Also in the petition bringing that question to the high court: Whether the Internal Revenue Service can avoid a constitutional ruling by refunding taxes back to the non-profit organization while at the same time maintaining the taxes were correctly assessed.
The case involves Catholic Answers Inc. and its founder, Karl Keating, and an uncharacteristically timid IRS. But the organization said the IRS policy involved "affects the speech of hundreds if not thousands of non-profit organizations."
If the Supreme Court agrees to review the case, it should be of particular interest to abortion rights advocates (code words for "Democrats"), who may feel the heat from powerful Catholic institutions.
Catholic Answers Inc. is a non-profit religious corporation organized under California law, with headquarters in El Cajon near San Diego.
The organization produced a voters' guide in 2004 advising readers of the Catholic way to vote (without naming specific candidates), and Keating posted two "e-letters" questioning whether Sen. John Kerry of Massachusetts, the presumptive Democratic nominee and a professed Catholic, should be denied Holy Communion because of his support for abortion rights.
In its petition to the Supreme Court, Catholic Answers said Kerry received communion at an African Methodist Episcopal church in April 2004 and a week later took Holy Communion at a Catholic mass.
"Keating published an e-letter on Catholic Answers' Web site that discussed the events and why Senator Kerry, a Catholic, should have been rebuked for taking communion from a community that lacked a valid sacrament of [holy] orders [the AME church]. ... Keating was also critical of Senator Kerry's views on abortion," the petition says, "and suggested that he should be denied holy communion. ... Keating published a second e-letter ... again discussing Senator Kerry and the Catholic church's teachings on abortion and the eucharist."
Enter the IRS.
The agency asked Catholic Answers a number of questions -- "73 questions, including 28 discrete subparts" the petition said -- then ruled the voters' guide did not constitute a political expenditure because it didn't contain "express advocacy," but Keating's postings on Kerry and communion did contain express advocacy. The IRS ordered Catholic Answers to cough up excise taxes on the e-letters for 2004 and 2005 -- totaling a little more than $100.
As a precaution, even though it was ruled non-political, Catholic Answers moved production of the voters' guide to a newly created sister organization.
Catholic Answers filed papers protesting the assessment. "Specifically, CA does not believe that the statements contained in the e-letters constitute 'participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office,'" the group said in asking for its money back. "Accordingly, CA is entitled to a refund of taxes ... because it did not make a 'political expenditure.'"
On March 27, 2009 -- the last day before the six-month wait period expired under federal law -- the IRS said it was going to "abate" the excise taxes and credit Catholic Answers' account, with interest, because the "political intervention ... was not willful and flagrant," the petition says. In other words, the IRS rejected Catholic Answers' administrative refund claim, reaffirmed the prior finding that the e-letters constituted political expenditures but said it would return the taxes.
"Catholic Answers would like to engage in substantially similar issue advocacy in the future but will not [do] so long as it can have taxes assessed against it, be subject to another grueling investigation and possibly have its tax-exempt status revoked for such speech.
"Because the IRS did not change its position on whether Catholic Answers' e-letters [were] a political expenditure and gave it an abatement rather than the refund it requested," the petition told the Supreme Court, "Catholic Answers has no assurance that this scenario will not happen again, and thus is chilled from engaging in substantially similar political speech."
Catholic Answers went to federal court to bring the IRS to heel, but a judge ruled in part Keating lacked standing to bring suit -- couldn't show an injury; that Catholic Answers' claims became moot when the IRS abated and returned the excise taxes, and that Catholic Answers could not raise any arguments related to "express advocacy" or the return of funds to Keating because the doctrine of variance barred it.
A federal appeals court panel agreed with the judge, and the full 9th U.S. Circuit Court of Appeals refused a rehearing.
The legal doctrine of variance says a taxpayer, when seeking to get back tax from the IRS, must include every conceivable argument in his or her refund claim. If the taxpayer later has to sue for the refund, any arguments that substantially vary from the refund claim will be dismissed by a judge for lack of subject matter jurisdiction.
Conversely, the IRS is free to raise any new grounds in court, even if it did not raise those grounds in the original notice of deficiency to the taxpayer.
In other words, the doctrine makes the taxpayer the one-legged man in any rear-end kicking contest with the IRS.
But the doctrine isn't absolute, and a taxpayer may still argue that a variance is minimal.
"The IRS routinely seeks to avoid judicial review of its administrative decisions by giving in without renouncing the policy that gave rise to the dispute with the taxpayer," CA's petition says in arguing that the Supreme Court should review. The statute on jurisdiction allows such tactics because a taxpayer cannot file a refund suit until the taxpayer has paid a tax and filed an administrative refund claim. The petition argued the 9th Circuit's decision insulates the IRS from judicial review even when the taxpayer has followed the refund procedures mandated by Congress.
"In this case, abatement has been used to prevent judicial determination of whether the IRS policy violates the First Amendment rights of groups and individuals and has the effect of chilling future political speech because the determination remains, and will forever remain, unresolved," the petition says.
It adds: "The underlying legal issue of Catholic Answers' refund claim involves core political speech and the application of a vague and indeterminable IRS standard to that political speech. Currently, the IRS is able to silence core political speech by trickery.
"Catholic Answers is left in the same position now as when it first spoke on its Web site about the application of religious teachings to a political official," the petition says. CA engaged in core political speech and was subject "to a grueling IRS investigation," it said. Then the IRS determined that Catholic Answers' speech violated the law by engaging in political intervention "under the IRS's vague and indeterminable 'facts and circumstances' test."
When CA contested the penalty, the IRS "waited until the last possible moment to give Catholic Answers its money back," but did not change its position on whether the tax should be imposed. And now, because of rulings by the judge and the court of appeals, "Catholic Answers is left without any access to judicial review," the petition said.
Worse, if CA engages in similar speech in the future it faces a penalty, "only to have the IRS give its money back if Catholic Answers again seeks judicial review. This type of trickery, which leaves the constitutionality of the underlying statute untouchable, affects the speech of hundreds if not thousands of non-profit organizations," the petition says.
The IRS, of course, will have a significantly different story to tell when it files a response brief to the petition.
One question unlikely to be answered in the case, even if the Supreme Court grants review, is why the IRS picked on Catholic Answers as an enforcement example.
Far more powerful entities appeared to be working within the Catholic church in 2004 for Kerry's defeat, but did not receive similar IRS attention.
In an Oct. 28, 2004, commentary in the Los Angeles Times, "Amazing Gall: The Catholic Attack on Kerry," writer Margaret Carlson contends the George W. Bush campaign worked hand in glove with Catholic bishops to attack the Democratic candidate for being a secular Catholic.
Among her examples: Only weeks before the presidential election, the bishop of the Diocese of Wheeling, W.Va., "sent letters to 86,000 Catholics warning that it would be a 'grave evil' to vote for someone who condoned legal abortion. Several bishops said if Kerry came to mass, they would deny him communion."
West Virginia, long a Democratic stronghold, went for Bush by about 100,000 votes.