Court Dismisses Case by Atheist Groups Challenging Church and Clergy Tax Provisions

May 20, 2014

Yesterday, a federal district court in Kentucky dismissed a lawsuit by three atheist nonprofit organizations challenging a handful of significant provisions in the tax code related to churches and clergy.

The case centered on five specific aspects of the tax law that the plaintiffs (American Atheists, Atheists of Northern Indiana, and Atheist Archives of Kentucky) argued resulted in unconstitutional preferences for churches and religious organizations:

  • the church exemption from the requirement to file applications for recognition of tax-exempt status (Form 1023),
  • the church exemption from filing annual information returns (Form 990),
  • the clergy housing exclusion,
  • the exemption from income tax withholding and FICA taxes for ministers, and
  • the specific audit procedures for churches.

The court dismissed the suit on the preliminary issue of standing after finding that the atheist groups failed to suffer any particular injury at the hands of the government. An important factor to the court’s analysis was that none of the plaintiffs had actually sought recognition from the IRS as a religious organization or were denied the benefits accompanying such status.

In reaching this conclusion, the court took the opposite approach of another federal district court in Wisconsin that recently ruled Freedom From Religion Foundation (FFRF) and its co-presidents had standing to challenge the clergy housing allowance exclusion, although its leaders never actually tried to claim a tax-free housing allowance with the IRS. The judge ordering the dismissal of the lawsuit in Kentucky specifically referenced the Wisconsin court’s decision in the FFRF case, calling it unpersuasive and not applicable.

The Kentucky court also clearly rejected the notion that the challenged provisions unconstitutionally discriminated in favor of religion: “[T]he statutes and regulations pertaining to tax-exempt organizations do not expressly favor certain churches or certain religious organizations, nor do they expressly favor theist organizations over atheist or non-theist organizations.”

To read the full order and opinion of the court, click here.

Source: American Atheists v. Shulman, No. 2:12-CV-00264 (E.D. Ky. May 19, 2014)

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