiastical structures and relationships that best express their beliefs about where authority resides and how it is exercised, and how and by whom ultimate decisions about key theological issues are made. The difficulty of straddling both civil and theological requirements for such structures is both well-documented and well-litigated.⁷ However, the current proposal would introduce new and unprecedented levels of interference with religious denominations' ability to express their own polity by attempting to dictate requirements on the corporate structures of religious denominations based solely on their source of documented tax-exempt status.

Among these commenters, it is notable that, for disparate reasons, churches whether organized hierarchically or congregationally (or connectionally) only have authority to proscribe documents based on their profession of a common creed, shared form of worship, or united theological and pastoral purposes. On the hierarchical side of the spectrum, The Episcopal Church regards each “subordinate” part — its dioceses and local congregations — as local manifestations of a unitary whole that requires compliance with the Church's central governance but also permits each “affiliate” the freedom to adopt civil governing documents according to its operational needs through unique documents. Variations among organizations reflect not only each entity's state law requirements, but the individual entity choices concerning how best to operate in the faith and public communities.

The Reformed Church in America utilizes a presbyterian polity in which specific entities are autonomous except for a few limited requirements dictated by its Book of Church Order. Likewise, in the ELCA, congregations and denominational organizations have no mandated constitutional or governing provisions beyond a handful that express a common theology and ecclesiology. This is intentional. The denomination reflects theological and historical prohibitions on mandating governing instruments rooted in the Reformation and its rejection of a fixed decisional hierarchy. As such, a top-down approach to governance would be antithetical to Lutheran belief. Church congregations that predate the formation of the ELCA in 1988 can choose to retain their existing documents. Some of these ELCA and RCA congregations also span more than one denomination. The ELCA is in full communion with the RCA, Episcopal, UCC, and UMC denominations (among others), and some congregations are therefore affiliated with more than one denomination. Mandated uniformity thus can have adverse consequences across denominations as well as within them.

In the polity expressed by the UCC and UMC, the challenges to creating uniform governing documents are even greater. For example, the UCC churches are legally and ecclesiastically autonomous because of the concerted choice to mirror the self-governing and geographically isolated first-century Christian churches. Thus, their structures reflect a direct expression of religious belief and practice. Similarly, UMC's Book of Discipline and its more than 200-year religious history reflect a practice of permitting denominational churches freedom to determine for themselves the best way to carry out their missions in the local communities, which includes the structure of governing documents related to the organization's mission. This is similar to the approach under the Reformed Church's Book of Church Order, which requires its denominational entities to be permitted autonomy in matters with the exception of some limited governance requirements.

Even setting aside the theological implications of requiring a uniform governing instrument, the practical considerations make the implementation of this requirement absurd without additional clarification. Holders of group rulings most commonly include those organizations that are sufficiently large to have a diversity of subordinate organizations across the country. This fact means that a uniform governing instrument would have to be acceptable to each state's criteria for tax-exempt associations or corporations.

Additionally, without clear guidance as to categories of similar organizations that must share a uniform governing document, it is not possible to determine the level at which they must share governance in their documents. By way of example, schools within a group ruling may be a category unto themselves, but even within that category there are substantial operational differences that mandate different governance structures. Practical considerations inform the appropriate governance whether the school provides daycare and preschool services, educates elementary and high school students, or operates as a college or university. And within each of those classifications, the entity may be run by a single local church with only simple governance or require more complex structures where it is operated by a coalition of local churches or religious agencies. Independent religious schools would be affiliated with their respective denominations but could require more robust governing documents to reflect their status with the church. The issue persists even at the denominational level within churches. For example, the UMC, like many denominations, has established various kinds of core denominational entities, each of which carry out the work of the church in distinct and specific ways. Thus, these entities have unique structures dictated by the UMC Book of Discipline, based on their respective functions and purposes within the church — e.g. “local churches” and “districts” which are the most localized entities within the denomination, have roles and structures which are intentionally different, as the districts coordinate and support the ongoing and direct missions and ministries of local churches and their pastors. While these core entities may be classified as a “church” for tax-exemption purposes, for both practical and theological reasons, their specialized functions could not be carried out if subject to a uniform governance structure.

We also note that a broader harm exists, which is that the subordinate organizations would be coerced to adopt uniform governing instruments to match the central standard for inclusion in the group ruling despite being at odds with the optimal, and actual, operations of the organization. After decades of recognizing that church organizations express their religious beliefs about structure and governance as closely as possible through the available civil structures, the tax-exemption process would force them into wholly incompatible structures, both for purposes of uniform governing instruments and, as discussed below, for control and supervision. For these reasons, the Proposed Revenue Procedure must address both the polity and practical considerations of requiring a uniform governing instrument.

III. The Control or General Supervision Requirements Directly Contradict Church Polity Choices and Are Unworkable in Fact.

The Proposed Revenue Procedure attempts to define criteria by which central organizations establish general supervision and control over subordinate organizations. This is in addition to establishing affiliation, which the denominational relationship generally addresses for the organizations joining these comments. However, Notice 2020-36 provides that either control or general supervision must be shown by the central organization. These terms are newly defined to require either:

or

For central organizations with a substantial number of subordinates, anywhere from 5,000 to more than 30,000 in the case of the church denominations represented here, the option to provide control is unattainable. For theological reasons, except for perhaps a handful of denominational entities closely tied to the group ruling holder, the central organizations cannot select the boards of affiliates. As a practical matter, it would not be possible, or even good governance practice, to have significant overlap between the central and subordinate organizations' governance or for the central organization to be adequately informed to appoint governing bodies in each of the subordinate organizations. Based on the sheer volume of affiliated organizations, meeting this requirement would either devolve to a rubber-stamp process of approving governance under significant administrative burden or require an active process that unconstitutionally interfered where a church had chosen a polity of self-governing and autonomous local churches and religious organizations. “Control” being contrary to the governing theology is not a tenable choice.

Likewise, the newly-defined requirement of general supervision flies in the face of both three-quarters of a century of history under the group ruling process and the religious structures chosen by church denominations. Notably, although the term “subordinate” describes the organizations attached to a central group ruling, the IRS has never required direct control or supervision by the central organization, or even a parent-subsidiary corporate relationship. As noted above, the Service has long considered the terms of general supervision or control within the broader context of the relationship between subordinates and the group ruling holder. Nor, despite frequent litigation attempts, does the tax-exempt relationship between central and subordinate organizations displace corporate or liability law for purposes other than tax-exemption.

As it has been maintained to date, the respective group rulings rely on subordinate organizations providing information related to their tax-exempt status to the central organization, which then has the responsibility to “see that the information is complete and certify to the IRS that each subordinate is qualified” to be included under the terms of the ruling.⁸ Notably, under the current absence of a definition of “general supervision and control”, the Service explicitly directs examiners to the 1987 Exempt Organizations Continuing Professional Education (EO CPE) text for procedures that “expand[ ] upon” its directives. Notably though, the IRS does not provide in the EO CPE text any requirement that central organizations have either constructive or explicit supervision or control over the subordinate's activities. It does not require a qualifying tax relationship, such as a subsidiary or controlled corporation, nor does it require that if a subordinate is incorporated the governance documents include any explicit relationship to or control by the central organization. Of the specific information a central organization must currently provide to the IRS, only two items go to establishing even a low level of supervision or control relative to what is now proposed.⁹

The existing Revenue Procedure and guidance has afforded church denominations access to the group ruling process in a way that does not intrude on ecclesiastical determinations while alleviating the IRS burden of reviewing hundreds of thousands of additional tax-exemption applications. Under the proposed new definitions, those ecclesial relationships, particularly in congregational denominations, would be clearly at odds with the requirements for compliance with the group exemption program. To date, “general supervision” has been viewed by church group ruling holders primarily through the lens of the central organization's expression of its religious beliefs, extending tax-exemption inclusion to those entities that carry out the actions of its faith. That “central-subordinate” organization relationship is in the context of affirming shared faith values. It is not one of enforced disclosure and evaluation of financial information or the activities of the subordinates apart, from broad representations of compliance with the terms of the group determination letter.

Requiring more would be inconsistent with both polity and theology for the denominations joining these comments. In most cases, their governing instruments extend no further than to require restatement of religious beliefs as expressed in specific confessional or canonical documents. Affiliated organizations, whether local churches, other entities, schools, charities, or other entities, are not required to deliver granular information on their finances and activities to the holder of the group ruling. In many cases, the foundational beliefs of the denomination not only do not support the authority of the central organization to demand such details, but outright prohibit them from imposing such requirements on the autonomous and self-governing entities affiliated within the faith community. Much of this has been discussed in the context of the uniform governing instrument objections above, but applies equally to the inability to comply with the proposed definitions of general supervision and control.

Further, the Proposed Revenue Procedure attempts to mitigate the effect of compliance required by grandfathering in existing subordinate organizations to a group ruling. But applying this solely to subordinate organizations added after the effective date of the Revenue Procedure does nothing to alleviate the harms done by this requirement. At a minimum, it creates the unacceptable outcome that newly-added organizations must choose adherence to the denominational standard of self-governance embedded in the religious belief structure and permitted to pre-existing church organizations at the cost of conducting their own tax-exemption process and continued compliance. Under these group rulings, the vast majority of subordinate organizations already qualify separately for tax-exemption as churches which are not required to seek a determination letter. Instead, they choose to enter into the group ruling of their denomination to verify their affiliation and tax-exemption to the public for receipt of grants or other sources of funds such as Amazon Smiles, which would be lost if the proposed procedure becomes final.

For these reasons, the Proposed Revenue Procedure must provide for a definition of control and supervision that accounts for the limits imposed by church polity and the practical considerations of religious group ruling holders.

IV. The Proposed Revenue Procedure Violates RFRA and the First Amendment

America's religions are, first and foremost, communities of faith. They take legal form to function within broader society, but that secular identity does not supplant their ecclesiastical identity or its constitutional significance. A denomination is formed when groups of local congregations or regional churches agree to come together in communion with each other for the common purpose of discerning and carrying out the will of God, an intention reflected in the ecclesial structures and governance of the church body. One of the most venerable rights of religious institutions in the United States is self-governance. Serbian Eastern Orthodox Church v. Milivojevich, 426 U.S. 696, 708-09 (1976). This right is fundamental to the nature of religious institutions which may choose a wide variety of legal forms, from an unincorporated association to a complex network of corporations, to reflect the doctrinal self-understanding of that faith community. The First Amendment protects “freedom for religious organizations, an independence from secular control or manipulation — in short, power to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine.” Kedroff v. St. Nicholas Cathedral, 344 U.S. 94, 116 (1952).

One leading treatise in this area notes more than a dozen identifiable religious structures. William W. Bassett, W. Cole Durham Jr., Robert T. Smith, Religious Organizations and the Law, § 8:19 (2017). Such variations reflect differing ecclesiologies, based on differing theological convictions as to how each church should exist and carry out its mission in the world. The choice of organizational form therefore embodies a theological judgment by each religious community, grounded in its own religious convictions, and based on its Scripture, its tradition, and other doctrinal sources. “The traditional denominations each have their own intricate principles of governance, as to which the state has no rights of visitation. Church governance is founded in scripture, modified by reformers over almost two millennia.” Schmidt v. Bishop, 779 F.Supp. 321, 332 (S.D.N.Y. 1991).

As demonstrated in the examples of the denominational agencies joining in these comments, structure reflects fundamental religious belief translated into practice. How a denomination chooses to organize and govern itself is a matter of religious doctrine, often the result of centuries of struggle among faith communities. Through various organizations, each denomination allocates or withholds power to persons and entities within the denomination with the expectation that each part of the church will function in a particular way. In other words, the churches themselves decide who may and who may not exercise authority within the church. As the above commentary describes it:

The relationships between persons and groups within the churches, often constrained to the legal forms of agency, delegated authority, and scope of employment patterns as a method of establishing liability and legal accountability, are more correctly understood in terms of covenant, fellowship and mission.

Religious Organizations, supra at § 8:2. These are choices beyond the authority of the State, including the IRS, to impair or constrain.

For this reason, what the IRS proposes violates rights assured to the commenters under the Religious Freedom Restoration Act. 42 U.S.C. §2000bb, et seq. “RFRA was designed to provide very broad protection for religious liberty.” Hobby Lobby v. Burwell, 573 U.S. 682, 693 (2014). “[RFRA] prohibits the Federal Government from substantially burdening a person's exercise of religion, unless the Government demonstrates that application of the burden to the person represents the least restrictive means of advancing a compelling interest.” Gonzalez v. O Centro Spirito, 546 U.S. 418, 423 (2006) (internal quotation marks omitted). Plainly the choices to follow their beliefs or risk the loss of their group rulings is a substantial burden.

The process of evaluating rights under RFRA would thus shift to the IRS to demonstrate that the least restrictive way to accomplish a truly compelling interest is to deny the accommodation. The rationale for the proposal highlights the IRS's desire “to reduce the administrative burden and increase the efficiency of the group exemption letter program. . . .” Notice 2020-36 “Background” found at https://www.irs.gov/pub/irs-drop/n-20-36.pdf. Here, the IRS would achieve greater administrative consistency and convenience for itself, at the expense of the religious community. Administrative convenience is not a compelling interest. O Centro Spirito, 546 U.S. at 435-36 (rejecting plea for uniformity in administration of the drug laws). RFRA expressly contemplates the denial of a government exemption can violate its provisions. 42 U.S.C. §2000bb-4.

As noted above, historically the IRS implemented the group exemption letter program flexibly, expressly recognizing that it was accommodating the reality that religious organizations could not assure uniformity and supervision or control. But the failure to accommodate not only would burden the central church agencies, but also would add a truly substantial burden on the IRS which would have to evaluate hundreds of thousands of additional applications.

In other contexts, both the Supreme Court and the Administration have recognized efforts to protect rights assured under RFRA. Recently in Little Sisters of the Poor v. Pennsylvania, 591 U.S. ___, No. 19-431 (July 8, 2020), the Court upheld a regulatory carve out under authority assured to administrators in the Department of Health and Human Services under the Patient Protection and Affordable Care Act. In doing so the Court noted that the subject matter of the contested statutory provision was “capable of violating RFRA” and that under settled case law the government was obliged to “accept the sincerely held . . . objections of religious entities.” Little Sisters, Slip op. at 20. Paraphrasing the Court and substituting “IRS” for “HHS,” “[i]t is hard to see how the [IRS] could promulgate rules consistent with these decisions if they did not overtly consider these entities' rights under RFRA.” Id. at 21.

Not a single syllable of the Proposed Revenue Procedure displays any recognition that these new procedures will create burdens for religious organzations or signals the IRS's resolve to accommodate them. These proposals stand in sharp contrast to the proactive approach to relieve burdens on religious agencies that would have occurred under the Small Business Administration affiliation rules. Those rules made sense when applied to commercial institutions, but created substantial burdens when applied to religious communities. SBA waived them citing RFRA. Small Business Administration, Interim Final Rule, Business Loan Program Temporary Changes; Paycheck Protection Program, 85 Fed. Reg. 20817, 20819-20 (April 15, 2020).

Even if RFRA were not dispositive, the First Amendment would bar the IRS from effectively dictating polity and structure matters inside a denomination. The IRS cannot close the Group Exemption process to all churches except those able to eccelsiologically impose specific civil forms on subordinates. This would operate as distinct preference for the most rigid kind of hierarchy in violation of the First Amendment. Larson v. Valente, 456 U.S. 228, 246 (1982) (ordinance only regulating religious organizations soliciting more than fifty percent of operating funds from the public is unconstitutional as a denominational preference); Lutheran Social Service of Minnesota v. United States, 758 F.2d 1283 (8^th Cir. 1985).

The decided cases show that labelling a matter “secular” or within the “subject matter jurisdiction” of the State is not the end of the constitutional inquiry. In Gonzales v. Archbishop of Manila, 280 U.S. 1, 15-6 (1929), although the Court rejected a challenge to its subject matter jurisdiction noting that the construction of a testamentary trust was a common task of civil courts, the Court recognized the limits to its judicial power when to construe the trust required it to resolve a question committed to religious authorities. Similarly, courts have recognized that “secular” matters in church administration, such as in the area of financial management, may reflect a series of value judgments based on religious doctrine and the internal law of religious bodies. E.g., Bible Way Church v. Beards, 680 A.2d 419, 428-29 (D.C. 1996). Here, no one doubts the authority of the State to set terms of tax exemption, but those terms must not effectively rewrite a church's self-understanding as a condition of qualification for exemption.

In a historic confrontation, the United States Supreme Court found South Carolina's treatment of Mrs. Sherbet's unemployment claim unconstitutional in 1963 because the State forced her to choose between following her religious beliefs and obtaining unemployment compensation. Certainly, she was not compelled to violate her religious beliefs. She had a choice: be available for work on Saturday (eligible for benefits) or keep holy her Sabbath (not eligible). Forcing her to choose between following the law of her religious denomination and losing a state benefit or following the law of the state and risking ecclesiastical punishments was unconstitutional. “[T]o condition the availability of benefits upon this appellant's willingness to violate a cardinal principle of her religious faith effectively penalizes the free exercise of her constitutional liberties. . . .” Sherbert v. Verner, 374 U.S. 398, 406 (1963). See Thomas v. Review Board, 450 U.S. 707, 718 (1981). The same choice confronts the denominational agencies here: the IRS would expressly condition the continued availability of the group ruling on the denominational agencies' willingness to violate the law of the faith community and take other actions in the ecclesiastical realm, which is beyond competence of the IRS to order.

In sum, what the IRS proposes is a set of new norms that would require these faith communities to exercise oversight and supervision of religious entities that, unlike secular charities, are already exempt by law in ways that are anathema to them. The requirement of a uniform governing instrument, without further accommodation or allowance for polity as a religious expression of belief, would infringe on a church's right to determine its internal governance in the way most compatible with its beliefs and mission. The result would constrain the religious choices exercised by churches that reflect their faith and pastoral missions. A uniform governing instrument requirement compels the denominational agencies to make choices about form and structure that do not respect those churches' own identities and beliefs or to lose their group ruling. Rather to preserve their group ruling they must agree to surrender to an inauthentic conformity dictated by governmental agency administration. Similarly, the extra layer of supervision and control that would be required would force a choice of evils on these denominations. In doing so the Proposed Revenue Procedure violates the first principles of religious self-governance assured under the First Amendment.

V. Conclusion

A Revenue Procedure that does not continue to accommodate the variety of religious expression in the United States violates rights protected under RFRA and the First Amendment. IRS is obliged to continue a process respectful of those rights and the limitations on the government's authority. For the above stated reasons, we urge the IRS not to adopt provisions of the Proposed Revenue Procedure that would violate the protected rights of the religious group ruling holders joined here in this letter of comment.¹⁰ We would be pleased to discuss these issues further with representatives of the IRS and to respond to any questions.

Respectfully submitted,

Mark E. Chopko
Chair, Nonprofit & Religious Organizations
Stradley Ronon Stevens & Young LLP
Washington, DC

Jennifer Gniady
Counsel
Stradley Ronon Stevens & Young LLP
Washington, DC

On behalf of the following denominations:
Evangelical Lutheran Church in America
General Synod of the United Church of Christ
General Council on Finance and Administration of The United Methodist Church
Protestant Episcopal Church in the United States of America
General Synod of the Reformed Church in America

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Denominational Representatives