National War Tax Resistance Coordinating Committee

Nonprofit Status and War Tax Resistance

Excerpted from NWTRCC’s booklet, “Practical War Tax Resistance #6: Organizational War Tax Resistance, Employers, Contractors, and Financial Institutions”

To date, the war tax resistance movement is unaware of any nonprofit organization that has lost 501(c)(3) tax exempt status due to its position or action relating to conscientious resistance to war taxes. There is also no indication that the IRS has ever even considered a campaign to challenge tax exempt status on such a basis. However, it is possible the IRS could argue that support for war tax resistance violates the definition of “charitable” in the legal sense.

Due to varying decisions in court cases in recent years, it’s not clear how the IRS or a court would rule on the question of “charitable” status if faced with an organization that supported war tax resistance but did not directly and immediately advocate it. It is clear that a group whose primary purpose was to advocate civil disobedience of any sort would have trouble qualifying for tax exempt status. However, there is some precedent that tax exempt status would not be revoked if illegal activities were merely incidental to the purposes of the organization (U.S. v. Omaha Live Stock Traders Exchange, 366 F.2d 749, 751 (8th Cir. 1966).

The IRS and Political Repression

In addition to concerns about tax exempt status, some organizations whose work is seen as opposing the government fear that taking a position on military taxation could open them to attack by the government in the form of IRS harassment about other financial business. The IRS has, in fact, been used as a tool in the past to target some opposition groups. There is no guarantee that this wouldn’t happen again. Large, well-established religious or financial institutions are less likely to suffer such repression. Smaller, more radical groups might be at greater risk.

Religious Freedom Restoration Act

A Supreme Court ruling in 1990, Employment Division v. Smith, followed by the Religious Freedom Restoration Act (RFRA) passed by Congress in 1993, have significant ramifications for organizational conscience in regards to war taxes.

Prior to the Smith decision, the “compelling interest” test was used as a guide in court cases where an individual’s conscience conflicted with governmental requirements. This meant that in order to justify a burden on the free exercise of religion and conscience, government had to show a “compelling” state interest, such as public health or safety, and had to use the “least restrictive means” to achieve their goals. In the Smith decision the Supreme Court ruled that, as long as a law in question was not specifically aimed at limiting the free exercise of religion, was generally applicable, and was neutral among different religions, the government did not have to accommodate the practices of religious people.

In response, a coalition of religious and secular organizations legislatively reestablished the compelling interest test by introducing and passing, with an overwhelming majority in Congress, the Religious Freedom Restoration Act of 1993. In 1997 the Supreme Court heard a test case on RFRA, City of Boerne v. Flores, and ruled that RFRA was unconstitutional in disputes between individuals and states. However, the Justice Department has taken the position RFRA is still applicable in cases involving the federal government and individuals. In 1998, the Tax Court rejected war tax resister Priscilla Adams’ claims under RFRA that the government had not used the “least restrictive means” to collect her taxes, therefore she should not have to pay them, nor should she be penalized for refusing to do so. In 1999 the Federal Court of Appeals for the Third Circuit ruled against her in Priscilla Adams v. the IRS. Other military tax conscientious objectors continue to prepare RFRA cases in Tax Court and in U.S. District Court.

Conclusions

Changes in the economic and political climate of the United States, plus changes in tax laws and IRS practice, have led more conscientious objectors to ask the institutions that employ them and handle their assets to examine their institutional positions concerning reporting and collecting taxes for the military. Conscientious and courageous leaders in a number of organizations have paved the way for an organizational stand on the issue. They have challenged the accepted and unspoken idea that paying for war and its preparations, as organizations and employers, is an acceptable way of doing business. It remains to be seen whether larger numbers of organizations and institutions will take a stand supporting war tax resistance. Their decisions may have a profound effect on the ability of individual war tax resisters to make a living while successfully keeping their taxes from the war machine.


Please email comments, updated information, and related stories to NWTRCC (or mail to the address below) so that we can keep updating and improving this information.

Also see a more critical look at 501(c)3 status and social change organizing from the NWTRCC newsletter “More Than A Paycheck” at http://www.nwtrcc.org/mtap06/mtap1006.html.

To see more of the Practical War Tax Resistance series and other NWTRCC resources please visit our Publications page.