IRS Reviews Church's Status

"Most of what happens here is the exchange of correspondence that ends up with us saying to somebody, 'Hey, you should understand this specific thing, this doesn't quite line up with the law, so in the future please don't do that.' And then the organization agrees not to do it," Everson said.

All Saints Church, however, has refused to concede it did anything wrong. As a result, the IRS ratcheted up its inquiry to a full-scale audit this fall, according to the church's lawyer, Marcus S. Owens.

The sermon that drew the IRS's attention was delivered on Oct. 31, 2004, by the Rev. George F. Regas, All Saints' rector emeritus. It was an imaginary debate between Jesus on one side and Sen. John F. Kerry (D-Mass.) and President Bush on the other. At the outset, the retired pastor told his listeners that "I don't intend to tell you how to vote." Then he went on to describe Jesus as deeply saddened by the war in Iraq and poverty in the United States.

"Mr. President, your doctrine of preemptive war is a failed doctrine," he imagined Jesus telling Bush. Later in the sermon, he envisioned Jesus as saying: "Shame on all those conservative politicians in the nation's Congress and in state legislatures who have for years so proudly proclaimed their love for children when they were only fetuses -- but ignored their needs after they were born."

The morning after Regas spoke, an article in the Los Angeles Times called his sermon a "searing indictment of the Bush administration's policies in Iraq." On June 9, the IRS sent an initial letter to the church, citing the newspaper article.

Fighting back, the church hired Owens, a partner in the Washington firm Caplin and Drysdale who was director of the IRS division of tax-exempt organizations from 1990 to 2000. He said in an interview that the 60 inquiries launched by the IRS into churches after the 2004 election is "an extraordinary number," about three times the historical average.

"I don't think the All Saints case is evidence of the IRS doing the administration's dirty work. But I do think it's evidence that the IRS is undertaking church examinations on far less compelling facts, on far more borderline cases, than it has historically," Owens said.

Part of the problem, he said, is that neither IRS guidelines nor court cases have made it clear what line a tax-exempt organization cannot cross, short of an explicit call to vote for, or against, a particular candidate or party.

In addition, he said, the IRS has given mid-level officials the authority to decide whether there is "reasonable belief" that a church has violated the tax laws. That decision used to be reserved for regional commissioners, several rungs higher on the institutional ladder, he said.