The Rev. George F. Regas did not urge parishioners at All Saints Episcopal Church to support either President Bush or John Kerry, but he was critical of the Iraq war and Bush's tax cuts.
The IRS warned the church in June that its tax-exempt status was in jeopardy because such organizations are prohibited from intervening in political campaigns and elections.
The church's rector, J. Edwin Bacon, told his congregation about the problem Sunday.
"It's important for everyone to understand that the IRS concerns are not supported by the facts," Bacon said.
Bacon later said he chose Sunday to inform the congregation because Nobel Peace Prize winner Archbishop Desmond Tutu was in attendance and because he believes a decision from the IRS is imminent. He called the IRS threat "a direct assault on freedom of speech and freedom of religion."
Some All Saints members said they feared the 3,500-member church is being singled out for its political views.
All Saints has long been vocal about its positions. Its Web site mentions the upcoming special election in California and says three Republican-backed propositions would "alter the very fabric of our lives as a democracy by limiting the right to representation and the right to express a political point of view." Regas, who gave the 2004 sermon, retired 10 years ago as the church's rector.
An IRS spokesman in Washington declined to comment Monday, saying he could not discuss particular cases.
Marcus Owens, the church's tax attorney and a former head of the IRS tax-exempt section, said the agency offered to drop the proceedings if the church admitted wrongdoing. According to Owens, the church declined that offer.
In 1992, another church lost a somewhat different battle with the IRS over politics. That church, in Binghamton, N.Y., had its charitable status designation revoked because of advertisements it ran in 1992 opposing Bill Clinton's candidacy for president.