When George Regas, rector emeritus of All Saints Church in Pasadena, Calif., stepped into the pulpit on Oct. 31, 2004, he gave a sermon that the congregation could have mistaken for a lecture on current events. It was two days before the last presidential election, and Regas offered up a mock debate among George W. Bush, John Kerry, and a left-wing Jesus.

What made the talk especially memorable is what happened afterwards: The IRS opened an investigation into whether All Saints ran afoul of federal regulations for tax-exempt churches, sparking discussion nationwide about how much churches can involve themselves in politics.

The IRS has pursued such investigations with dozens of churches and charities, but All Saints made headlines by refusing on Sept. 21 to turn over documents to authorities. "We think that they don't have a case," said All Saints communications director Keith Holeman. The church wants a judge to weigh in on the investigation before it goes any further.

A sermon like the one at All Saints would not have caught the eye of authorities 53 years ago. But in 1954, Congress passed an amendment to the tax code (introduced by Sen. Lyndon Johnson) that prohibits tax-exempt churches and charities from being involved in political campaign activity. The amendment has been controversial ever since, and confusion surrounds what exactly it proscribes.

The IRS has published guidelines (irs.gov/newsroom/article/0,,id=154712,00.html) to help churches comply, and some activities clearly cross the agency's line in the sand. For instance:

• A church may not endorse any candidate.
• A church may not contribute financially to a candidate's campaign.
• A church may not allow a candidate exclusive use of its assets or facilities. (If a church allows one candidate to use its facilities, it must allow other candidates to use them as well.)

Other activities are just as clearly allowed:

• A church sermon may include full advocacy of or opposition to any public policy.
• A church may even engage in lobbying activities, including work for or against constitutional amendments or ballot referendums, as long as it doesn't devote a "substantial" amount of its time or resources to that activity. (The government doesn't want tax-exempt lobbying firms.)
• A pastor or other church officer may endorse or contribute to a candidate as long as he's not speaking for the church or using the church's assets (including church publications).

The overarching principle: A church can take stands on political issues but not on the election of political leaders. All Saints officials insist that Regas followed that rule. His sermon strongly opposed the Iraq war and supply-side tax cuts, and it favored legal abortion-all of which is within what the government allows. The sermon, however, also featured Bush and Kerry as central figures.

IRS officials have not commented specifically about the case, but this seems to be what concerned them. Before Regas advised congregants to "vote your values" at the polls, he left little doubt that he thought Jesus would be appalled by Bush's presidency. He imagines Jesus saying, among other things, "Mr. President, your doctrine of preemptive war is a failed doctrine. Forcibly changing the regime of an enemy that posed no imminent threat has led to disaster."

But Holeman from All Saints says such statements should not be construed as an endorsement of Kerry. Democrats who voted for the war, he said, are as responsible for it as President Bush, and the church has made that clear. "We're a political church," he told WORLD. "But we're not a partisan church."

Defenders of All Saints also point out that Regas began his remarks by saying, "Good people of profound faith will be for either George Bush or John Kerry for reasons deeply rooted in their faith," and that he never specifically told congregants which candidate to support.

Leaders from across the religious spectrum have opposed the IRS move, including Richard Land, president of the Ethics and Religious Liberty Commission of the Southern Baptist Convention. "We smell intimidation," said Maher Hathout, chairman of the Islamic Center of Southern California. "It smells rotten, and we should not allow any aspect of intimidation to be directed to any member of our great country."

IRS officials, meanwhile, said they have a duty to enforce the law. "We recognize the constitutional rights of freedom of speech and religion," IRS spokesman Terry Lemons said in a statement. "But there is no constitutional right to be exempt from federal taxation."