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Should Churches Be Tax-Exempt?

By March 25, 2008

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I was poking around the web, looking for information on Rev. John Hagee, the controversial Texas evangelical preacher who has endorsed Sen. John McCain for president. One thing I discovered: churches, unlike other non-profit organizations, are not required to make their financial statements public, even though they are tax-exempt.

Rev. Hagee, in fact, reorganized his TV station (Global Evangelism Television) as a church (Grace Church of San Antonio Churches) to shelter those records, after the San Antonio Express-News revealed his income exceeded $1 million in 2001. All of his assets -- including an 8,000-or-so acre ranch -- are now sheltered in the Cornerstone Church.

Then I wondered why Congress decided that these financial statements don't have to be public. That's when I stumbled upon an even bigger shocker:

Uncovering the root of terrorist financing has become one of the biggest challenges facing the United States in the aftermath of the September 11, 2001, terrorist attacks.
-- US Treasury, 21 May 2007 (pdf)

Wow! Who knew? Bigger than Iraq and social security and the federal deficit? Really?

As a taxpayer and an advocate of crowd-sourcing and "the more eyeballs the merrier" -- I think that the solution to this problem (if it is, indeed, a problem) is to make all that information public. Your organization tax-exempt? Prove it to all of us by filing electronically into a database not unlike the government contracts database. Can't file electronically? Then you pay someone to do it for you (Hey! It's private enterprise, right?)

The Taxpayer Bill of Rights requires that Section 501(c) organizations do something close: they must publicly disclose, on the web:

  1. Copies of the application for tax exemption (for those organizations which filed before July 15, 1987, this requirement only applies if the organization has a copy of the application on July 15, 1987); and
  2. Copies of the organization’s three most recent annual information returns.

What's a Section 501(c) organization, you ask? Those organized under 501(c)3, according to the IRS, are "commonly referred to as charitable organizations." Specifically:

The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

Churches are not 501(c)3s, and they have their own categorization and are exempt from even filing annual reports. (They've been exempt from federal taxes since 1913) Via the IRS (pdf), which, by the way, doesn't provide a legal definition of "church" (neither does Congress):

Churches that meet the requirements of IRC section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS....

Under the Internal Revenue Code, all IRC section 501(c)(3) organizations, including churches and religious organizations, are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office...

For example, certain voter education activities (including the presentation of public forums and the publication of voter education guides) conducted in a non-partisan manner do not constitute prohibited political campaign activity...

[R]eligious leaders cannot make partisan comments in official organization publications or at official church functions... religious leaders who speak or write in their individual capacity are encouraged to clearly indicate that their comments are personal and not intended to represent the views of the organization. (Aside, but when the organization is the leader, such as in the case of Rev. Hagee and many other tele-evangelists...?)...

Fascinating, isn't it? And there's more. Congress has specifically tied the hands of The Executive Branch (one wonders about the reported IRS investigation into Rev. Wright's church, given this bit from the IRS guide to church taxes, emphasis added):

Congress has imposed special limitations, found in IRC section 7611, on how and when the IRS may conduct civil tax inquiries and examinations of churches. The IRS may only initiate a church tax inquiry if the Director, Exempt Organizations, Examinations reasonably believes, based on a written statement of the facts and circumstances, that the organization: (a) may not qualify for the exemption; or (b) may not be paying tax on an unrelated business or other taxable activity.

This may be the coup de grâce: ministers of every faith are "[exempt] from federal taxes for most of the money they spend on housing ... [as well as] exempt from income tax withholding and can opt out of Social Security."

Current [2006] Congressional budget records show that the exemption has cost the government as much as $500 million in tax revenue a year, shifting that much of the national tax burden onto other taxpayers.

Puts tele-evangelism as a career into a new light, doesn't it?

Who's for asking presidential, senatorial and house candidates their viewpoints on putting churches on the same footing as other charitable organizations, like The Red Cross or The Salvation Army -- requiring that churches file the same annual tax reports as other "chartiable and religious" organizations? Would this really be a violation of the First Amendment?

But there is an even bigger question: should churches -- and other charitable organizations -- be exempt from paying income tax? In 1913, when the 16th Amendment authorized the income tax, the government was funded by taxes on goods (a regressive tax), including import tariffs. Bert B. argues that such tax exemption is in effect a government subsidy:

Let's say you give $1000 to your local church over the course of a year. At the end of the year, when you prepare tax return, you can deduct that contribution from your taxable income if you itemize deductions. If you are in the 30% tax bracket, that means that the government does not get $300 in tax revenue that they would have collected if you had not made that donation. In effect, you are giving your church $700, and the government is giving them $300. How does this differ from the Oil Depletion Allowance subsidy offered to oil companies or the huge payments to agribusiness for not growing crops? There is no difference.

What do you think?

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March 25, 2008 at 12:39 am
(1) Fredschmidlap says:

Someone sticks you up at gunpoint. He demands that you hand over your wallet. He cleans out all the cash, but has a twinge of conscience and hands you back a twenty.

Has he given you a $20 subsidy, or has he just stolen $20 less than he might have?

Just wondering.

March 26, 2008 at 12:12 pm
(2) Bernie Dehler says:

I urge all my fellow Christians to sign the “Open Letter to Pastor John Hagee”

It is a shame that he is taking out over $1 million annually from his ministries for personal gain.

March 26, 2008 at 3:44 pm
(3) uspolitics says:

Fred, I don’t get your point.

Bernie, thanks for the link. Interesting that opposition to his “greed” is three years old. It seems the only change Rev. Hagee has made is one to completely hide income and assets. :-/

April 10, 2008 at 7:46 am
(4) Theodore says:

In a newspaper article of 10 February 2006 out of Dallas, Texas it states (paraphrased in part), “The number of megachurches having a weekly attendance of 2000 or more has doubled over the past five years to number 1210 churches. “The churches have an estimated cumulative weekly attendance of nearly 4.4 million members and (a weekly) income of 7.2 billion dollars (tax free).” Since the year 2000 there has been a 57% increase in attendance of these megachurches, the average being 3,585 new members per church.” And that is just the few churches with 2000 members or more.

In yet another article the well-known Columnist Andy Rooney on 24 March 2006: There are about 300,000 significant houses of worship in the USA, all who do not pay taxes, with an estimated 100 million worshipers.

July 16, 2008 at 12:59 am
(5) Henry says:

Scripture forbids the Church of Jesus Christ to merge with the State because the two exist as separate entities. The State is not to claim jurisdiction over the Church, and the Church is not to place herself in such a position. The Church does not need to request of the State permission to exist as a legal entity. Its charter is the Bible, and its article of incorporation is God’s Commandments. As Jesus said in Matthew 6:24 “No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.

The IRS, of course, knows very well that it has no constitutional authority over the Church, and that it may not violate the First Amendment protection against government interference with the Church. In fact, the IRS may not violate the constitutionally secured rights of any American citizen or group of citizens, but is able to gain jurisdiction only when such is given to it voluntarily. Thus, the IRS holds out the unbiblical “advantage” of 501(c)(3) corporate status as bait to clergy ignorant of the law in hopes that these men will “bite,” thereby placing themselves and their congregations firmly on its jurisdictional hook. Once the bait has been taken, and the catch is reeled in, another church has been shackled and subjected to the tyrannical control of the federal government.

September 29, 2008 at 8:09 am
(6) Rev. Andrew says:

The First Amendment of the Constitution of the United States protects our religious freedoms. No Federal governmental entity may infringe on what we believe is the Word of God.

As such, any attempt to tax any church, that teaches that you shall “give to Caesar what is Caesar’s and to God, what is God’s,” is a violation of the First Amendment. Money given to a church is for the worship of God, not for the gratification of the State.

Liberal, often non-church going individuals advocate the taxation of churches, without respect to our religious beliefs, and/or the Constitution of this country. This is an infringement of the law, and of God.

I appreciate, and respect everyone’s opinion, but churches, under the protection given by the First Amendment do not, and will not, have to pay taxes.

God Bless You All,

Rev. Andrew Hamilton
Reverend Archbishop
Chairman of the Board of Directors
Ecumenical Church of God

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