Individual exercise, yes, but that doesn't necessarily mean churches. Besides, Congress would have to pass a law exempting churches from taxes (since the default state is that everybody gets taxed), which would be a law respecting an establishment of religion (religious establishment).
Still, you're getting off-topic. When a party to a court case puts religion on the table, then of course a court has full authority to look into it.
Prior to the 1950's, the default state was that everyone just took for granted that Churches were tax-exempt. A little winnie named LBJ authored a law that changed what was once assumed to be a Constutional right of a Church. But anti-religion types love the government having control over churches.
So, according to current legal standards and laws the right of "free exercise" applies to GROUPS.
Interesting, eh?!
I spent many years administering that standard.
(NOTE: the gub'mnt' is not supposed to pick and chose among different religious organizations ~ that is, there is to be NO PREFERENCE ~ and that's just one of the things that flows out of the First Amendment. There are many others.)
Again, when religion becomes a topic in a court case it is the sworn duty of the judge to manage the case according to strictly secular standards and NOT INSERT HIS OWN BELIEFS INTO THE PROCESS.