IRS Clears California Church, But Dispute Isn't Over

The IRS closes its investigation of All Saints Episcopal church in Pasadena, Calif. The church will keep its tax-exempt status despite a sermon that prompted the probe. But the church is dissatisfied with the resolution.

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The IRS has closed its investigation of a Southern California Church. All Saints Episcopal Church in Pasadena will keep its tax-exempt status. Now, the church is calling for an investigation of the IRS.

NPR's Ina Jaffe reports.

(Soundbite of choir)

INA JAFFE: The Reverend Ed Bacon told parishioners at three packed Sunday services that All Saints had received good news and bad news from the IRS. The good news, of course, was that the church would keep its tax-exempt status. The bad news was that the IRS found the 2004 guest sermon by the church's former pastor was an illegal intervention in the presidential election. Reverend Bacon complained that the IRS never said exactly what in the sermon was out of bounds.

Reverend ED BACON (Rector, All Saints Episcopal Church): Therefore, synagogues, temples, mosques, and churches across America have no more guidance about the IRS rules now than when we started this process over two long years ago.

JAFFE: That's when retired Pastor George Regas preached the sermon framed as a debate between George W. Bush, John Kerry and Jesus. In case you are wondering, Jesus wins. Regas stated he wasn't telling anyone how to vote and that a person's faith might lead him or her to choose either candidate. Mostly, the sermon strongly condemned the war in Iraq and the government's treatment of the poor.

This is a typical Sunday morning at All Saints. The Church has been active in anti-war and civil rights issues for decades, leaving the Reverend Ed Bacon to wonder…

Rev. BACON: Whether we will be investigated again. The next time anyone of us is called to preach about the war, poverty or any other social and moral issues as they relate to governmental policies.

JAFFE: While the IRS was investigating All Saints, the church's attorney did some investigating of his own. Marcus Owens obtained government documents through the Freedom Of Information Act. He found e-mails indicating the IRS had been conferring with the Justice Department on how to proceed in the case.

Mr. MARCUS OWENS (Lead Attorney, All Saints Episcopal Church; Former Head of IRS Exemption Office): That seemed to indicate a level of coordination with the Department of Justice that I've never seen before, and I worked at the IRS for 25 years.

JAFFE: And, says Owens, this coordination could be a violation of laws that were adapted in the wake of the Watergate scandal.

Mr. OWENS: And they're designed to keep tax administration free of political influence.

JAFFE: But the context between Justice and the IRS might not be so sinister, says Donald Tobin, who once worked in the tax division of the Justice Department and now teaches law at Ohio State University.

Professor DONALD TOBIN (Law, Ohio State University): There really is something positive about the IRS consulting with the Justice Department on cases that the Justice Department is going to ultimately have to break. Where the problem would be is if they were really consulting in a much more of a political way.

JAFFE: From the e-mails, that's not clear. That's why All Saints is asking the Treasury Department to investigate. And in a news conference after services, Bacon said that's why the church is also asking…

Rev. BACON: That the IRS provide us names of those in the IRS who are involved, names of those in the Department of Justice who were involved, and if any people in the White House were involved to reveal their names.

JAFFE: The church also wants the IRS to withdraw its finding that the 2004 sermon was electioneering and to apologize. A spokesman for the IRS said the agency does not comment on the cases of specific taxpayers and provided a brief written statement instead.

It says in part, we will continue to work with charities and churches during the 2008 political season to ensure they avoid becoming involved in campaign activity.

Ina Jaffe, NPR News.

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