Eagle explores the issue of ending 501(c)(3) status for churches. He explains the ways a church can currently have its 501(c)(3) status revoked. He also explores a proposal from the Secular Coalition for America that came during the 2013 budget battles in Washington, D.C. Eagle then writes about why this Christian believes that 501(c)(3) status should end for churches and under what conditions. Eagle is not an accountant and encourages more people in the know to weigh in on the discussion. The days of corruption, abuse and waste in evangelical Christianity need to come to an end.
“In this world nothing can be said to be certain, except death and taxes.”
“Make sure you pay your taxes; otherwise you can get in a lot of trouble.”–
Today’s post is inspired by following Twitter recently. I noticed Al Mohler and Center for Inquiry referencing a recent Time magazine article that called for ending tax exempt status for churches today. I would like to discuss this topic today as a Christ follower and pose the question….should 501(c)(3) status end for churches? I am going to make my case and explain why if evangelical Christianity can’t clean itself up, then maybe we need to consider other avenues to help clean it up. I am wading into an area that I invite accountants and other people in the know to comment on and participate down below. If I make a mistake I ask to be corrected. Trust me my pride will not be hurt if I am corrected. Before I continue further let me discuss ways that the IRS currently ends tax exempt status for churches. There are at least six ways that a church can lose tax exempt status.
- Private benefit/inurement is where a church should not use its organization for personal benefit. Richard Crom, Staff Assistant for IRS Exempt Organizations Customer Education and Outreach office has said “Its activities should not serve the private interests, or private benefit, of any individual or organization (other than the 501(c)(3) organization) more than insubstantially. The intent of a 501(c) (3) organization is to ensure it serves a public interest, not a private one.” Inurement is when no part of an organization’s net earnings may inure to the benefit of a private shareholder or individual who, because of the person’s relationship to the organization, has an opportunity to control or influence its activities. Again quoting Crom, “A 501(c)(3) organization is prohibited from allowing its income or assets to benefit insiders (people with a personal or private interest in the activities of the organization),” said Crom. “Insiders are typically board members, officers, directors, and important employees.” He added that prohibited inurement includes the payment of dividends, the payment of unreasonable compensation to insiders, and the transfer of property to insiders for less than fair market value.” Mark Driscoll engaged in inurement when he published his book “Real Marriage.” Dr. James Duncan over at the Pajama Pages documented how Mark Driscoll broke the law and how he threatened his 501(c)(3) status in this post here. When the situation with inurement happened with Mars Hill Seattle I reached out to an atheist organization and encouraged them to investigate the situation and to report Mark Driscoll to the IRS.
- Excessive lobbying is another way that a church can lose tax exempt status. When an organization contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or when the organization advocates the adoption or rejection of legislation, it is lobbying. According to what I have read a church can engage in some lobbying. Melaney Partner, acting director for the IRS Exempt Organizations Customer Education and Outreach office. “However, if lobbying activities are substantial an organization risks losing its tax exempt status.” She added that an organization can elect to have its lobbying activities measured by an “expenditure test” to determine whether or not the activities are substantial. This is known as a 501(h) election, so-named for the section of the Internal Revenue Code where the rules for the expenditure test are spelled out.
- Political campaigning is anther issue to heed. All section 501(c)(3) organizations are prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate running for public office. The prohibition applies to all campaigns (federal, state and local level). “Political campaign intervention includes any and all activities that favor or oppose one or more candidates for public office,” said Crom, who speaks to non-profit organizations on a regular basis about tax-compliance issues. “The prohibition extends beyond candidate endorsements.” Contributions to political campaign funds or public statements of position (verbal or written) made by or on behalf of an organization in favor of, or in opposition to, any candidate for public office clearly violate the prohibition on political campaign intervention. Section 501(c)(3) organizations may engage in some activities to promote voter registration, encourage voter participation, and provide voter education, but they can’t engage in activities that favor or oppose any candidate for public office. Whether an activity is political campaign intervention depends on all the facts and circumstances.
- Unrelated business income is another way churches can lose 501(c)(3) status. Activity which can potentially jeopardize an organization’s 501(c)(3) tax-exempt status is having too much income generated from activities that are unrelated to the exempt function of the organization. This income comes from a regularly-carried-on trade or business that is not substantially related to the organization’s exempt purpose. “An organization that produces unrelated business income as a result of its unrelated trade or business may have to pay taxes on that income,” said Partner. “Income-producing activity must meet three conditions before the income is potentially taxable.” First, the activity must be a trade or business. Second, the trade or business must be regularly carried on. Third, the business activity is not substantially related to an organization’s exempt purpose. In other words, the activity itself does not contribute importantly to accomplishing the exempt purpose, other than through the production of funds.Some of the most common UBI generating activities include: the sale of advertising space in weekly bulletins, magazines, journals or on the organization’s website; the sale of merchandise and publications when those items being sold do not have a substantial relationship to the exempt purpose of the organization; provision of management or other similar services to other organizations; and, even some types of fundraising activities. Generally, organizations that generate unrelated business income should file Form 990-T, Exempt Organization Business Income Tax Return, and pay tax on the income. “An organization must be careful generating money in activities that do not further its specific exempt purposes,” said Partner. “In addition to the taxability of income from unrelated activities, if those activities are substantial in relation to your exempt purpose activities, you may be putting your exempt status in jeopardy.”
- Also required is the annual reporting obligation if things change I believe. While 501(c)(3) public charities are exempt from Federal income tax, most of these organizations have information reporting obligations under the Internal Revenue Code to ensure they continue to be recognized as tax-exempt. In addition, they may also be liable for unrelated business income tax as described above, employment tax, excise taxes, and certain state and local taxes. Public charities generally file either Form 990, Return of Organization Exempt from Income Tax, Form 990- EZ, Short Form Return of Organization Exempt from Income Tax, or submit online Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ.
- Operating in accord with stated exempt purpose is another way that a church can lose 501(c)(3) status. “If you stop doing all or a significant amount of the exempt activities you told the IRS you were going to do in your original application for exemption—you could lose your exemption,” said Crom. “If your organization’s direction has changed, let us know. It could prevent future problems.” He added that organizations must adhere to the guidelines inherent in these six areas. “If they do this, they will maintain their tax-exempt status and continue enjoying the benefits associated with it,” said Crom.
Secular Coalition for America’s Suggestion
During the 2013 budget battle in Washington, D.C. the Secular Coalition for America proposed that the IRS revoke the tax exempt status of religious organizations that violate 501(c)(3) law. This was originally reported in a Newsweek magazine article called “Are Churches Making America Poor?” The coalition estimated that enforcement of 501(c)(3) could generate $16.75 billion in additional revenue. Or in other words its almost enough to fund NASA for a year. In an academic paper which I will discuss below it was suggested that taxing all churches like for profit corporations would generate $71 billion. What makes it hard for the IRS to investigate shady churches is the Church Audit Procedures Act of 1984, which maintains that investigations can take place only with the blessing of a “high Treasury official.” The Secular Coalition isn’t suggesting that churches be taxed like for profits. It is requesting that churches be treated like other non profit organizations. This would include filing annual Form 990 returns reports. The 990s provide details on the finances of charities so the IRS can tell if a non profit is illegally padding someone’s wallet. The coalition is asking Congress to scrutinize how churches get 501(c)(3) status especially when churches automatically qualify. In contrast non religious 501(c)(3) must go through a rigorous application process to qualify for tax benefits. Then there is Ryan Cragun an associate professor at the University of Tampa who made the following suggestion in academia. In a paper in Free Inquiry, the Council of Secular Humanism’s magazine Cragun along with colleagues Stephanie Yeager and Desmond Vega published “How Secular Humanists (and Everyone Else) Subsidize Religion in the United States” Cragun asked the question…what if cash from a church was taxed like corporate income? What revenue could be raised? What Cragun and his colleagues ended up doing is looking at the numbers. They combined federal-income, state-income, property and investment tax breaks that are now applicable to churches. In addition Cragun and his colleagues ended up including both the parsonage subsidy, and indirect subsidies for faith based initiatives. When it was calculated Cragun and his colleagues tally came to $71 billion.
In the parsonage exemption clergy are allowed to deduct home’s upkeep, furnishings, utilities, and that would come in addition to rent, mortgage payments or even the cable bill. Plus Cragun’s report indicates that the basic reason why 501(c)(3) is justified fails as in the end the money doesn’t always go for charitable purposes. For example in the report it says, “One calculation of the resources expended by 271 US congregations found that on average, ‘operating expenses’ totaled 71% of all the expenditures of religions, with much of that going to pay minister’s salaries.” This was compared with the American Red Cross, which “spends 92.1% of its revenue directly addressing the physical needs of those it intends to help; only 7.9% is spent on ‘operating expenses.”
One Note of Concern
Before I get into my reasoning and what I am going to suggest in regards to changing 501(c)(3) status someone will ask…what about the little guy? Isn’t it unfair to have the little guy be and aren’t you lumping everyone together? What troubles me today is that many churches and ministries are silent on the fraud, waste and abuse. After all and I want to write more about this later…isn’t spiritual abuse a sin? Why don’t we call it sin? Why don’t we get as worked up over spiritual abuse as we do a Supreme Court decision? Over at Warren Throckmorton’s blog the other day he has been following the financial issues and spiritual abuse for Gospel for Asia. The other day he posted a letter by a Canadian pastor who explained why his church is suspending financial support for Gospel for Asia. You can read that letter here. This kind of discernment needs to happen as well and on a regular basis. The problem is that it is not happening. Even with a lot of the little guys. Now what also bothers me is that there are some good ministries and organizations and pastors out there. I don’t want to see them hurt either, but it also troubles me that many aren’t speaking up about these issues either. But there have been some good people in the church. For example I wrote this tribute to one such pastor I loved and there were some people I met in Cru over the years when I was involved that I think highly of. So I don’t want to see the good guys get hurt because of the bad ones. But we have to find some way to deal with this issue and more people need to speak out.
What Eagle is Suggesting on the 501(c)(3) Tax Exempt Status
My belief in chewing on this and correct me if I am wrong but when 501(c)(3) was started it was probably done with the intent of helping churches out in the long run. It was designed to give them freedom and help them and their congregation in the long run. My question is this…has that happened? I mean consider what has happened especially with the scandals that are dominating the headlines today. Its one after the next, after the next that I would suggest many of them center around the fact that 501(c)(3) is being abused in some shape, manner or form. The Mars Hill situation in Seattle was a strong indicator that the system needs to change. You also have Warren Throckmorton blogging about the situation with Gospel for Asia which I touched on. Against all this you also have the Evangelical Council for Financial Accountability (ECFA) which has turned a blind eye to many questionable ministries. In reality I would suggest that ECFA is a paper tiger and when organizations like Cru, the Navigators, and denominations who use it in the end are hurting themselves. ECFA has lost its meaning and purpose. In 2007 before my faith crisis if you asked me what I thought of ECFA I would have sung its praises. In light of all the pain hemorrhaging from the church today and ECFA approving questionable organizations while Dan Busby is criticizing bloggers that tells me its usefulness has run its course. Even more disturbing is right before the implosion of Mars Hill Seattle Charles Grassley, the Republican Senator from Iowa who investigated Joyce Meyer and other televangelists couldn’t do much of anything. Thus, he asked ECFA to spearhead the problems and work on accountability. In light of what has happened with Mars Hill Seattle, and Gospel for Asia is ECFA capable of doing what it claims? My reaction is a firm no. By the way for those of you wanting to know who the wealthiest pastors in the United States are…look no further! You can find a list and their value here. Quick side note…Dee Parsons, or my East Coast Mom, your former pastor Ed Young Jr is listed as one of the wealthiest pastors in the country and lived in a 10,000 square-foot, $1.5 million home by the city’s Lake Grapevine. “Records show that Young was paid $240,000 a year as a parsonage allowance; that’s in addition what sources say is a $1 million yearly pastor’s salary,” the station reported. Mom!! You need to repent for attending Fellowship Church in Dallas!!! As part of your repentance you must blog…there is a bald man in Louisville who allegedly was involved in the cover up of child sex abuse. That cover up was done in the most humble, and “Gospel Centered” way possible! You need to make him sweat! Get to it Mom, commence slander as defined by Neo-Calvinist standards!
In addition to the financial scandals many parts of evangelicalism are embracing the mega church model in spite of all its shortcomings and flaws. For me the mega church model is out of touch with the Christian faith as a pastor who leads a 16,000 member church is not a pastor. He’s an evangelist. The bigger a church grows the more this becomes a problem. My former church Fairfax Community Church is pursuing a questionable growth campaign called “A Better $tory.” They want to grow, and its ridiculous because they can’t meet the needs of people who attend there now. People are falling through the cracks at Fairfax Community Church. This growth combined with other financial scandals is helping to influence the rise of the dones. So while the 501(c)(3) was designed to help the greater good of the congregation many evangelical churches are mocking it and disrespecting it. I would further suggest this is done in opposition to what Paul writes in Romans 13 when it talks about following the laws of the state. In addition you have denominations and churches that are not transparent with their money. For example CJ Mahaney gave $200,000 between Southern Seminary and Al Mohler. Members of Sovereign Grace Ministries were tithing so much that some were eating oatmeal for dinner so they could support “the happiest place on earth.” (Quick side note as I type this post I am actually eating oatmeal for lunch to show my solidarity to those who suffered in SGM) Here’s a question for Al Mohler by the way…Al when you learned about the origins of that money from SGM and where and fleeced off the backs of hard working people why didn’t you give it back? When you heard the entire story why not give it back to SGM as a sign of respect?
But here is another thing to consider. I started this post by quoting Matthew 22:21 where Jesus says give to God what belongs to God and give to Caesar what belongs to Caesar. When churches like Mars Hill Seattle or organizations like SGM are using and I would suggest abuse their 501(c)(3) status..is God being honored? When Calvary Chapel is covering up child sex abuse or has financial transparency issues..is God being honored? Jesus commands that to give to God what is God, but I would suggest that to tithe or give money to some of these ministries or organizations is indeed sinful. Its sinful to give money to a corrupt ministry. After all the effects are profound. First you are giving away your hard earned dollars. Next you are helping to prop up questionable organizations or churches which helps lead others astray. Third you are denying that money to a bona fide ministry or organization that could really use it and do the Lord’s work. Look at the fruit of someone like Mark Driscoll or CJ Mahaney compared to many para church organizations, Salvation Army or homeless rescue missions? It is because of this that I gave most of my money to a rescue mission. Next I would also suggest that when money is being given to a corrupt church or organization it is sin because we are not giving it to the state. We should render to Caesar what belong to Caesar…per Jesus commands, and we are not rendering to Caesar what belongs to Caesar when we prop up questionable ministries or organizations. Caesar is being denied.
Folks…the 501(c)(3) is not working in its current form. Its being abused. The church is suffering, the wolves are guarding the hen house, and people are getting hurt. For me that is not cool, and I think we need to have an honest discussion on 501(c)(3) today. Here is what I am going to propose…its my suggestion that 501(c)(3) be linked to the following situations as a way to help clean up evangelical Christianity and make it healthy.
- If a church covers up a child sex abuse situation and tries to deal with it in house then they should lose their 501(c)(3) status as it should be revoked.
- If a church hides or covers up a domestic abuse situation and tries to deal with it internally without consulting or bringing in the police, then their 501(c)(3) status should be rovoked.
- If a Senior Pastor is profiting from the ministry and practicing inurement as Mark Driscoll did in Seattle then the 501(c)(3) status needs to be revoked.
- If there are churches or pastors who know beyond a reasonable doubt that there are questionable or illegal activities going on in another church they need to report it, otherwise their church should lose 501(c)(3) status.
Again this is the musings of a guy who sits in the pews who has observed all this stuff playing out in evangelicalism and threatening the health of it. People need to remember that preaching the gospel is a privilege it is not a right. The days of entitlement and privilege really need to end. One person who is hurt by one of these questionable ministries is one too many. So again let me re-iterate…this is not coming from an agnostic or someone outside the faith. This is not coming from someone who has an axe to grind. This is coming from someone inside the faith. If evangelical Christianity can’t clean itself up then the days of 501(c)(3) need to come to and end. It needs to end to better the faith and help shut down some questionable rackets. Those of us that are Christian need to speak out. And if you are an atheist/agnostic/humanist I would appreciate if you speak out and call out these questionable organizations. Maybe another proposal is to let atheists audit and look at the books of churches and ministries. Can you imagine the witness that can come about if there is a partnership between the Secular Coalition of America and many churches? What if the Secular Coalition is allowed to audit church ministry books? That is an opportunity to show transparency and the Gospel in an amazing way. I might want to write more about that in the future. Well in winding this down I am going to leave you with Creedance Clearwater Revival. Let me know what you think, if you are an atheist/humanist I would appreciate your comments. If you are a pastor do you agree or disagree? Like I said if you are an accountant and in the know I would appreciate your advice. I hope you have a good day, again I love you guys!