If it acts like a for-profit, political organization and talks like a for-profit, political organization; isn’t it a for-profit, political organization? The lines are blurred, but not so much.
In an October 2022 article published in Pro-publica and The Texas Tribune headlined, Churches are breaking the law and endorsing in elections…experts say the IRS looks the other way, Jeremy Schwartz, and Jessica Priest, wrote, “But the IRS has largely abdicated its enforcement responsibilities as churches have become more brazen.” And this is happening, or not happening, despite ministers claiming God is partisan as they ask their congregants to support their chosen political candidates and label opposing candidates, demonic.
What does the Internal Revenue Service say?
Churches and religious organizations can receive tax-deductible contributions like 501(c)(3) organizations, as they follow these IRS requirements to quality as tax-exempt:
- The organization must be organized and operated exclusively for religious, educational, scientific, or other charitable purposes
- Net earnings may not inure to the benefit of any private individual or shareholder
- No substantial part of its activity may be attempting to influence legislation
- The organization may not intervene in political campaigns
- The organization’s purposes and activities may not be illegal or violate fundamental public policy.
The 501(c)(3) rules double down on barring political activity
“Under the Internal Revenue Code, all section 501(c)(3) 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. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity. Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.”
But here’s what they can do:
Certain activities or expenditures may not be prohibited depending on the facts and circumstances. For example, certain voter education activities (including presenting public forums and publishing voter education guides) conducted in a non-partisan manner do not constitute prohibited political campaign activity. In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get-out-the-vote drives, would not be prohibited political campaign activity if conducted in a non-partisan manner. Wait what??? Is a non-partisan manner really a thing?
Whose idea was this exemption stuff?
You can thank the Romans
(As with most events from ancient history, there were no video recordings, so I’m left to pass to you the facts made available). Under Constantine, the Roman Emperor from 306-337, the Christian church had complete exemption from all forms of taxation on church property used for religious purposes. This was after Constantine’s conversion to Christianity. The justification was that churches performed some government functions and should receive a benefit.
What’s the saying we commonly butcher about God giving with two hands?
Apparently, in the Middle Ages, the Catholic church didn’t pay taxes, but levied a tax of its own. Their tax was called a tithe and people had to give one-tenth of all their earnings to the church. The priests and bishops held on to the funds in a tithe barn. Those who didn’t pay up were dropped from the church or excommunicated. I assume this was the price for forgiveness of sins and an open lane on the road to Heaven.
European invaders brought tax baggage with them…
Those who escaped Europe and landed on this continent wanted a separation of church and state, however, the 13 colonies gave some form of property tax relief to houses of divine worship in 1777. These exemptions survived through 19th Century presidential opposition by James Madison, James Garfield, and Ulysses S. Grant. Grant even told Congress that in 1850, the church properties in the U.S. which paid no taxes, municipal or state, amounted to about $83 million.
By 1894, the federal income tax exemptions were solidified by the Tariff Act which provided tax exemptions to “corporations, companies, or associations organized and conducted solely for charitable, religious, or educational purposes.” It marked the first time the federal government declared any group exempt from paying taxes versus their practice of listing organizations subject to taxation. Attacks on the Tariff Act proved unsuccessful. It became the Revenue Act of 1913, and the spirit of the Act continues to repel any attempts at accountability or enforcement today.
Fast forward to today, is there a Whataboutism argument? Are Corporate tax breaks the same thing? Not really.
The rationale for corporate tax abatement is to encourage development or economic activity within a city or community. Governments may also offer abatements to prevent industries with high employment from leaving the community. Churches can’t really do that in the same way.
But like churches, tax abatements take funds out of the U.S. coffers. According to Investopedia, one study of corporate securities filings found more than 50 of the largest companies in the U.S. paid no income taxes in 2020 despite both ginormous profits and netting $3.5 billion in aggregate tax rebates. Here’s salt in the wound: half of those companies paid no U.S. income taxes for three successive years. It’s not unusual for large U.S. corporations to pay no U.S. income taxes despite making billions of dollars in profits. But how do they get away with it? The answer for the most part is better lawyers. Here is a short list of how:
- Large companies use a maze of tax breaks and deductions to minimize and often eliminate their corporate income tax liabilities.
- Recent efforts to limit profit shifting to lower-tax countries have not been cost-effective.
- Accelerated depreciation, tax credits, and the expensing rules for employee stock options are other ways large companies cut their tax bills.
- The Inflation Reduction Act of 2022 imposed a new alternative corporate minimum tax, while doling out $369 billion in additional tax credits over a decade.
Back to Churches…
There are arguments that churches played a pivotal role in the Civil Rights movement, abolition, and other life-saving causes. But the question is; were those activities intentionally partisan? Depends upon who you ask. And it’s worth noting that while the churches helped causes, many of them failed women during the Salem Witch Hunts. They accused and persecuted countless women during that time.
Earlier this year in Rome where it all began, the European Commission ordered the Italian government to recover millions of euros in tax arrears from the Catholic Church for its huge property portfolio. This controversy surrounds church ownership of private clinics, hotels, bed and breakfasts and guest houses with tax exempt status estimated to equal a loss in revenue of more than 100 million euros, annually. The needle has moved a bit. After the Commission probe, Italy limited the tax exemption to "exclusively non-commercial" structures owned by the Church and other non-profits. But we can assume the arguments will continue.
What about other places around the world? Are churches paying taxes or exempt? Depends on where you look.
In some countries, the land where churches are located would be exempt from property taxes. Places like only Denmark, Austria or Finland, Italy, Sweden, Croatia, Iceland, or Switzerland have a church tax. There are tax exemptions for some of the mega churches in Asia. In some African countries tax exemptions for churches are being debated, while others support those exemptions. And there are countries in South America that require churches to pay some form of tax.
At a time when the payment of past debts in the U.S. is being politicized, and social security, created by paycheck contributions, is under attack it may be advisable to insist that corporations, churches, and offenders such as Trump ---whose organization was found guilty of criminal tax fraud---pay their fair share.
Speaking of Trump; the former president complained to the Christian Broadcasting Network that religious groups were afraid to endorse him in 2016 because of the Johnson Amendment which prohibits 501(c)(3) entities from endorsing or opposing political candidates. He tried to get rid of the amendment with an executive order, but the order didn’t change the restrictions of the Amendment.
Churches don’t pay taxes, and they probably shouldn’t if they act like churches rather than political action committees. But the moment they directly or indirectly step into the political arena, the IRS should treat them as they would treat any political entity. Unfortunately, this doesn’t happen. According to NPR, the IRS “has rarely moved to take away a church’s tax exemption…. Only one of more than 2,000 Christian clergy deliberately challenging the law since 2008 has been audited, and none has been punished.”
Seems to me it’s time for a good spring cleaning of the tax-exempt lens for churches. Enforcement is muddy and the rules are growing dusty.