Iowaska Church of Healing v. Werfel

105 F.4th 402

IOWASKA CHURCH OF HEALING, Appellant v. Daniel I. WERFEL, in his Official Capacity as Commissioner,Internal Revenue Service and United States of America, Appellees

No. 23-5122

United States Court of Appeals, District of Columbia Circuit

Argued March 11, 2024

Decided June 21, 2024

Appeal from the United States District Court for the District of Columbia (No. 1:21-cv-02475)

Simon A. Steel argued the cause for appellant. With him on the briefs was William A. Boatwright.

Matthew C. Zorn and David J. Gutierrez were on the brief for amici curiae the Chacruna Institute for Psychedelic Plant Medicines and Sacred Plant Alliance in support of appellant.

Kathleen E. Lyon, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief was Jacob Earl Christensen, Attorney.

Before: Henderson and Wilkins, Circuit Judges, and Edwards, Senior Circuit Judge.

Wilkins, Circuit Judge:

Appellant Iowaska Church of Healing (the "Church") is an organization whose members' sincerely-held religious belief involves the consumption of Ayahuasca—a tea that contains the hallucinogenic drug dimethyltryptamine ("DMT"), which is a drug that is regulated by the federal government under the Controlled Substances Act ("CSA"). See 21 U.S.C. §§ 811(a), 812 Schedule I(c)(5). The Church sued Appellees the Commissioner of the Internal Revenue Service ("IRS") and the United States (together, the "Government") in the District Court to challenge the IRS's denial of its application for tax-exempt status under 26 U.S.C. § 501(c)(3). On cross-motions for summary judgment, the District Court denied the Church's motion and granted the Government's motion. The Church now appeals the District Court's decision.

The Church argues, first, that the District Court erred in affirming the IRS's determination because it was based on an incorrect assumption that the Church's religious Ayahuasca use was illegal. Second, the Church contends that the District Court further erred in holding that the Church lacks Article III standing to assert a Religious Freedom Restoration Act of 1993 ("RFRA") claim against the Government for impermissibly burdening the Church's free exercise of religion by denying its tax-exemption application. The District Court did not, however, err on either front. As the District Court held, the Church lacks standing to assert its RFRA claim. That lack of standing, in turn, dooms its tax-exemption claim; without a prima facie showing on its RFRA claim, we have no occasion to question the IRS's decisions to deny the Church's application for tax-exempt status and to refuse the Church's demand that the agency assess whether the Church's proposed Ayahuasca use warrants a religious exemption from the CSA—an assessment that the IRS has no authority to entertain. Accordingly, we affirm the District Court's judgment as to the Church's tax-exemption claim and dismiss the Church's RFRA claim without prejudice for lack of standing.

I.

A.

Under Section 501(c)(3) of the Internal Revenue Code, certain entities "organized and operated exclusively for religious, charitable, . . . or educational purposes" may be exempt from federal taxation, provided that "no part of the net earnings of [the entity] inures to the benefit of any private shareholder or individual," "no substantial part" of the organization's "activities" involves the attempt "to influence legislation," and the organization "does not participate in" any "political campaign[.]" 26 U.S.C. § 501(c)(3); see id. § 501(a). "[A]n organization must be both organized and operated for one or more of the purposes specified" in Section 501(c)(3) to qualify for tax-exempt status under that section. 26 C.F.R. § 1.501(c)(3)-1(a)(1); see id. § 1.501(c)(3)-1(d)(1)(i). "If an organization fails to meet either the organizational test or the operational test," however, "it is not exempt." Id. § 1.501(c)(3)-1(a)(1).

IRS regulations clarify the requirements of the organizational and operational tests. To survive the "organizational" test, the organization's articles of organization must "limit" the organization's purposes to exempt purposes and may "not expressly empower the organization to engage . . . in activities which in themselves are not in furtherance of one or more exempt purposes." Id. § 1.501(c)(3)-1(b)(1)(i)(a)-(b). More specifically, "[a]n organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it to carry on, otherwise than as an insubstantial part of its activities, activities which are not in furtherance of one or more exempt purposes." Id. § 1.501(c)(3)-1(b)(1)(iii). To pass the "operational" test, the organization must separately be "engage[d] primarily in activities which accomplish one or more . . . exempt purposes" and will fail that test "if more than an insubstantial part of its activities is not in furtherance of an exempt purpose." Id. § 1.501(c)(3)-1(c)(1). Importantly, an organization may be denied tax-exempt status if its purposes or activities are illegal or otherwise contrary to public policy. Bob Jones Univ. v. United States, 461 U.S. 574, 591, 103 S.Ct. 2017, 76 L.Ed.2d 157 (1983); Rev. Rul. 71-447, 1971-2 C.B. 230 ("All charitable trusts, educational or otherwise, are subject to the requirement that the purpose of the trust may not be illegal or contrary to public policy"); see also IRS, PUB. NO. 1828, TAX GUIDE FOR CHURCHES & RELIGIOUS ORGANIZATIONS 33 (2015) (explaining that the IRS "makes no attempt to evaluate the content of whatever doctrine a particular organization claims is religious, provided the particular beliefs of the organization are truly and sincerely held" and "the practices and rites associated with the organization's belief or creed are not illegal or contrary to clearly defined public policy.").

A charitable religious organization's use of a controlled substance such as DMT, the possession and distribution of which is generally illegal under the CSA, see 21 U.S.C. §§ 812 Schedule I(c)(6), 841(a), 844(a), may obtain an exemption for such use in one of two ways—from the Drug Enforcement Agency ("DEA") or a federal court. The CSA authorizes the Attorney General to "waive the requirement for registration of certain manufacturers, distributors, or dispensers if he finds it consistent with the public health and safety." 21 U.S.C. § 822(d). The Attorney General has delegated the authority to grant CSA waivers or exemptions to the DEA. See 21 C.F.R. § 1307.03. Pursuant to that delegated authority, the DEA issued guidance in 2009 ("2009 Guidance") for "[p]arties requesting religious exemptions from" the CSA. DEA, NO. EO-DEA007, GUIDANCE REGARDING PETITIONS FOR RELIGIOUS EXEMPTION FROM THE CONTROLLED SUBSTANCES ACT PURSUANT TO THE RELIGIOUS FREEDOM RESTORATION ACT 1 (Nov. 20, 2020). The 2009 Guidance directs applicants to provide information detailing the applicant's planned use of a controlled substance, together with information showing that barring of the applicant's use of that substance would "(1) be a substantial burden on (2) his/her sincere (3) religious exercise." Id. Further, the 2009 Guidance provides that "[n]o petitioner may engage in any activity prohibited under the [CSA] or its regulations unless the petition has been granted and the petitioner has applied for and received a DEA Certificate of Registration." Id. at 2.

Separately, a federal court may issue a CSA exemption. Under RFRA, the government "shall not substantially burden a person's exercise of religion even if the burden results from a rule of general applicability" unless "it demonstrates that application of the burden to the person (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest." 42 U.S.C. § 2000bb-1(a)-(b). The statute's coverage is expansive—RFRA explicitly protects "any exercise of religion, whether or not compelled by, or central to, a system of religious belief," id. § 2000cc-5(7)(A); see id. § 2000bb-2(4), "applies to all Federal law, and the implementation of that law, whether statutory or otherwise,' " id. § 2000bb-3(a), and defines the term "government" to include "a branch, department, agency, instrumentality, and official (or other person acting under color of law) of the United States, or of a covered entity," id. § 2000bb-2(1). To effectuate RFRA's protections, Congress has authorized federal courts to provide relief where a person's religious exercise has been burdened by the government in violation of the statute. 42 U.S.C. § 2000bb-1(c) (providing that "[a] person whose religious exercise has been burdened in violation of [the Act] may assert that violation as a claim or defense in a judicial proceeding and obtain appropriate relief against a government"). Affirming RFRA's application in this context, the Supreme Court has held that "it is the obligation of courts to consider whether [CSA] exceptions are required under the [RFRA] test set forth by Congress." Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 418, 434, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006).

Pursuant to RFRA, a plaintiff must, as an initial matter, "establish that its free exercise right has been substantially burdened." Branch Ministries v. Rossotti, 211 F.3d 137, 142 (D.C. Cir. 2000) (citing Jimmy Swaggart Ministries v. Bd. of Equalization, 493 U.S. 378, 384-85, 110 S.Ct. 688, 107 L.Ed.2d 796 (1990)). Only if a litigant can establish that their exercise of religion has been substantially burdened does the burden shift to the government to show that the burden is "in furtherance of a compelling governmental interest" and is the "least restrictive means" of doing so. 42 U.S.C. § 2000bb-1(b); see Singh v. Berger, 56 F.4th 88, 97 (D.C. Cir. 2022).

B.

The Church is an organization and religious corporation whose members' sincerely-held religious belief involves the consumption of Ayahuasca, which contains DMT. In ...