City Collects Church Property For Un-Owed Taxes

Published Categorized as State & Local Tax, Tax
City Of Chicago Takes Church Property For Un-owed Taxes, Houston Tax Attorney

I once had a state auditor and state attorney tell me that they had to “shut that down.” They were referring to a taxpayer who took a tax credit that was specifically set out in the state tax code.

They went on to express that they did not agree with the state legislature as to why the tax credit was on the books, so they were challenging each and every tax credit that taxpayers were claiming under the provision.

They didn’t accept the concept that the state legislature is to write the law, and the state tax authority is limited to enforcing the law. They were going rouge.

This happens, and it happens often. State and local tax authorities often have their own beliefs and often try to do things that are contrary to the law. There are times when taxpayers have to take the aggressive state and local tax authorities to court, and, in some cases even ask the court to enjoin the tax authorities from acting.

The courts do have this power. The recent Beth-El All Nations Church v. City of Chicago, No. 06 C 1111 (N.D. Ill. Mar. 17, 2006), case shows just how far state and local tax collectors will go to collect taxes–even when the taxes are not owed. It also shows how taxpayers may have to rely on the courts to rein in state and local tax authorities that go rogue.

Facts & Procedural History

The case involves a dispute between the Beth-El All Nations Church and the City of Chicago over the ownership of a property located at 1534 West 63rd Street. The Church purchased the property and rehabilitated it in 1976 and has been operating on it since 1984.

The City brought an action in state court to obtain a tax deed for the Church property due to unpaid real estate taxes, but the notice of the tax deed hearing had the wrong address, and the Church never received prior notice of the tax deed proceedings. The state court entered a tax deed for the City in a hearing in which the Church was not represented due to the improper notification by the City.

The Church claims that after the hearing, the City never properly advised the Church of the tax deed or gave proper notice of the running of the redemption period. The Church demanded that the City return the title to the Church property in April 2003 and filed a petition seeking to collaterally attack the tax deed in June 2003, but the state trial court judge denied the petition because it was not filed within the applicable limitations period.

The Church has filed a motion for a preliminary injunction to prevent the City from evicting the Church Bishop and parishioners from the Church property while the case is pending. The Church alleges that the City unjustly obtained title to the property due to unpaid taxes that were not actually owed.

The Issues Being Litigated

The Church turned to the Federal courts when the state courts failed to address the Church’s claims. The Federal court had this to say about the state court’s shortcomings:

The court finds that the issues being litigated in this action are not the same issues that were litigated in Illinois state court. The Church did not have a reasonable opportunity to raise its constitutional and federal claims in state court, and the state courts did not address the issues brought by the Church in this action. Therefore, the issues concerning the Church’s constitutional rights to due process, religious freedom, and free speech were not addressed in any meaningful manner by the state courts.

The City admitted its faults of not providing notice, etc. but still pursued the matter. The Federal court had this to say about the topic:

The taking of the property of another is a serious matter. The Church must  have received proper notice of the tax deed sale and the Church has a right to defend itself. The principles of due process and notions of fundamental fairness demand nothing less. It is clear from the record before us that the church was not given a proper opportunity to present its claims in state court. Thus, based on all of the above analysis, we conclude that a preliminary injunction is appropriate in this action and we grant the Church’s motion for a preliminary injunction. In this country, even a church is entitled to its day in court. That did not happen in this case.

The Federal court granted the Church’s injunction.

About the Preliminary Injunction

State and Federal law provides for injunctions. This case did not involve Texas law, but Texas law essentially mirrors Federal law on injunctions.

A preliminary injunction is an extraordinary and drastic remedy that should only be granted when the movant, or the party seeking the injunction, carries the burden of persuasion by a clear showing. It is intended to maintain the status quo to give the courts time to consider the issues.

In order to obtain a preliminary injunction, a plaintiff must satisfy four factors:

  1. The plaintiff must have a reasonable likelihood of success on the merits of the case.
  2. The plaintiff must demonstrate that no adequate remedy at law exists.
  3. The plaintiff must show that they will suffer irreparable harm that outweighs any irreparable harm that the respondent, or the party opposing the injunction, will suffer if the injunction is granted.
  4. The plaintiff must demonstrate that the injunction will not harm the public interest.

These factors must be met in order for the court to grant the preliminary injunction.

As a practical matter, the courts generally grant injunctions out of an abundance of caution. The courts often do this as the injunction can cause further harm in some cases and it may not be possible for the court to tell whether this is warranted at the outset of a legal matter, as in this case.

The Takeaway

The state and local tax authorities are often much more aggressive in assessing and collecting taxes. This case is a prime example. Absent valid notice, the underlying tax is not owed. This did not deter the City of Chicago from pursuing the taxes. The preliminary injunction may be used in these situations to stop the state or local tax authorities from acting pending the resolution of the litigation as to the tax. It is unfortunate that taxpayers, particularly a church, would have to resort to such a remedy, but there are times, like in this case when it is clearly warranted.

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