God's Storehouse loses appeal, allowing IRS agents to get Topeka church's bank records
An Internal Revenue Service church audit of God's Storehouse can continue after a federal appeals court declined to block the federal government from getting the church's bank records.
The 10th U.S. Circuit Court of Appeals on Tuesday upheld the decision of U.S. District Judge Daniel Crabtree, denying God's Storehouse's petition to quash an IRS summons issued to Kaw Valley Bank.
The ongoing IRS investigation comes as the church's founders, Sen. Rick Kloos and Pennie Boyer-Kloos, are running for Topeka area seats in the Kansas Legislature.
"While our client is steadfastly committed to continuing the fight for religious liberties, we will review this opinion with our client and proceed as we deem advisable," said Ryan Kriegshauser, one of the attorneys for God's Storehouse, in a statement.
The IRS media relations office declined to comment, as is the agency's standard practice on pending litigation. A letter from the court clerk indicates that God's Storehouse can file a petition for rehearing within 45 days.
Why is the IRS investigating God's Storehouse?
God's Storehouse operates a popular west Topeka thrift store that also houses a coffee shop, Judee's.
The IRS first started investigating God's Storehouse in February 2021, following Kloos' successful 2020 campaign for the Kansas Senate where he defeated Senate Minority Leader Anthony Hensley, D-Topeka.
The IRS issued a notice of church tax inquiry that June, and the church responded to questions and provided copies of documents. With the IRS agent's concerns unassuaged, the agency initiated a church tax examination in September and in February 2022 issued summonses to Kaw Valley and Fiserv, a credit card processor in Colorado.
The existence of the IRS investigation of God's Storehouse and more details about it became public when the church sued in federal court in both Kansas and Colorado in an attempt to quash a pair of summonses.
Court records show the IRS is probing God's Storehouse status as a church or whether it is primarily a thrift store, whether taxes were paid from its coffee shop, whether the church engaged in prohibited political campaign activity, and whether it failed to withhold employment taxes on wages paid to Kloos and Boyer-Kloos despite withholding taxes from other employees.
Why did the court rule against God's Storehouse?
On appeal, the church's lawyers argued that technicalities invalidated the summons. After hearing oral arguments on Jan. 16, the court disagreed.
The judges said "the problem for (God's Storehouse) is that the plain language" of the federal laws involved makes it clear that the cited statute did not apply to the facts of the case. That was because the judges said it is clear that a summons of third-party bank records doesn't meet the statutory definition of "church records."
"Unfortunately, the 10th Circuit opinion continues to allow the IRS to exploit a procedural loophole to deprive churches of their constitutional protections through the balance achieved in federal law under the Church Audit Procedure Act," Kriegshauser said.
Kriegshauser said that "even the Court acknowledged the danger here by conceding" the magistrate judge's determination that the argument that the IRS can now essentially bypass safeguards afforded to churches "is one to be taken up in the halls of Congress, not a courtroom."
"If courts will not stop this procedural abuse by the IRS, Congress must act to close this loophole that essentially swallows the Church Audit Procedure Act," he said.
The judges added that they disagreed with God's Storehouse that their interpretation would allow the IRS to circumvent law intended to protect churches from abusive investigations.
"GSH is simply wrong in asserting a plain-meaning interpretation of (federal law) will leave churches entirely at the mercy of IRS," the judges wrote.
Klooses are running for Legislature
Despite the IRS investigation, God's Storehouse has expanded to an East Topeka location that opened last month.
The appellate court's decision also comes as the Klooses are running for the Legislature in the 2024 elections.
Rick Kloos, an incumbent senator, is running for reelection and is being challenged by Dena Sattler, D-Topeka. He holds leadership roles in the Senate as majority whip and vice chair of the influential Federal and State Affairs Committee, as well as vice chair of the Transportation Committee.
His wife, Pennie Boyer-Kloos, is running for for the House, challenging incumbent Rep. Virgil Weigel, D-Topeka.
Rick Kloos, a pastor at God's Storehouse, has said that he viewed the fight with the IRS as standing up for all churches.
"It's bigger than just us," he said at the October campaign launch. "Can you imagine what's going to happen when 87,000 IRS agents are turned loose? So I'm sharing this tonight because it sets a precedent. Why, after we've given all this documentation and all these things, why are we pushing back so hard? Why don't we just give them everything they want? Because it sets a precedent right now."
More: Sen. Rick Kloos sees God's Storehouse's fight with IRS as standing up for all churches
Jason Alatidd is a Statehouse reporter for The Topeka Capital-Journal. He can be reached by email at jalatidd@gannett.com. Follow him on X @Jason_Alatidd.
This article originally appeared on Topeka Capital-Journal: Topeka church, thrift store God's Storehouse loses appeal against IRS
