As I post this article, we’re right in the middle of the 2015 U.S. tax season. S-Corp filings by businesses were due two weeks ago. Individual filings by the rest of us mere mortals are due two weeks hence. In addition, we’ve also taken our first step into the 2016 Presidential season. Senator Ted Cruz has launched his campaign, announcing from day one that he intends to utterly abolish the IRS.
So what better time than now to reflect on the tax-free status of U.S. churches?
Dueling First Amendment Rights
The first amendment of the United States Constitution guarantees citizens both the free exercise of religion and freedom of speech. But what happens when those two rights collide?
Keep your eyes open over the next few months for this event:
- Many, many politicians will announce their candidacy for presidency of the United States.
- As campaigning heats up, some U.S. pastors, ministers, rabbis, or imams will use their positions to tell members of their faith the correct candidate to support.
- The IRS will send warning letters informing the religious leader that the organization’s tax-exempt status can be removed if they continue lobbying for particular candidates.
- The religious leader will then tell his or her local press, “I am being censored by the government!”
This comes up in every election cycle. The point missed by the religious leader (as well as by the thousands of Facebook, Twitter, and Tumblr users who’ll spout their indignation in Whiney McNuggets of text) is that the government isn’t removing the religious leader’s freedom of speech. The government is removing the tax subsidy that the congregation has been pocketing for years, even decades.
When a religion files for what’s called a 501(c)(3) exemption from taxation, they make an agreement with the government that they will not endorse specific candidates or parties for political office. The religion may speak out endlessly on political issues with religious implications – choice vs. right to life, marriage equality vs. traditional marriage, Coke vs. Pepsi, Which-Would-Jesus-Drink? – but they may not act, even briefly, as a lobbying organization for specific candidates.
Some religious organizations object that this singles them out and violates the free practice of their religion. They are mistaken, however. No organizations that choose to become 501(c)(3) entities are allowed to endorse candidates. Those aren’t just churches. Exempt organizations include nonprofit charitable, educational, literary, scientific, and amateur sports organizations as well. These entities, like churches, mosques, and synagogues, are expected to refrain from endorsing specific candidates or parties. It’s the agreement they make when they accept the tax deferral they enjoy.
As individual citizens, the leaders of these organizations don’t sacrifice the right to make personal endorsements in their private lives. They do agree, however, not to use their tax-free organization as a vehicle for candidate endorsement.
That’s what it takes to pocket the taxes. Such is the price of Mammon.
Is It Time for Churches to Pay Taxes?
Any church that feels it’s a religious obligation to endorse specific candidates can do so simply by deciding to drop their 501(c)(3) tax write-off status. Allow me to state it in Biblical terms: While it’s very generous of Caesar to allow you to skip paying Caesar what belongs to Caesar, there’s no law that says your church is required to enjoy the tax breaks offered.
The issue is deeper than that, though. Consider: When our society allows religious organizations to file for tax-exempt status, we’re giving our government the explicit power to declare which groups are “real” religions and which are not. The very act of accepting or denying a 501(c)(3) application is a declaration of legitimacy by our federal and state government personnel.
Government abuse. Such power can be abused. That isn’t just a theory. In 2004, Texas Republican Comptroller Carole Keeton (aka Carole Keeton Strayhorn after she started using the name of her third husband) revoked the tax exemption status of a Unitarian Church, declaring that they were too wishy-washy on their definition of a Supreme Being, and therefore did not qualify as a religion in Texas. It took public outcry and the reversal of her decision by her own staff to allow Unitarianism (the faith of John Adams) again to be deemed a real faith in Texas. Keeton remained nonplussed by the pushback. It took a Texas Supreme Court decision to return exemption status to spiritual Ethical Societies in Texas, another group whose God didn’t fit Keeton’s standards.
By participating in 501(c)(3) exemption, churches are giving government permission to say whose religion is "real" and whose is not.
Church abuse. Government officials aren’t the only ones who can play fast and loose with 501(c)(3) status. Churches have a special privilege that other U.S. nonprofits don’t enjoy. All 501(c)(3) organizations must make their income notices, reports, and returns available to public inspection ... except for religious organizations. What other groups must do in the light, churches may do in darkness.
Imagine two charitable food shelves, one secular and one religious in nature. People donate to the food shelves in similar ways. The food shelves deliver identical services. Each, we’ll imagine, provides a car to their managing director, considered part of the salary package. And suppose, for this scenario, that each of the managing directors selects a fully loaded 2015 Audi S8 (manufacturer suggested retail price $120,000 U.S.) as an appropriate vehicle. As part of a secular organization, the director of the first food shelf is immediately questioned by his donors, thanks to the requirement of public disclosure. The manager of the second food shelf, however, simply ignores any questions about how his charity could afford to give him such a nice car. He isn’t accountable. His charity has been declared religious by the government. He works for God, and doesn’t have to answer to anyone else, even his own donors.
Maybe you find that scenario unlikely. If so, you’ve missed the last 30 years of a burgeoning televangelism and Health & Wealth gospel industry engendering headlines like these:
- Pastor asking for donations for private jet, already has one (Fox 5 Atlanta, March 2015)
- Private Jets, 13 mansions, $100,000 mobile home just for dogs: Televangelists Paul and Jan Crouch (Daily Mail, March 2012)
- Can a television network be a church? IRS says yes (NPR, April 2014)
- Best paid pastors make hundreds of thousands to millions of dollars annually (Huffington Post, January 2012)
Don’t get me wrong. I don’t begrudge any pastor his salary and benefits. I’ve had several pastors in my lifetime who deserved millions and more for the sacrifices they’ve made for their congregations.
Here’s my concern. I’ll speak solely from a Christian perspective, since that is my faith. In the past, when U.S. churches received exempt status from the government, they weren’t particularly known as wealth-generating organizations (all the gold chalices at Catholic churches notwithstanding). Preachers were in pulpits, hucksters were in carnivals, and the two had limited overlap. Elmer Gantry was the exception, not the rule.
That has changed. The advent of radio and television extended the reach of fund raising by preachers, and more recently the birth of the Internet Church is providing pathways for tendrils into hundreds of millions of homes. Many are legitimate ministries. But many are the snake-oil salesmen known throughout the history of the faith. It’s only a matter of time before the first Kickstarter for Christ or Protestant Patreon campaign declares itself an organization worthy of a 501(c)(3) exemption as well. And they’ll need your love offerings for support.
The farther fundraising receipts move from funding sources, the less accountability we see in the system. In my earlier food shelf example, there was at least the possibility that a local donor, seeing the Audi S8 driven by the shelf’s managing director, could call shenanigans on fund use. But digital reality has given us ministries of wide distribution paired with low accountability. If a donation-collecting online ministry were using their 501(c)(3) status to launder money from other for-profit businesses the “pastor” owns, or funneling donations to pay for the entertainment activities of its own leadership, donors would have no way of knowing. Abuse need not be calculable in the millions of dollars; abuse in the thousands and in the hundreds of dollars is abuse just the same.
Is this the sort of system that should be favored by believers who claim to eschew the darkness, who live in the light? Should our churches demand privacy in their financial dealings when all other charitable organizations bring to light everything that’s done with their money? If so, what is the Scriptural basis for keeping Caesar in the dark about the money-handling practices of the people of God?
Churches committed to practicing their faith in the daylight have a few solutions to the issues raised here.
- Solution 1: Give up tax-exempt status. By simply walking away from 501(c)(3) exemptions, a religious organization can shake off all doubt about the honesty of their financial stewardship. In addition, they’d get to endorse Ted Cruz or Hillary Clinton as often and as loudly as they’d like.
- Solution 2: Adjust tax-exempt status. By breaking out the charitable portions of their ministry from the religious portions, a faith could move into the realm inhabited by all other 501(c)(3) groups, disclosing financial information about their charity arm while keeping other church information, the taxed part like housing and property, private.
- Solution 3: Disclose voluntarily. By posting and publishing all financial information to donors and on their Web sites, religious organizations can operate with free consciences, enjoying the benefits the government currently allows while openly disclosing all financial activities to those who make it possible – which includes donors and taxpayers, since the religious tax exemptions are de facto subsidies from the general public.
A final note on the IRS
Love it or hate it, the IRS is a reality for churches and individual citizens alike. Even Ted Cruz's promise of “abolishing” it is simply rhetoric. He began by saying that everyone should be able to mail in their taxes on a postcard that just listed their salary. Then he added that we could list and deduct our charitable contributions as well. Later he mentioned we could also list the deduction for the interest on our mortgages. In time, someone will mention to him that his simple campaign quip doesn’t keep churches exempt from taxes, and he’ll need to add that in as well.
Then he’ll realize he needs people to receive those (really big) postcards, to check up on those flat-rate taxes, to catch the cheaters, and to decide which places are churches and which are just claiming to be churches. They'll also need to determine which charities we give to should be deemed true charities, and which ones are shams. Call that new group “Ted’s Patriot Payment Brigade” or whatever, it is still a group providing services related to the revenue being generated internally by the United States. A rose by any other name.
But back to my main point. Am I saying it’s wrong for our churches ... which, we need to acknowledge, means us, ourselves ... is it wrong for us to take advantage of perfectly legal tax exemptions for our religious organizations? Or to shield ourselves behind walls of privacy allowed by current law? No, it is not wrong. Those things are permitted for us.
Kudos to those whose minds just jumped to Paul’s words in 1 Corinthians 10:23: “You say, All things are permitted me. But not all things are helpful You say, All things are lawful for me. But not all things build up.”
Christians remain under the direction and wisdom of Scripture – that they should pay their taxes even to despotic emperors (Mark 12:17), and that they should submit to the government authority God saw fit to place over them (Romans 13:1-3). That’s the baseline, the least of expectations. But we are called to be salt of the Earth and a light on a hill, and simply doing the minimum expected of us does little to glorify God and to set us apart as a people under His hand.
We have the option to show unbelievers that we are not greedy, clinging to every cent lawfully ours.
We have the option to be completely open about every penny we spend in our ministries.
And, yes, we also have the option to do neither of those things.
What should our choice be?
Cosmic Parx / YoYo Rez