When a local church or other house of worship leaves a denomination for theological or other reasons, who or what keeps its real property and other assets? Given the ever-shifting lines of the American religious landscape, this is unfortunately a perennial question – for religious organizations and sometimes for the courts, too. In recent years, the U.S. Supreme Court has repeatedly resisted efforts to address property rights battles between the Episcopal denomination and breakaway local churches. A newly filed petition arising from a South Carolina court ruling against a local church may present just the right Supreme Court opportunity to resolve lower federal and state courts’ conflicts about how best to balance First Amendment rights among denominations and their local churches.
In a letter to Congress dated February 7, 2018 (“Letter”), 145 faith-based and secular organizations raised hue and cry against the inclusion of Section 116 of House Bill H.R. 3280 within the proposed federal appropriations bill for 2018 (now incorporated into 115 H.R. 3354). Section 116 does not directly repeal the Johnson Amendment’s prohibition on political campaign involvement by churches and other Section 501(c)(3) organizations. Rather, it provides stringent measures to protect against overzealous governmental interference with constitutionally protected houses of worship, effectively preventing the IRS from revoking churches’ tax-exempt status for partisan communications during election seasons.
An integrated auxiliary is a creature of tax law: in a nutshell, it is typically a separately formed legal entity operating a ministry extension of a church or other house of worship. Integrated auxiliaries may range from an afterschool sports ministry to more complex elder care or housing programs. Because churches are exempt from the initial exemption and annual Form 990 filing requirements under Section 501(c)(3), so too are churches’ integrated auxiliaries. These significant benefits warrant careful evaluation with respect to formation of church-related organizations and their tax compliant operations.