Iowaska Church of Healing v. Daniel WerfelIowaska Church of Healing v. Daniel Werfel
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.
Opinion for the Court filed by Circuit Judge WILKINS.
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
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
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.”
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
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.”
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 (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.
B.
The Church is an organization and religious corporation whose members’ sincerely-held religious belief involves the consumption of Ayahuasca, which contains DMT. In January 2019, the Church filed an application with the IRS for designation as a federally tax-exempt organization under Section 501(c)(3).1 One month later,
The Church‘s purpose and mission revolve primarily around the consumption of Ayahuasca and embracing certain spiritual benefits that the Church‘s members believe follow from Ayahuasca consumption. The Church‘s articles of incorporation define its mission as “inspir[ing] individuals to seek and embrace authentic, self-realized healing of the mind, body and spirit through the use of the sacred, indigenous plant-medicine of Ayahuasca.” J.A. 236. The articles additionally list several other purposes and activities, which notably include “offer[ing] the public access to spiritual growth, development and healing through the sacred Sacrament of Ayahuasca” and “provid[ing] necessary information to all participants of sacred
healing ceremonies involving the consumption of Ayahuasca.” J.A. 208. Pursuant to its primary mission, and despite a so-called “savings clause” in the articles that promises the Church “shall not carry on any other activities not permitted” by a Section 501(c)(3) organization, J.A. 211, the Church distributed Ayahuasca in multiple ceremonies between May and July 2019—while its IRS and DEA applications were pending—before voluntarily suspending its ceremonies.
Before issuing a determination, the IRS sent the Church several follow-up questions regarding its application. In June 2019, the IRS sought information regarding “the status of [the Church‘s] religious exemption application with the DEA[.]” J.A. 271. The Church timely responded that it had been informed by the DEA that the CSA application was “still in progress.” J.A. 281. In September 2019, the IRS asked the Church for, inter alia, its plans for operation if the DEA were to deny the Church‘s application for a CSA exemption, an explanation of how the Ayahuasca ceremonies in 2019 were legal without a CSA exemption, and information on whether any of the Church‘s members do not regularly participate in the Ayahuasca ceremonies. The Church replied that its Ayahuasca ceremonies in 2019 were “protected under federal law” because of the Supreme Court‘s recognition in O Centro that “sacramental use of Ayahuasca as a sincere exercise of religion under the First Amendment.” Id. at 293–94. On the Church‘s read, O Centro made clear that “it is not necessary for a church to first apply for and secure a religious exemption from the [CSA] before enforcing its religious freedom rights in the courts.” J.A. 294. The Church further related that, if the CSA exemption were to be denied, it would seek judicial relief under RFRA. Notably, the Church neither represented that any of its members forgo Ayahuasca ceremonies nor described how it would operate if it were denied CSA exemption by both the DEA and a court.
In February 2020, the IRS again requested more information, asking, as relevant here, whether the Church had received guidance for applying for a CSA exemption from the DEA or the Department of Justice (“DOJ“); how the Church could be in compliance with the part of the
Unpersuaded by the Church‘s responses, the IRS issued a proposed adverse determination in June 2020. The IRS explained that the Church failed the organizational test, both because it was formed in part for the illegal purpose of distributing a substance containing DMT and because “[m]ore than an insubstantial part of [the Church‘s] activities” were “not in furtherance of an exempt purpose,” but instead “serve[d] a substantial nonexempt purpose” in that they primarily involved “advocating and engaging in activities that contravene federal law” and “enabling individuals to engage in an activity illegal under federal law[.]” J.A. 331. The IRS also rejected the Church‘s defense that its activities are protected by RFRA following O Centro. The agency concluded that, in O Centro, the Supreme Court held only that “an organization does not have to apply for . . . exemption [from the DEA] prior to seeking relief in the courts,” not that applicants can “simply use [Ayahuasca] without the exemption.” Id. at 333. The Church quickly filed to protest the IRS‘s proposed adverse determination, but the IRS, unmoved by the Church‘s challenge, issued a final adverse determination (“IRS Decision“) in June 2021 affirming its earlier proposed determination.
The Church then sued the Government in District Court to challenge the IRS Decision. The Church claimed, first, that the IRS erred in denying the Church‘s tax-exemption application by failing to recognize that O Centro “recognized the use of . . . Ayahuasca in religious ceremonies as a sincere exercise of . . . religion under the First Amendment” and, second, that the Government violated RFRA by “ruling [in the IRS Decision] that [the Church‘s] activities are illegal[.]” J.A. 26–27. When the parties later filed cross-motions for summary judgment, the Government challenged the Church‘s standing to raise its RFRA claim. Iowaska Church of Healing v. United States (“Iowaska I“), 2023 WL 2733774, at *3 (D.D.C. Mar. 31, 2023). To defend its standing, the Church claimed that it had sustained three injuries. First, the Church suffered from the “chilling effect on its religious freedom” occasioned by the IRS‘s second information request, which it said “caused [the Church] and its members to fear law enforcement intrusion into their ceremonies and potential prosecution under the CSA,” J.A. 139–40. Second, it endured “reputational damage” from the IRS Decision‘s “characterization [of] the Church‘s activities as ‘illegal,‘” which the Church said prevented it from conducting other “charitable activities.” Id. at 140, 141. And finally, it suffered economic injury in the form of lost income and profits, which caused the Church to have “no membership income or contributions with which to carry on its programs for nearly three years.” Id. at 142.
The District Court granted the Government‘s motion for summary judgment, concluding that the Church was not eligible for tax-exempt status under Section 501(c)(3) and that it lacked Article III
Turning next to the RFRA claim, the District Court held that the none of the injuries the Church claimed could support Article III standing. Id. at *6; id. at *6 n.7. Addressing the Church‘s claimed “chilling” injury primarily and most extensively, the District Court determined that the fact that “members cannot exercise their sincerely held religious beliefs by consuming Ayahuasca” was “neither traceable to the IRS‘s denial of [the Church‘s] application nor redressable with a favorable ruling[.]” Id. at *6. The District Court reasoned that the Church ceased its Ayahuasca ceremonies because it “lack[ed] . . . a CSA exemption” that would permit use and distribution of Ayahuasca, not because of any action by IRS; the District Court additionally emphasized that the IRS “has no authority to address [the Church‘s] application for a CSA exemption.” Id. Moreover, the District Court found the Church‘s claim that the IRS Decision would “likely put [the Church‘s] pending DEA religious exemption application at a much higher risk of being denied” was, “at best, speculative” and could not satisfy the traceability requirement. Id. at *7. Finally, the District Court concluded that a favorable decision on the Church‘s RFRA claim would not redress its alleged “chilling” injury “since granting [the Church] tax-exempt status w[ould] not necessarily lead to DEA‘s approval of [the Church‘s] CSA exemption application.” Id.
The District Court also briefly addressed the Church‘s claimed reputational and economic injuries, finding that neither injury conferred standing. Id. at *6 n.7. The District Court reasoned, first, that the Church‘s alleged reputational injury is not sufficiently concrete since the record contains no evidence that the IRS Decision caused any stigmatic harm. Id. As to the Church‘s alleged economic injury, the District Court found that the Church “flunk[ed] the traceability and redressability requirements” because its economic injury depended “entirely on the independent decisions of third-party donors.” Id.
The Church timely appealed.
II.
We review the question of whether the Church has Article III standing to raise its RFRA claim de novo. Air Excursions LLC v. Yellen, 66 F.4th 272, 277 (D.C. Cir. 2023); Defenders of Wildlife v. Perciasepe, 714 F.3d 1317, 1323 (D.C. Cir. 2013). We review the District Court‘s ruling that the Church is neither organized nor operated exclusively for tax exempt purposes, however, for clear error. Fund for the Study of Economic Growth & Tax Reform (“FSEGTR“) v. IRS, 161 F.3d 755, 758 (D.C. Cir. 1998); see Family Trust of Mass., Inc. v. United States, 722 F.3d 355, 359 (D.C. Cir. 2013).2 We conclude that the Church lacks standing to assert its RFRA claim because the economic injury the Church asserts on appeal is neither an injury-in-fact nor redressable and any other standing theories asserted below have been forfeited. Without the specter of a cognizable RFRA claim, the Church‘s tax-exemption claim also fails; the District Court‘s affirmance of the IRS Decision was not clearly erroneous given that the Church could not proffer evidence of a CSA exemption to show it passed the organizational and operational tests.
A.
On appeal, the Church relies on its economic injury to support its argument that it has standing to assert the RFRA claim, but that injury fails the injury-in-fact and redressability requirements.
“Standing to assert a [RFRA] claim or defense . . . shall be governed by the general rules of standing under [A]rticle III[.]”
To allege an injury-in-fact, a plaintiff must have “suffered . . . an invasion of a legally protected interest.” Nat‘l Taxpayers Union, Inc. v. United States (“NTU“), 68 F.3d 1428, 1433 (D.C. Cir. 1995) (quoting Lujan, 504 U.S. at 560–61). Organizations, specifically, must show “[s]uch concrete and demonstrable
To the degree that the Church also claims the loss of “charitable contributions and membership income” are part and parcel of its claimed economic injury, Appellant‘s Br. 44, the Church still fails to show traceability and redressability. Traceability requires “[t]he ‘causal connection between the injury and the conduct complained of‘” to be “fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court.” Arpaio v. Obama, 797 F.3d 11, 19 (D.C. Cir. 2015) (quoting Lujan, 504 U.S. at 561). “When considering any chain of allegations for standing purposes, [this Court] may reject as overly speculative those links which are predictions of future events (especially future actions to be taken by third parties),’ as well as predictions of future injury that are ‘not normally susceptible of labelling as ‘true’ or ‘false.‘” Id. at 21 (quoting United Transp. Union v. Interstate Com. Comm‘n, 891 F.2d 908, 913 (D.C. Cir. 1989)). Injuries from any lost “current and future . . . income and profits” are not traceable to the IRS Decision, J.A. 142, but instead, as the District Court explained, “depend[] entirely on the independent decisions of third-party donors,” Iowaska I, 2023 WL 2733774, at *6 n.7 (citing Clapper v. Amnesty Int‘l USA, 568 U.S. 398, 413 (2013)).
The Church relies upon Burwell v. Hobby Lobby, 573 U.S. 682 (2014), for its standing argument, but that case is inapposite. There, the Supreme Court determined it was “predictable” that companies that chose to exercise their religious right to refuse insurance coverage for contraception and incur an Affordable Care Act (“ACA“) penalty would either have to pay the penalty in addition to paying for employee insurance or “face a competitive disadvantage in retaining and attracting skilled workers” by requiring employees to seek insurance on the ACA exchanges. Id. at 722. The Court speculated about the potential third-party actions of workers, however, to determine whether the contraceptive coverage requirement imposed a substantial burden under RFRA, not to assess whether the companies had alleged an injury-in-fact traceable to a defendant‘s conduct.
B.
1.
Having held that the Church lacks standing to assert its RFRA claim, we turn to the question of whether the District Court erred in affirming the IRS Decision.
When a taxpayer challenges an IRS denial of tax-exempt status, “the burden is on the taxpayer seeking exemption to demonstrate that it is in fact entitled to tax-exempt status[.]” FSEGTR, 161 F.3d at 759. “[E]ntitlement to tax exemption [under Section 501(c)(3)] depends on meeting certain common law standards of charity—namely, that an institution seeking tax-exempt status must serve a public purpose and not be contrary to established public policy.” Bob Jones, 461 U.S. at 586; see Rev. Rul. 71-447, 1971-2 C.B. 230 (same). While “a declaration that a given institution is not ‘charitable’ should be made only where there can be no doubt that the activity involved is contrary to a fundamental public policy,” Bob Jones, 461 U.S. at 592, “the presence of a single [non-exempt] purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly [non-exempt] purposes,” Better Bus. Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279, 283 (1945).
The District Court did not clearly err in determining that the Church did not meet its burden here. “[T]he public purpose of a charitable [organization] may not be illegal or violate established public policy[.]” Bob Jones, 461 U.S. at 591; see also Ould v. Washington Hospital for Foundlings, 95 U.S. 303, 311 (1878) (“A charitable use, where neither law nor public policy forbids, may be applied to almost any thing that tends to promote the well-doing and well-being of social man.“). The Church‘s primary organizational and operational purpose—Ayahuasca use and ceremony—is illegal on its face without a CSA exemption and the Church did not prove otherwise to either the IRS or the District Court. Indeed, in its initial tax-exemption application, the Church acknowledged that DMT “is illegal absent the appropriate registration with the DEA or pursuant to a judicial or other registration exemption” from the CSA. J.A. 247. The IRS was under the same impression, which is why the IRS both asked the Church about the status of its CSA exemption several times while considering the Church‘s application and, ultimately, denied the Church‘s application.
2.
The Church counters the preceding reasoning on several grounds, but none of the grounds it provides persuade us to change our holding.
To start, the Church contends that its proposed Ayahuasca use is “presumptively legal” and, thus, cannot serve as a basis for failing the Church on the organizational or operational tests. Appellant‘s Br. 20. This argument is unconvincing, however, because it conflates the burden the Church would face for an actionable RFRA claim with its burden for the instant tax-exemption claim to obscure the fact that the Church fails to meet the latter.3 For a RFRA claim, an “effective[] demonstrat[ion] that . . . [a] sincere exercise of religion was substantially burdened” is sufficient to make out a prima facie case. O Centro, 546 U.S. at 428. Under that framework, a showing that an organization‘s Ayahuasca ceremonies are a “sincere exercise of religion” could be sufficient to establish the presumptive legality of those ceremonies and shift the burden to the government. For a tax-exemption claim, however, the burden is both different and higher: the taxpayer must show entitlement to tax-exempt status, which, here, puts the onus on the Church to demonstrate that its proposed Ayahuasca use is not “illegal” or “contrary to established
public policy” in the first instance. Bob Jones, 461 U.S. at 586; see FSEGTR, 161 F.3d at 759. This is why, contrary to what the Church says, it was not the IRS‘s responsibility to presume the Church‘s Ayahuasca ceremonies were legal. It was, instead, the Church‘s job to establish that it had a CSA exemption and it failed to do so.4
“compelling interest in uniform application of a particular program“). The difference between the IRS and CSA regulatory schemes is significant enough to render O Centro inapposite on this point and in this posture.
The Church‘s final argument in support of presumptive legality—that “RFRA effectively amended the CSA” to protect Ayahuasca use as a sincere religious exercise—is also plainly wrong. Appellant‘s Reply Br. 8. “Where there is no clear [congressional] intention otherwise, a specific statute will not be controlled or nullified by a general one.” Morton v. Mancari, 417 U.S. 535, 550–51 (1974). Here, there is no indication that Congress intended RFRA to amend, control, or nullify the CSA, which is the more specific statute of the two. The IRS‘s deference to the CSA was, thus, warranted.
The Church next argues that the District Court, in declining to entertain whether the Church had made a sufficient showing to the DEA that it qualified for a CSA exemption, impermissibly introduced an “exhaustion of administrative remedies” requirement. Appellant‘s Br. 26. This contention relies on a mischaracterization of the District Court‘s reasoning, however. The District Court merely held, as RFRA provides, that the IRS properly concluded that the Church‘s Ayahuasca use “remains illegal under federal law” until “[the Church] obtains a CSA exemption.” Iowaska I, 2023 WL 2733774, at *5. The District Court did not purport to require the Church to pursue an exemption exclusively through the DEA. Instead, it reasonably suggested that the Church had sued the wrong agency, erecting no barrier to the Church pursuing exemption through judicial action with the right party on the other side of the “v.”
The precedent the Church cites to further support its administrative exhaustion argument is neither on point nor binding on this Circuit. Oklevueha Native American Church of Hawaii, Inc. v. Holder, which the Church cites to say that courts “have repeatedly rejected [the] argument” that RFRA permits exhaustion requirements, Appellant‘s Br. 24, addressed whether a church could obtain a CSA exemption in the courts without first seeking an exemption with the DEA. 676 F.3d 829, 833 (9th Cir. 2012). The Ninth Circuit concluded courts can review “a RFRA-based challenge to the CSA without requiring
The Church‘s remaining arguments that it nevertheless passes the organizational and operational tests are, likewise, in vain. In its brief, the Church leans on the Supreme Court‘s decision in Bob Jones for its announcement that “a declaration that a given institution is not ‘charitable’ should be made only where there can be no doubt that the activity involved is contrary to a fundamental public policy“—a passage the Church refers to as the “no doubt” rule—to say that the IRS could not have based its decision on the Church‘s Ayahuasca use because the legality of that use is “uncertain.” Bob Jones, 461 U.S. at 592. The Church is, again, wrong on this point; while the “no doubt” rule may be sufficient to save an organization committed to unpopular but not illegal activities, it is insufficient to counter the explicitly illegal activity of using and distributing a DMT-rich substance without a CSA exemption. See Ould, 95 U.S. at 311.
The Church offers additional explanations for why it passes the organizational and operational tests even if its proposed Ayahuasca use were to be deemed fully illegal, but those explanations, too, are unpersuasive. Addressing the organizational test first, the Church argues its proposed Ayahuasca use in its articles of incorporation is “aspiration[al]” and does not specify how “access’ will be offered” or “commit to doing so in an illegal manner.” Appellant‘s Br. 39–40. But in pointing this out, the Church ignores that the applicable regulation itself requires the IRS to discern “the organization‘s purposes . . . by the terms of [the organization‘s] articles.”
The Church finally contends that the savings clause in its articles of incorporation proves that it does not “expressly empower the organization to engage . . . in [non-exempt] activities.”
* * * * *
For the foregoing reasons, we affirm the judgment of the District Court as to the Church‘s tax-exemption claim. Given that the District Court‘s order granted the Government‘s motion for summary judgment but did not clearly articulate that the Church‘s RFRA claim was dismissed for lack of standing, we affirmatively dismiss the Church‘s RFRA claim here.
So ordered.