What if your church was required to seek federal government approval in order to officially operate as a church?
What if federal officials also regularly monitored your church’s activities, internal governance, and finances through a detailed reporting regime?
What if your church was forced to pay taxes from the tithes and offerings received by the congregation if it refused to comply with these government oversight mandates?
Believe it or not, this could become the new regulatory environment for churches across the United States if recent ideas floated on Capitol Hill become law.
As you are probably aware, during this session of Congress, key political leaders have begun laying the groundwork for an overhaul of the federal tax code. There is general consensus that a simpler and fairer system of taxation could help spur economic growth during this challenging financial season for our country.
Because taxation is a function of government that affects us all, those leading the charge on tax reform in Congress have welcomed comments from the public on how the current system should be reformed. Several proposals were recently advanced by a secular advocacy group to leaders on Capitol Hill. The proposals warrant a thoughtful response from church leaders.
The secular group’s first proposal would require all churches in America to officially register with the federal government in applying for recognition of tax-exempt status. Churches would be subject to taxation if they refused to participate in the extensive application and questioning process.
The underlying premise of this proposal — to institute taxes and increase regulations on churches — is a major shift from historic policies that predate even the first federal income tax in America. While churches are free to file for recognition of exempt status (and many do so for a variety of practical reasons), churches have never been required to seek approval to operate from the IRS, and their religious activities have been presumed to preclude them from any federal income tax.
The next troubling proposal flows naturally from the first: institute a detailed monitoring system of registered churches to ensure compliance with existing government regulations. This government oversight would be accomplished by eliminating the church filing exemption to IRS Form 990 — an exemption which has been in place since the very first information returns were required of charitable organizations. If churches were required to file the Form 990, they would have to annually provide reports to the government on their activities, internal governance, and finances.
While this may not sound offensive or intrusive at first blush, just a few of the detailed disclosures required under this reporting system would be information about the church’s major contributors; compensation of pastoral staff and key employees; and reports on the specific types of activities carried on by the church as well as when, where, why, and how they were conducted.
Since the Form 990 return was instituted, the church exemption has served as a means to preserve the proper relationship between the church and government required by the Constitution. The exemption is also consistent with the policy presumption that government should not be involved in taxing the religious activities of the church.
Finally, the group submitting these comments to Congress would like to see less procedural protections for churches in the event of a church tax inquiry or audit. There is currently a provision in the tax code which allows the IRS to examine the records of churches only to the extent necessary to determine tax due, and only once there is a reasonable belief by an appropriately high-ranking government official that tax may be owed. These procedures were not instituted to keep churches from being totally unaccountable to the government or to insulate churches from paying taxes on activities that are not legitimately within their religious purposes. These rules were enacted to help prevent the government from unconstitutionally intruding into unwarranted areas of church activities and operations.
Keenly aware of the government’s appetite for increased revenue in the midst of a struggling economy, advocates for these proposals estimate that these changes could generate billions of dollars per year for the federal government. In their opinion, “Closing these three loopholes is a simple and untapped revenue source.”
Yet, as believers, we know this issue is not “simple,” and it runs much deeper than a quick fix to solve the nation’s deficit and debt. These policy issues go to the very heart of the religious freedoms we are guaranteed as American citizens.
The brave leaders who founded this nation were deeply concerned with the issue of religious freedom. Having lived under an oppressive government with an established state church, they saw the need for the church to operate as its own separate sovereign apart from the government. Only then could true religious freedom exist.
In drafting the Constitution’s Bill of Rights to protect individual liberties, they included freedom of religion as their first priority. It’s time that we as church leaders make these issues our priority as well.
There is a common saying on Capitol Hill that “if you’re not at the table, you will be on the menu.” While that may be a rather crude way of making the point, it’s certainly true in this context. We cannot assume that the freedoms churches have long enjoyed in the United States will continue. We must pray for our nation, lift up our leaders, and engage by making our voices heard on these important matters of policy.
For the latest news on Capitol Hill affecting churches, visit the "In the News" page at ECFA.org.
Dan Busby is president of ECFA (Evangelical Council for Financial Accountability), an accreditation organization that sets standards for governance, financial management and fundraising/stewardship for churches and other nonprofits across the country.
Publication date: May 28, 2013