Court orders release of bank records in investigation of senator

U.S. appeals court orders release of bank records in IRS investigation of Kansas state senator. The inquiry centers on personal tax liabilities, tax-exempt status of God’s Storehouse.



April 11, 2024 - 2:48 PM

The 10th Circuit U.S. Court of Appeals rejected an attempt by Topeka Sen. Richard Kloos, who serves as pastor of the coffee shop and thrift store known as God’s Storehouse, to block Internal Revenue Service access to banking records of God’s Storehouse during investigation of the not-for-profit corporation’s tax exempt status and possible tax evasion. Photo by Tim Carpenter/Kansas Reflector

TOPEKA — A federal appellate court rejected state Sen. Richard Kloos’ attempt to quash an Internal Revenue Service summons for bank records of a Topeka coffee shop and thrift store at the center of an investigation into possible unpaid business taxes and the legal status of a not-for-profit corporation the lawmaker claimed was a church.

Kloos’ attorneys asked the 10th Circuit of the U.S. Court of Appeals to prevent the IRS from obtaining from Kaw Valley Bank records for accounts tied to God’s Storehouse, which was founded by Kloos and his wife in 2009. The appeal sought to reverse a U.S. District Court decision that rejected objections to the IRS gaining access to all Kaw Valley Bank records from Jan. 1, 2019 and Dec. 31, 2020, linked to God’s Storehouse.

The IRS investigation, according to court records, included concerns about whether God’s Storehouse operated as the thrift-store business rather than a church, God’s Storehouse improperly intervened in Kloos’ successful Senate campaign in 2020, the coffee shop avoided liability for business income taxes and that wage payments to the Klooses incurred liability for unpaid employment taxes. The IRS asserts the Klooses withheld employment taxes from workers of God’s Storehouse, but didn’t withhold employment taxes on God’s Storehouse wages paid to themselves.

God’s Storehouse wasn’t established as a charitable organization under federal law. Instead, the Klooses launched God’s Storehouse as a tax-exempt corporation and simply declared it to be a church.

On appeal, the Klooses’ counsel argued the IRS summons was invalid because the federal government failed to satisfy requirements applicable to examination of church records and that churches had “special protections in the audit context.”

The federal district court found the IRS relied on the appropriate high-level U.S. Department of Treasury official to initiate the request for bank documents. That federal judge pointed to a provision in the Code of Federal Regulations that said “records held by a third-party bank are not church records.”

The three-judge panel of the U.S. Court of Appeals agreed with the lower court and said “the relevant statutory language and applicable case law are harmonious.” In other words, the IRS complied with federal law regarding contested access to bank records of God’s Storehouse. The appellate court said requirements of the IRS for initiating church taxation inquiries or examinations didn’t apply to this third-party summons sent to a Kansas bank.

The 15-page order released Tuesday denied the attempt by God’s Storehouse to quash the summons for Kaw Valley Bank and granted the IRS motion for summary denial of the Klooses’ bid to conceal those banking records. The IRS investigation began in February 2021.

Ryan Kriegshauser, one of three attorneys representing God’s Storehouse, said the appellate court’s decision enabled the IRS to “exploit a procedural loophole to deprive churches of their constitutional protections.”

He also pointed to an earlier federal magistrate judge’s conclusion in the same case that the ability of the IRS to bypass federal safeguards afforded churches should be considered by Congress.

“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,” he said.