The 10th Circuit U.S. Court of Appeals denied Topeka Sen. Richard Kloos’ request to prevent the Internal Revenue Service from accessing the banking records of God’s Storehouse. Sen. Kloos, who also serves as the pastor of the coffee shop and thrift store, was attempting to block the IRS from investigating the not-for-profit corporation’s tax-exempt status and potential tax evasion. (Tim Carpenter/Kansas Reflector)
A federal appellate court has denied state Senator Richard Kloos’ request to cancel an Internal Revenue Service (IRS) summons for bank records belonging to a coffee shop and thrift store in Topeka. These records are being sought as part of an investigation into potential unpaid business taxes and the legal status of a not-for-profit corporation that Kloos argued was a church.
Kloos’ legal team has made a request to the 10th Circuit of the U.S. Court of Appeals, seeking to block the IRS from obtaining records for accounts associated with God’s Storehouse. Founded by Kloos and his wife in 2009, God’s Storehouse is at the center of the dispute. The appeal aims to overturn a previous decision by the U.S. District Court, which denied objections to the IRS’s access to all Kaw Valley Bank records related to God’s Storehouse between January 1, 2019, and December 31, 2020.
According to court records, the IRS investigation raised several concerns regarding God’s Storehouse. One of the concerns was whether the organization operated primarily as a thrift-store business rather than a church. Additionally, there were allegations that God’s Storehouse improperly intervened in Kloos’ Senate campaign in 2020. Another issue was the coffee shop’s potential avoidance of liability for business income taxes. Lastly, the IRS claimed that the Klooses withheld employment taxes from God’s Storehouse workers but failed to withhold employment taxes on the wages they received from the organization.
God’s Storehouse was not established as a charitable organization under federal law. Instead, the Klooses decided to launch it as a tax-exempt corporation and declared it as a church.
During the appeal, the Klooses’ lawyer contended that the IRS summons was invalid. The argument was based on the federal government’s failure to meet the necessary requirements for examining church records, as well as the assertion that churches were entitled to special protections in the audit context.
The federal district court concluded that the IRS appropriately relied on a high-level U.S. Department of Treasury official to initiate the request for bank documents. The court cited a provision in the Code of Federal Regulations which states that “records held by a third-party bank are not considered church records.”
The U.S. Court of Appeals, in agreement with the lower court, has ruled that the IRS followed federal law when requesting access to bank records of God’s Storehouse. The court stated that the relevant statutory language and applicable case law align in this case. It clarified that the IRS’s requirements for initiating church taxation inquiries or examinations did not apply to the third-party summons sent to a Kansas bank.
In a recent ruling, a 15-page order was released on Tuesday, denying God’s Storehouse’s attempt to dismiss the summons for Kaw Valley Bank. Additionally, the IRS motion for summary denial of the Klooses’ request to conceal their banking records was granted. It is worth noting that the IRS investigation into this matter commenced in February 2021.
According to Ryan Kriegshauser, a member of the legal team representing God’s Storehouse, the recent decision by the appellate court has allowed the IRS to take advantage of a procedural loophole in order to strip churches of their constitutional protections.
Additionally, he highlighted a previous determination made by a federal magistrate judge in the same lawsuit, emphasizing the importance of Congress taking into account the IRS’s ability to bypass the federal safeguards provided to churches.
“Our client remains dedicated to upholding religious liberties and will carefully review this opinion. Based on our assessment, we will determine the appropriate course of action moving forward,” stated the attorney.
Kloos, a resident of Berryton, made an unsuccessful bid for the Kansas governorship as an independent candidate. In 2020, he emerged victorious by defeating the longest-serving member of the Kansas Legislature, securing a Senate seat. As he seeks re-election in 2024, his spouse, Pennie Kloos, is actively campaigning for the Topeka seat in the Kansas House, currently held by Democratic Representative Virgil Weigel, a Topeka Democrat.