Achieving a Simpler and Fairer Tax Code by Removing Religious Entitlements

The tax code grants numerous benefits to churches that are not available to all other 501(c)(3) organizations, such as awarding 501(c)(3) status without application, removing the requirement to file annual IRS reports, and providing insulation from auditing through the Church Audit Procedures Act. The combination of these exemptions ensures churches receive substantial tax benefits while remaining shielded from any public or government review.  

These exemptions have an unjustifiably high cost. Simply enforcing compliance by churches with the same rules that apply to all other nonprofits, could generate billions of dollars in additional tax revenue. Removing these exemptions does not threaten religious liberty rights as the financial reporting required does not involve matters of religious belief or practice. However, if a house of worhship objects to the inquiry, they are free to forego the exemption and limit IRS access to their records. Courts have repeatedly held that 501(c)(3) status is a privilege, not a right to which houses of worship are entitled.

 


Resources

Taxreform.gov

Secular Tax Reform Lobby Paper 

Secular Tax Reform Issue Statement 

Comments Submitted to the Charitable/Exempt Organizations Tax Reform Working Group on April 15, 2013

 


 

Background Information

America has a long history of providing tax exempt status to qualifying charitable organizations. The Revenue Act of 1913 established an income tax system that allowed some tax exemptions. 

In 1943, Congress established the requirement that certain exempt organizations file annual information returns. The IRS Form 990 filing requirement was created but exempted religious, educational, and charitable organizations.

Congress revisited the issue with the Tax Reform Act of 1969. This law expanded the types of organizations that would be required to file Form 990s. The original House bill would have dropped all exemptions unless Treasury determined it would be unnecessary to have a specific organization disclose such information. The Senate version, however, excepted churches, their integrated auxiliary organizations, and conventions or associations of churches. The Senate version was kept in the final bill and also included “any religious order with respect to its exclusively religious activities.”

Religious organizations such as Bread for the World and Catholic Charities are required to file Form 990s. Churches have no constitutional rights separate from any other type of religious organization. However, U.S. tax law treats churches and their “integrated auxiliaries” differently. A fair tax system should require accountability from all organizations that are entrusted with the privileges of tax exemption.

The rise of internet fundraising and megachurches has naturally led to concern about abuses of financial disclosure exemptions. In 2010, Senator Chuck Grassley (R-IA) used his Senate Finance Committee seat to investigate several large ministries including World Changers Church International, New Birth Missionary Baptist Church (NBMBC), Joyce Meyer Ministries, and Kenneth Copeland Ministries. None of these ministries are required to file financial disclosure forms and yet all have assets estimated to be in the tens of millions of dollars. The NBMBC operates an integrated auxiliary called LongFellows Youth Academy (LYFA). Alumni of LYFA programs brought suit against Bishop Eddie Long, the director of NBMBC, alleging sexual misconduct. The suit was settled out of court in 2011.  

Policing churches and religious organizations is even more disconcerting because the lack of reporting extends to the states. No state requires religious organizations to register and file annual financial reports with state AGs. Therefore, discovery or investigation of potential abuses is extremely difficult.  

Internet usage makes abuses even more likely because an organization can be formed, solicit donations as a “church” and then disband without any oversight.

Having all organizations comply with this requirement will allow the IRS to focus only on those abusing and not investigating whether or not an organization should be filing in the first place.

 “It seems to me that either our existing tax laws are not being uniformly applied to all churches such as ours, or the tax laws should be changed to remedy this discrepancy. Should not all churches be treated equally under the law? Organizations, whether religious or secular, which raise contributions from the public must be accountable.”---Oral Roberts, 1987 Ways and Means Hearing

The Secular Coalition for America supports a tax code that fairly represents donors and congregants. No organization should be able to keep its finances hidden from reasonable oversight.

 

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