The three-judge panel of the U.S. Court of Appeals for the Third Circuit overturned 12 convictions against McKee and Joseph Donato, and sent those counts back for a new trial. The court also vacated two charges against Inge Donato, ruling that she be acquitted.
In its ruling, filed on Monday, the panel upheld one conspiracy charge against all three.
The court overturned the convictions based on technical, legal matters - staying away from the philosophical aspects of the defendants' beliefs.
"This case should have never been tried in the first place. Fraud was the furthest thing from their minds," said Peter Goldberger, who represented the Donatos. "They did their best to comply with their religious beliefs and violated the tax laws as a result. . . . Lots of people violate the tax laws and don't get convicted."
Goldberger represents other pacifist religious organizations, such as Quaker groups, which refuse to pay taxes on moral grounds. He said those religious organizations usually face civil penalty, not prison time.
He said the appeals court "set a terrible precedent" by not addressing the larger religious issues of the case.
"It's a threat to every established pacifist religion that has had kind of an unwritten understanding with the IRS," he said.
McKee and Donato were partners in a small construction company, and Inge Donato worked there as a part-time secretary and bookkeeper.
They were accused of not paying about $300,000 in taxes for themselves and their employees who also were members of their society. They paid taxes for employees who were not members.
Prosecutors pointed out that they also did not pay state taxes, or pay into Medicare, Social Security or workers' compensation, all of which have nothing to do with the federal treasury that funds the military.
The members admitted that they could have been more "pure" with their protest, but they said the tax issue was hardly the central preoccupation of their beliefs.
