JEFFREY KAYE: This austere church, with its gothic revival architecture, seems an unlikely target of a federal government investigation. But the All Saints Episcopal Church in Pasadena, California, is facing scrutiny by the Internal Revenue Service.
The IRS is threatening to pull the church's tax-exempt status because of a political sermon delivered in October 2004, the Sunday before the last presidential election.
REV. GEORGE REGAS (Oct. 31, 2004): I don't intend to tell anyone how to vote.
JEFFREY KAYE: In his sermon, retired rector George Regas professed neutrality. Regas imagined Jesus lecturing the presidential candidates and castigating President Bush for the war in Iraq.
REV. GEORGE REGAS: Jesus continues: "Mr. President, your doctrine of preemptive war is a failed doctrine forcibly changing the regime of an enemy that posed no imminent threat has led to disaster."
JEFFREY KAYE: The IRS, alerted to the sermon by a newspaper article, warned the church that the speech "may constitute political campaign intervention, which could cause you to lose your tax exempt license."
The investigation of All Saints is part of a larger probe by a new IRS unit investigating charitable groups and churches around the country.
IRS Commissioner Mark Everson would not discuss specific cases.
MARK EVERSON: The Congress has said you can't support or oppose a particular candidate if you want to have tax exempt status.
We saw a real up tick in complaints about alleged political activity in the last election cycle.
JEFFREY KAYE: The ban on partisan activity by charities goes back to 1954. Then-Senator Lyndon Johnson pushed through the prohibition during a reelection campaign in which he'd been attacked by tax exempt organizations.
Everson says the IRS is examining both liberal and conservative groups.
MARK EVERSON: We've looked at over 130 different organizations, and about half of those are churches. And at this point, some 80 of the inquiries have been completed.
JEFFREY KAYE: Other IRS targets include: An evangelical church in Arkansas whose pastor, seen in this video from the Internet, spoke admiringly of President Bush compared to Sen. John Kerry; the NAACP, whose chairman criticized President Bush; and a catholic group whose voter guide urges readers to avoid candidates who support "intrinsically evil actions" including abortion and homosexual marriage.
At All Saints Church, Rector Ed Bacon says the pre-election sermon in question was not electioneering.
REV. ED BACON: You can hold a president accountable without endorsing his opponent.
JEFFREY KAYE: Can you?
REV. ED BACON: Yes. Oh, indeed. We're not interested in ousting President Bush from the office. We're interested in changing President Bush's policies.
JEFFREY KAYE: Bacon says the sermon was consistent with All Saints' philosophy. He and other leaders have been arrested for civil disobedience. The church has a long and proud tradition of championing antiwar and liberal causes.
MARK EVERSON: This is a criticism that was not made on a singular Sunday prior to the election. This is a criticism that has been mounted from that pulpit since we started the war in Iraq.
JEFFREY KAYE: Despite political differences, conservative religious leaders have come to the defense of liberal All Saints Church.
TED HAGGARD: Freedom means absence of government supervision, all right?
JEFFREY KAYE: Pastor Ted Haggard, who heads the 11,000-member New Life Church in Colorado Springs, is a staunch Republican.
TED HAGGARD: I'm in the opposite theological camp, the opposite political camp, but I would die and use everything I can to give that pastor the freedom and the liberty to teach the scriptures and -- and preach the way his conscience leads him.
JEFFREY KAYE: Haggard's church also came under IRS scrutiny because of a complaint about a sign placed in 2004 outside the church by a political candidate.
The church was cleared because the sign wasn't on church property. But Haggard, who is also president of the National Association of Evangelical Churches, says the IRS is misusing its power and being manipulated.
TED HAGGARD: The tyranny of this is if you have a liberal pastor in a conservative setting there and he didn't like it, he calls the IRS and launches a complaint.
If you have a conservative pastor in a liberal setting in the crowd, he calls the IRS and launches a complaint.
It should not be that way. The government intimidation should never be used against the clergy, ever.
JEFFREY KAYE: Religion and politics have long been intertwined for both the right and left in issues ranging from abortion to war and peace to the rights of gays and the brain damaged.
MARTIN LUTHER KING JR.: Somewhere I read the greatness of America is the right to protest for rights. (Cheers and applause)
JEFFREY KAYE: The civil rights movement of the 1960s was spawned in black churches and championed by religious leaders.
More recently, the president has pushed a faith-based agenda.
PRESIDENT GEORGE W. BUSH: We must welcome faith in order to make America a better place. (Applause)
SPOKESMAN: Welcome to Justice Sunday 3.
JEFFREY KAYE: And in January, in a national telecast...
DR. JERRY FALWELL, Liberty University: You have two senators. Urge them to vote for the confirmation of this judge.
JEFFREY KAYE: A tax-exempt Christian group, the Family Research Council, rallied support for the confirmation of Supreme Court nominee Samuel Alito.
TED HAGGARD: Your theological basis has implications in political action.
SPENCER MICHELS: Religious leaders on both sides of the political spectrum believe their values compel political action.
TED HAGGARD: If you believe you should help the poor, that's political. If you believe in equal justice, that's political. If you believe a -- a fetus is a human being, that's political.
There's nothing a person can believe in a church or a synagogue or a mosque that isn't political.
REV. ED BACON: We stand in the prophetic tradition of Christianity, which, of course, has as a backdrop the prophetic tradition of Judaism and that is, of design and of nature and of identity, a political church. But it's political, never divorced from spirituality.
JEFFREY KAYE: But the question is where do you draw the line? When, in the eyes of the IRS, does issue advocacy cross the line into candidate support or opposition? IRS Commissioner Everson says his agency often has to draw conclusions from what the guidelines describe as "facts and circumstances."
MARK EVERSON: What we do is we try to a look at all the facts and circumstances -- and there can be a number -- to determine whether it was reasonable or not the conduct and was the organization just speaking to an issue or was it clearly doing its best to influence a particular race?
REV. ED BACON: For me, it's very clear. I want the IRS to clarify it the way I understand it, and that is that you do not explicitly endorse a candidate.
JEFFREY KAYE: Bacon says he wants the IRS to stick to the letter of the law, rather than try to figure out what a cleric implied in a sermon.
REV. ED BACON: I want it made very, very clear that IRS agents can't go in behind the text of a sermon and say, "Ah, they intended to endorse a candidate. Therefore, they're in breach of the IRS regulations." I don't think that's what we need here in America.
JEFFREY KAYE: Conservative churches have a different take. Haggard says his tax exempt status should have no bearing on his freedom of speech.
TED HAGGARD: There should be no regulations on biblical interpretations.
JEFFREY KAYE: He wants the law concerning political candidates abolished and, as he puts it, the "IRS out of the religion business."
TED HAGGARD: If people are saying this candidate's better than another or this political ideology is better than another, then let them throw it out and then the church can rise or fall. But the government shouldn't be involved in supervising that unless they're encouraging violence or some other horrific thing in the name of religion.
JEFFREY KAYE: Everson defends the law as necessary to maintain the integrity of America's charities.
MARK EVERSON: The worst thing that could happen here is that charities become vehicles of political campaigns; they lose the faith of Americans. Americans will stop giving if charities are abused. And then those in need will suffer.
JEFFREY KAYE: Everson expects more political involvement by churches and charities, and, he promises, increased IRS scrutiny.