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Religious freedom is not a valid tax evasion defense

Although separation of church and state is a key constitutional tenet in the operation of the United States government, God regularly plays an unofficial role at tax filing time.

Church state road sign

There are those folks who take his name in vain as they struggle with a particularly complex part of the tax code. Guilty!

Then there are those folks who seek his divine guidance in figuring out their annual tax liability. Or, once they've done that, pray for a miracle to pay what they owe. Guilty again!

But religion shouldn't have any part in defending criminal tax evasion.

That's not just my personal opinion. It is the ruling of the Indiana Court of Appeals.

The decision was handed down in connection with a taxpayer's attempt to use the Hoosier State's Religious Freedom Restoration Act (RFRA) as a reason to avoid paying income tax.

Fight for, against religion-focused law: You remember Indiana's RFRA. When it was signed into law on March 31, 2015, by then-Gov.-now-Veep Mike Pence, the state erupted in a battle for and against it.

Critics argued that it could be used by individuals and businesses to discriminate, particularly against members of the LGBTQI (lesbian, gay, bisexual, transgender, questioning and intersex) community. Things escalated quickly, with the state's major newspaper, the Indianapolis Star, running a provocative front page editorial demanding that lawmakers "Fix This Now."

After threatened boycotts and potentially damaging economic effects if major companies left or refused to relocate to Indiana, an additional bill designed to protect LBGT individuals was signed into law on April 2, 2015.

Beyond expected uses: Still, the law has provoked frustration, anger and unintended consequences.

Indianapolis resident Bill Levin said RFRA protected the right to use marijuana for religious reasons and founded the First Church of Cannabis.

Rodney Tyms-Bey also cited RFRA as a defense for not paying taxes. Tyms-Bey had been in a tax dispute with the Indiana Department of Revenue since 2013, when the state tax agency determined that he had falsely reported his income and eligible tax deductions in 2012 and owed the state $1,042.82.

In response, he claimed that he was a "sovereign citizen," declared himself an estate and refused to amend his tax return or pay the outstanding balance that Indiana claimed he owed.

Indiana DoR's response was to charge Tyms-Bey in 2013 with three counts of tax evasion. Each is a Class D felony.

Religious tax defense raised, struck down: And on July 1, 2015, the date that Indiana's religious freedom law took effect, Tyms-Bey countered by filing a notice of defense of religious freedom.

Tyms-Bey has never identified what religious practice is affected by the state's tax actions, but in the latest legal turn, a divided appellate court found his argument unpersuasive.

In the Jan. 13 decision, the three-member appeals panel held 2-1 that Tyms-Bey and similarly situated defendants may raise an RFRA claim in a criminal prosecution.

But Judge John G. Baker, with Chief Judge Nancy H. Vaidik concurring, further determined that under RFRA, Indiana can "substantially burden a person’s exercise of religion if the burden furthers a compelling governmental interest and is the least restrictive means of furthering that interest."

Baker added:

"In other words, in the case at hand, regardless of the state’s chosen enforcement mechanism, the 'burden' that Tyms-Bey wants to avoid is the same -- the requirement that he pay taxes. The fact that the state has both civil and criminal enforcement options is beside the point. We find that the uniform and mandatory tax system as a whole, which incorporates the criminal penalties at issue here, is the least restrictive means of furthering the government's compelling interest in collecting revenue."

Therefore, according to the ruling:

"[I]n the context of Indiana's RFRA, there is a compelling governmental interest in collecting income tax revenue. Moreover, we hold as a matter of law that the least restrictive means of furthering that compelling interest is uniform and mandatory participation in the income tax system. There are no facts that Tyms-Bey could proffer with respect to his exercise of religion that would not be overcome by the State's compelling interest and the means used by the State in furthering that interest. In other words, as a matter of law, Indiana’s RFRA offers no protection for the allegedly criminal nonpayment of income taxes by Tyms-Bey, and the trial court did not err by denying his request to assert the defense."

One judge partially persuaded: A third appeals panel member, Judge Edward Najam, Jr. disagreed with his colleagues.

In his lengthy dissent, Najam said that while Tyms-Bey might not be successful with his religious freedom claim against paying taxes, he was not required to present evidence in support of his RFRA defense during a pretrial hearing. That, said Najam, could come when Tyms-Bey gets his day in court to which he is entitled.

There's no word yet from Tyms-Bey as to whether he plans to pursue his case further through the state legal system.

More religious tax claims coming? In addition to Indiana, the National Conference of State Legislators says 21 other states have their own versions of religious freedom laws, with 10 others considering such bills.

The Indiana case, however, is the first time a state's income tax laws have been challenged under a state religious freedom law, according to Bloomberg BNA's SALT (State and Local Tax) blog.

"Tyms-Bey could end that possibility in Indiana," writes James Gatliff, a state tax law editor at Bloomberg BNA, "but will it foreclose the use of such a defense in other states?"

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