On Oct. 31, 2004 Rev. George F. Regas delivered a guest sermon at All Saints, beginning with the disclaimer, "I don't intend to tell you how to vote" and noting that, "Good people of profound faith will be for both George Bush and John Kerry..." The sermon then went on to envision what Jesus would say to both candidates about the issues of peace, poverty and the impact of poverty on abortion choices. Regas closed his sermon by urging the congregants to "bring a sensitive conscience to the ballot box," and "vote your deepest values." The imagined statements of Jesus sharply criticized the war in Iraq, nuclear weapons and noted both candidates "failure and the failure of so many political leaders to help uplift those in poverty..."

The IRS initiated its audit as part of its 2004 Political Intervention Program (PIP), a process for reviewing referrals alleging illegal political campaign intervention by charities. The Treasury Inspector General for Tax Administration (TIGTA) issued an evaluation of the PIP program in February, after the IRS audit of the NAACP sparked charges of political motivation. TIGTA found no indications that the random sample of cases it reviewed was handled inappropriately. Of the 131 cases reviewed, 80 were found to warrant further investigation, 34 of which involved religious organizations.

On June 9 the IRS sent All Saints a letter notifying them that "a reasonable belief exists that you may not be tax-exempt as a church..." citing a Nov. 1 article in the Los Angeles Times that characterized the sermon as a "searing indictment of the Bush administration's policies in Iraq." The letter requested information about church operations and notified them of their right to discuss the case with the IRS before the examination began. All Saints hired as counsel the former director of the IRS Exempt Organizations Division, Marcus Owens of Caplan and Drysdale.

A Sept. 22 conference call was held to allow IRS representatives, church officials and their counsel to discuss the allegations. In a follow-up letter Owens wrote that the IRS action was unsupported by the facts and threatened the church's core values. Addressing the difference between issue advocacy and partisan electioneering, Owens wrote, "the church takes issue with your suggestion that the mere mention of candidates' names, coupled with statements regarding the speaker's personal values, is sufficient to constitute prohibited campaign intervention."

The letter held that the IRS told All Saints that the sermon may be an implicit intervention in the election, despite the fact that Regas explicitly said he was not telling people how to vote and that criticism was directed at both candidates.

Following the meeting the IRS offered a deal: if the church would admit wrongdoing and agree not to hold similar sermons in the future, the IRS would not pursue the case further. All Saints rejected the offer, with Rector J. Edwin Bacon explaining, "We have a responsibility to articulate our core values... The IRS is arguing implicit endorsement, and that's a slippery slope that could do away with the freedom of speech and freedom of religion."

Leaders in the faith community, from all points on the ideological spectrum, have spoken out against the IRS action. Ted Haggard, president of the conservative National Association of Evangelicals told the Los Angeles Times that his group will work with other church organizations "in doing whatever it takes to get the IRS to stop." Robert Edgar, general secretary of the National Council of Churches said the IRS action "appeared to be a political witch hunt on George Regas and progressive ideology. It's got to stop." A statement from Progressive Christians Uniting said the case "raises important questions about how much latitude IRS field offices have been given to initiate these cases based on murky criteria and no clear understanding of what does or does not constitute impermissible electioneering."

A statement by Americans United for Separation of Church and State questioned the impartiality of the IRS in its enforcement efforts. Executive Director Rev. Barry Lynn said that while he could understand why the IRS might question the All Saints sermon, he cannot understand "why the tax agency did not take the same view about an even more partisan sermon by a Baptist pastor in Arkansas who preached on the successes of George Bush." A report in the Arkansas Democrat-Gazette said the IRS had declined to pursue an investigation of that church, even though the sermon praised Bush and criticized Kerry.

The IRS currently lacks a clear set of rules defining prohibited intervention in elections, instead it considers each case individually based on the facts and circumstances. The IRS would not comment on the case because of privacy laws, but it has made public its intention to continue the PIP program in the 2006 election cycle.

"Nonprofits should insist," explained Kay Guinane, council for OMB Watch, "that the IRS make it clear that the right of charities and religious organizations to criticize elected officials is not suspended just because an election is taking place."