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Bethel Baptist Church v. United States

filed: June 30, 1987.


On Appeal from the United States District Court for the Middle District of Pennsylvania-Scranton, D.C. Civil Action No. 84-1586.

Author: Higginbotham

Before: HIGGINBOTHAM and BECKER, Circuit Judges, and DUMBAULD, District Judge.*fn*



This appeal requires us to consider the constitutionality of various sections of the Internal Revenue Code, primarily in light of United States v. Lee, 455 U.S. 252, 102 S. Ct. 1051, 71 L. Ed. 2d 127 (1982). Specifically, we are asked to determine whether the present social security taxation of appellants is consistent with the first, fifth, and fourteenth amendments. Because we find that the district court properly applied existing legal principles to this case, we will affirm.


Appellant Bethel Baptist Church ("Bethel Baptist" or "the Church") is an independent Baptist Church which is not subject to the control of any larger ecclesiastical body. The remaining appellants are various Church officers and employees or parent of children who attend Bethel Baptist's school.*fn1 The Church is a congregational polity consisting of and governed by its members. As an integral part of its religious mission, the Church operates several ministries, including Grace Independent Mission Board and Upper Bucks Christian School. Several church members assist Bethel Baptist's pursuit of its mission by working for the Church. Each congregational member who works for the Church must be a "born again" Christian and must have experienced a religious call to the vocation in which s/he is employed. Although employed Church members earn less money than they could in comparable secular positions, they choose to work for Bethel Baptist because of their religious beliefs. Most significant for purposes of this appeal, while Church members believe that they have a religious duty to obey all just laws, they also believe that Scripture requires them as Christians to provide for their own financial security. Church members believe further that if they cannot do so, their Church must provide for them by means of its own choosing. Consequently, as a matter of religious principle, Bethel Baptist's members oppose any responsibility of self-care or to dictate the means by which the Church shall discharge its provisional responsibilities to its members. In accordance with these beliefs, Bethel Baptist has since 1978 maintained its own private social program for care of employees which provides life insurance, disability and medical care coverage, and pension benefits.

In 1983, Congress amended the Social Security Act and the Internal Revenue Code to make churches and other nonprofit religious organizations and their employees subject, for the first time, to mandatory social security taxation, effective January 1, 1984. See Social Security Amendments of 1983, Pub. L. No. 98-21, § 102(b)(2)(C), 97 Stat. 70-71. In July 1984, Congress partially restored the previous exemption for churches and certain church-controlled organizations retroactive to January 1, 1984, by enacting § 2603(b) of the Deficit Reduction Act of 1984, Pub. L. No. 98-369, 98 Stat. 494 ("DRA"). Section 2603(b), which added § 3121(w) to the Internal Revenue Code, permitted churches and certain church-controlled organizations that are opposed for religious reasons to the payment of employer social security taxes to elect irrevocably to exempt themselves from social security taxation, i the churches and organizations exercised their options between July 18, 1984 and October 30, 1984. 26 U.S.C. § 3121(w) (Supp. 1985).*fn2 This limited opportunity for exemption, however, extended only to churches and church-controlled organizations; employees of electing churches - other than certain ministers, religious members and Christian Science Practioners exempted from taxation for services rendered in the exercise of religious duty pursuant to 26 U.S.C. § 3121(b)(8)(A) (Supp. 1985) - became subject to social security tax at a rate equal to the combined employer and employee social security tax rate.*fn3 Due to this feature, the 1984 amendment did not completely alleviate the religious problems that the 1983 amendment had created for Bethel Baptist. The 1983 amendment required Bethel Baptist to pay employer social security tax for each employee, the continued payment of such taxes being a violation of the Church's fundamental religious principles. If the Church sought to avoid such payment by exercising the exemption option provided by the 1984 amendment, however, religious principles would obligate the Church to compensate its employees for the increase in their individual social security taxes (equal to the usual employer's social security obligation). Consequently, Bethel Baptist would be required to diver funds from other, religious uses, and would be forced to pay the equivalent of the social security tax it would pay if it did not exercise its option. Bethel Baptist resolved not to exercise its option to elect-out.

On April 30, 1984, in accordance with the amendments, Bethel Baptist filed an employer quarterly tax return for the first quarter of 1984. Based on the rates then in effect, Bethel Baptist correctly reported a tax liability of 13.7 percent of wages paid, or $17,795.04. Of the liability, $9,092.36 (or 7 percent f the wages paid) constituted the employer tax for which Bethel was directly liable under 26 U.S.C. § 3111 (Supp. 1985), and $8,702.68 (or 6.7 percent of the wages paid§ constituted the employee tax which 26 U.S.C. §§ 3101 and 3102 (Supp. 1985) required Bethel Baptist to withhold. Bethel Baptist made the entire tax payment from funds collected before the date of the return.

On May 3, 1984, Bethel Baptist filed a claim for refund of the taxes with the Internal Revenue Serivce ("IRS"), seeking recovery of both the employer and employee shares of the tax. In accordance with Treas. Reg. § 31.6402(a)-2(a)(2) (1986)*fn4, it included in its claim a statement that it had secured written consent from affected employees to claim refunds on their behalf. On September 4, 1984, the IRS mailed Bethel Baptist a letter in which it informed the Church of the pertinent provisions of the 1984 amendment and advised the Church that the deadline for making the § 3121(w) election was October 30, 1984.*fn5 Also enclosed was a copy of the form designated by the Secretary of the Treasury for making the election under § 3121(w). Bethel Baptist, however, did not file the form or otherwise attempt to make the election at any time prior to that statutory deadline. Accordingly, after the time for making the election expired, the IRS denied Bethel Baptist's claim for refund. Appellant then fled this suit in the United States District Court for the Middle District of Pennsylvania, asserting that the new statutory scheme created by Congress violated the free exercise and establishment clauses of the first amendment and that 26 U.S.C. §§ 1402(e)(1982) and (g) (Supp. 1984), which had existed previously, violated the equal protection clause of the fourteenth amendment as incorporated into the fifth amendment. The government moved to dismiss the claims of the individual plaintiffs on grounds the district court lacked jurisdiction. Subsequently, appellants moved to compel answer to interrogatories and production of documents. The government then moved for summary judgment on Bethel Baptist's claims on grounds that Bethel Baptist could not challenge the statutory scheme's constitutionality since the Church had chosen not to exempt itself under § 3121(w) and that, even if Bethel Baptist could challenge the statutory scheme, the scheme was constitutional as a matter of law.

The district court considered the motions together. Though the district court dismissed the claims of Paul and Harris on grounds they lacked standing as church officers to seek a refund of taxes paid by Bethel Baptist, it ruled that the employees and parents had standing to challenge the statutory scheme.*fn6 The district court also ruled that Bethel Baptist itself had standing to challenge the scheme since the Church's fundamental tenets were implicated whether or not it elected to exercise its exemption option. Nevertheless, the district court, relying primarily on the decision of the Supreme Court in United States v. Lee, 455 U.S. 252, 71 L. Ed. 2d 127, 102 S. Ct. 1051 (1982), then granted the government's motion for summary judgment. It also denied appellant's motion to compel discovery on grounds that no issue of material fact existed. The district court's judgment is now appealed.


Appellants make four claims. First, they assert that the district court erred in concluding that Congress's statutory scheme does not violate the free exercise clause of the first amendment. Alternatively, appellants contend that the district court erred in denying appellant's discovery motion and granting appellee's summary judgment motion since one of appellant's affidavits raised a genuine issue of material fact. Third, appellants assert that the district court erred in concluding that the scheme does not violate the first amendment's establishment clause. Finally, appellants contend that, contrary to the district court's conclusion, the scheme does violate the fourteenth amendment concept of equal protection as incorporated into the fifth amendment. Since each claim presents only an issue of law, our review ...

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