All Saints Episcopal in Pasadena went through a years-long fight with the IRS over a sermon. If I remember correctly, the church kept urging the IRS to file a case in Federal Court, but they never did.
That doesn’t mean the IRS finds the behavior acceptable. As I mentioned, there are a lot of other considerations in deciding whether to bring a court case.
Take the SEC, for instance.
Scholars have found that if a company is located in the same district as a politician that has oversight authority over the SEC, that company is 1) less likely to be prosecuted by the SEC, and 2) if they are prosecuted, will receive a smaller penalty, relative to firms in other districts. Basically, certain politicians have the ability to pressure the SEC to go easy on firms in their home districts, and the scholars found statistical evidence that the SEC does indeed respond to that pressure.
There are also resource considerations. Going to court is expensive. I knew one federal agency a few years ago that only had the resources to pursue about six court cases per year. Don’t get me wrong, they brought a lot more than six enforcement actions per year, but they almost always ended in a settlement, so no court cases were required.
What that means is that if you were willing to engage in a staring contest with the agency, there’s a very good chance they would have blinked. That doesn’t mean they actually believed that your actions were legal; it just means they didn’t want to waste one of their six bullets on you.
I don’t know what the IRS budget for court cases is, but I do know they are extremely cash-strapped, and have been for some time. They are letting a lot of other tax fraud (not just by churches) slip through the cracks because they simply don’t have the resources to pursue it. That’s why I think it is
unlikely they would actually go to court over this, though it is
possible.
