IRS can examine church's bank records amid investigation into lawmaker: appeals court
An appeals court has rejected a Kansas-based church's attempt to stop an Internal Revenue Service investigation from obtaining its bank records as part of an investigation of a state senator.
The IRS has launched an investigation into Republican state Sen. Richard Kloos, trying to determine if he owes unpaid business taxes and if God's Storehouse Topeka Church, which he founded in 2009, could be considered a not-for-profit.
A three-judge panel of the 10th U.S. Circuit Court of Appeals unanimously ruled on Tuesday that the IRS can access God's Storehouse's bank records, upholding a lower court decision.
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Circuit Judge Michael Murphy authored the panel opinion, being joined by fellow circuit judges Nancy Moritz and Joel M. Carson.
Murphy concluded that the specific third-party summons the IRS issued in regard to God's Storehouse was not "a church tax inquiry" but focused on bank records instead of church records.
"The relevant statutory language and applicable case law are harmonious: the requirements in § 7611 for initiating church tax inquiries and examinations do not apply to a third-party summons, even if summonses are issued in connection with such inquiries and examinations," wrote Murphy.
"Each of the other three courts that has examined this issue has held or concluded § 7609 alone applies to a third-party summons, even when IRS issues the summons as part of a church tax inquiry or examination."
Ryan Kriegshauser, an attorney representing God's Storehouse, told The Kansas Reflector that the panel decision enables the IRS to "exploit a procedural loophole to deprive churches of their constitutional protections."
"While our client is steadfastly committed to continuing the fight for religious liberties, we will review this opinion with our client and proceed as we deem advisable," said Kriegshauser.
In November 2020, Kloos was elected to the Kansas Senate, having referenced his position as founder of God's Storehouse on his campaign yard signs.
In February 2021, the IRS launched a probe into God's Storehouse centered on whether it should launch a church tax inquiry for the tax years of 2019 and 2020.
Eventually, according to court documents, the IRS sent God's Storehouse an official notice expressing four concerns regarding the entity: "it potentially operated as a thrift store instead of a church," "it may have improperly intervened in a political campaign," "its coffee shop may incur liability for unrelated business income tax," and "the wage payments to the Klooses may incur liability for unpaid employment taxes."
As part of the ongoing investigation into the church's operations, the IRS sent a third-party summons in February 2022 to Kaw Valley Bank, where God's Storehouse had records.
In March 2023, a district court rejected the church's request to squash the IRS investigation, concluding in part that the "petitioner hasn't shouldered its burden to demonstrate that respondent didn't act in good faith when it issued the third-party summons."
"Petitioner appears to argue that an IRS examination can investigate either church records or religious activities," continued last year's lower court ruling. "But petitioner presents no authority to support its interpretation why the IRS's examination can't encompass both."
"Here, the IRS complied with the church audit procedure requirements, then followed the administrative requirements before issuing a summons to Kaw Valley Bank."
