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 the iconic Blues Brothers movie, Sister Mary recruits Jake and Elwood to help raise money for delinquent property taxes on the Catholic orphanage in which they grew up. The music is legendary, and the Sweet Home Chicago-area scenes are memorable – Maxwell Street, Lower Wacker, the Daley Center, and the destruction of the Dixie Square Mall. But wait: did they really need to pay those property taxes, or could they have avoided the Illinois Troopers and Jail House Rock all together? The best legal strategy surely would have made for a dull movie. Cruising around in a ’74 Dodge with cop tires and cop suspension beats paperwork after all! But there is a better answer under Illinois law for the rest of us, with no road shenanigans necessary.
To enjoy the benefits of Section 501(c)(3) tax-exempt status, nonprofits (other than churches and their integrated auxiliaries), must apply to the IRS using its Form 1023 or the newer Form 1023-EZ. A few years ago, with Form 1023 processing times bogged down to a year or more, the IRS issued the streamlined Form 1023-EZ application as a way to expedite decisions made on tax-exempt applications. But this cure is not so curative, as reflected in recently published Internal Revenue Service (IRS) reports. These reports flash caution signals for nonprofits seeking Section 501(c)(3) approval.