Kansas State Senator Pushes Back After Court Rules IRS Can Access Church-Related Bank Records

The probe began after someone sent letter to IRS about "potential electioneering violations"

Topeka Senator Richard Kloos is fighting back after the 10th Circuit U.S. Court of Appeals denied his request to overturn an Internal Revenue Service (IRS) summons to access bank records from a coffee shop and thrift store Kloos claims is part of his church.

Court records show the IRS is investigating God’s Storehouse, which, according to founders Kloos and his wife, is a church that hosts a thrift store and a discount coffee shop named after Kloos’ mother, Judee.

The IRS inquiry focuses on God’s Storehouse’s tax liabilities and tax-exempt status to determine if it is a church or primarily a thrift store, if its coffee shop paid taxes, if it engaged in prohibited political campaign activity, and if it failed to withhold employment taxes on Kloos and his wife’s wages despite withholding taxes from other employees.

The appeal sought to reverse a U.S. District Court decision ordering the release of records tied to God’s Storehouse from Kaw Valley and Fiserv, a credit card processor in Colorado, to the IRS.

On appeal, Kloos’ counsel contended that the IRS summons was illegal because the federal government failed to meet the threshold for examining church records and that churches have “special protections in the audit context.”

Last week, a three-judge panel of the U.S. Court of Appeals agreed with the lower court that the IRS followed federal law when it requested God’s Storehouse bank information. The appeal judges said the “plain language” of the federal laws used by the God’s Storehouse counsel makes it clear the cited statute did not apply to the facts of the case.

Thus, the 15-page ruling denied the thrift store’s request to quash the summons for its bank records and approved the IRS’s petition for summary denial of the Klooses’ attempt to conceal that banking information.

Following the ruling, Kloos and his team published a video on God’s Storehouse’s Facebook page promoting a website they named Sound the Alarm. In the video, Kloos said much misinformation was circulating, and he wanted to “clear the air.”

In the video, Kloos said God’s Storehouse was not under an investigation or audit. “The IRS sent us an inquiry with four questions. Unfortunately, yesterday, there was a lot of local media making comments like tax evasion, not paying their taxes, and other things with pretty large implications that are just false,” he said. Kloos and his team said they shared their story in interviews with “a couple of the local channels…but not much of what we said was heard.”

After the church responded to the agency’s questions and provided copies of documents, the IRS initiated a church tax examination. “To say that we’re not a church is ridiculous,” said Kloos. “We are a church. We’ve always been a church.”

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The IRS first issued a notice of church tax inquiry in February 2021, following Kloos’ successful 2020 campaign for the Kansas Senate, in which he defeated Senate Minority Leader Anthony Hensley, D-Topeka. In February 2022, the IRS issued summonses to the bank records.

Kloos, who had come under fire for using the church’s logo on campaign materials and holding campaign meetings at churches, claimed the inquiry began after a Freedom from Religion Foundation supporter sent a letter to the IRS alerting them to “potential electioneering violations.”

The letter, dated September 2020, asked the IRS to correct “violations of electioneering restrictions, as well as churches’ continued misapprehension that the ‘Promoting Free Speech and Religious Liberty’ executive order exempts churches from the prohibition on nonprofit political campaign activity.’”

The IRS investigation went public when God’s Storehouse sued in federal court in Kansas and Colorado to overturn two summonses.

On Sound the Alarm, the church accuses the IRS of bypassing its rights and protections.

“After voluntarily providing the IRS 19 in-depth documents within the scope of the inquiry and answering all their requests over a year, they still refuse to meet with our board,” it says.

“After much bullying for information we now realize they aren’t wanting to work with us to find a resolve, but are on a fishing expedition to discredit us as a Church,” it added. “We no longer trust the intentions of this inquiry.”

The website says the church board plans to fight the IRS for “rights as a Church” and called for reform. The site closes by asking whether pastors and church leaders who run for office should expect their church to be audited.

“If we allow them to do this to our Church, they will continue to do it to other churches. With 87,000 IRS agents being added, we must keep the IRS in check and accountable.”

With the appeal denied, the IRS will continue its inquiry by observing all Kaw Valley Bank records linked to God’s Storehouse from Jan. 1, 2019 to Dec. 31, 2020.

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