by Linda Beale
The United States has a tradition of separation of church and state that goes back to the founding discussions that concluded that it would be inappropriate to establish a state religion because individuals should be at liberty to believe or not believe. Unlike England, for example, where the head of state is the head of the Church of England, with resulting deep entanglement of resources and politics. Or Germany, for another example, where the state collects taxes on behalf of certain state-approved mainline religions from those religions’ participating members.
So the United States does not officially approve any religion, nor does it collect revenues on behalf of those religions, nor does it determine religious policy. On the tax front, institutions organized for a religious purpose are eligible for 501(c)(3) status and hence exempt from the income tax. Like other 501(c)(3) organizations, contributions to any church is deductible to contributors, and none of those churches are required to disclose their contributors.
Yet in spite of this long tradition of separation of church and state, our tax code and many of our politicians, many religionists, and too many of our Supreme Court’s interpretations of the constitutional right to religious freedom blur the line between church and state.
Politicians tend to invoke their religious beliefs as the basis for their actions, something that should worry anyone who is firmly committed to church-state separation because of the implicit endorsement of theocracy that such statements imply. See, e.g., Leonard, The end of page views and Michele Bachmann’s Rapture, Salon.com (Oct. 9, 2013) (noting GOP Rep. Michele Bachmann’s recent statements about the “rapture” in connection with the government shutdown); RaptureReadywebsite (proclaiming that “Christians have a constitutional right…to demand that Christian values be reflected in American society” and urging Christians to “Vote Republican”); Kentucky School Prayer Petition (Kentucky chapter of American Family Association pushing for government-sponsored religion in public schools) and see Americans United, Prayer Panacea? Ky Group Says INsp8irational Messages in Public Schools will solve several ills (Aug. 2, 2013)
The federal income tax code provides considerable support to religions, mostly through the exemption for charitable enterprises under section 501(c)(3) and the deduction for charitable contributions to such enterprises under section 170, but also in other ways.
- The difficulty of providing a clear definition of an organization organized for religious purposes necessary to qualify for 501(c)(3) status invites abuse. We allow almost any organization to claim to be a religious institution and hence exempt from the income tax–apparently even if every member of the purported congregation is a part of the minister’s extended family. The case of Scientology –with its sci-fi origins and its payments for various levels of achievement in the church hierarchy raises considerable concerns about what “counts” as a religion and whether institutions can be created as religions with the purpose of achieving tax avoidance and perhaps even exemption from some otherwise generally applicable rules.
- Religious institutions granted 501(c)(3) status aren’t supposed to use their status to promote particular political candidates, but nonetheless many do–in fact, a number of ministers of prominent Christian churches have engaged in overt challenges to the prohibition by preaching in favor of, or against, particular candidates from the pulpit and distributing political campaign materials, essentially daring the IRS to enforce the law. Compare, e.g., The Raw Story, Dolan, IRS faces lawsuit for failing to enforce church electioneering ban (Aug. 20, 2013) (discussing Freedom From Religion Foundation lawsuit against IRS regarding churches defying electioneering ban) with Godfather Politics, 1400 Pastors Defy IRS Trheat of Tax-Exempt Revocation (Oct 8, 2012) (discussing the action from the perspective of religious activists).
- Religious institutions granted 501(c)(3) status (we’ll call all these “churches” for simplicity’s sake) are supposed to pay tax on certain business activities that they carry on that generate “unrelated business taxable income” (UBTI), but aren’t required to pay taxes on business-like activities regularly carried on by the church that are considered directly related to achieving the church’s exempt purposes. See IRS Publication 598. A church could, for example, run a restaurant in which it claims to provide job-training to homeless or unemployed people and avoid tax on any income generated by the restaurant business (which can be substantial) or conduct a gift shop on the premises and avoid any tax on the provits, so long as the items sold are related to the church’s mission–and that will generally include all kinds of things such as religious texts, religious icons, artwork depicting the church building or similar imagery, greeting cards with religious text and imagery, games with religious imagery, etc. This is a significant tax-expenditure subsidy to religious institutions. Even if that kind of tax-subsidized competition with regular commercial enterprises doesn’t strike the reader as problematic, surely the potential for abuse is a problem. Megachurches may build the equivalent of amusement parks and shopping malls with multiple types of busineses generating substantial revenues and competing with taxable enterprises in the region (Brentwood Baptist Church in Houston Texas was the first to house a McDonald’s franchise on its property), yet perhaps avoid the unrelated business income tax on the revenues because they claim that their employees are being provided training for future jobs in an religion-soaked atmosphere that is considered part of the church’s religious purpose, even though most employees are long-term employees and few homeless or poverty-stricken individuals are involved. Most churches that operate media companies or franchises of commercial businesses likely do so through for-profit subsidiaries, but the potential is certainly there for abuse.
- The tax code (in section 107) provides privileged income tax treatment for church ministers: housing or rental allowances (including the fair market rental value of furnishings, utilities, garage, repairs and other expenses directly relating to providing a home, as long as the total doesn’t exceed reasonable pay for services) are excluded from the ministers’ gross incomes for income tax purposes. See IRS Publication 517; Tax Topic 417. Rev. Rul. 63-156 even extended that exclusion to retired ministers. To be a minister for tax purposes, a person must be ordained; administer church sacraments; treated as a religious leader; conduct worship services and have management responsibilities. Note that a rather large group at a single church might well satisfy these requirements.
- Clergy can opt out of Social Security, if the minister is conscientiously opposed to such benefits (or opposed on the basis of religious principles). See Form 4361.
Part II of this series will discuss the intrusion of corporatism into the church-state separation doctrine.