Originally published on Forbes.com.
Rather than attending services at the Church or Our Lady of Perpetual Exemption this Sunday morning, I’m working on my blog. John Oliver recently founded COLPE to illustrate how much churches can get away with. The show where he explains all this is pretty amusing, but I think it is off base in its analysis of the problem.
The wrong-headed implication of the piece is summed up in this headline IRS Getting Pressured To Crack Down On Televangelists Following John Oliver’s Segment. The implication is that once again the beleaguered IRS is letting us down. In reality when it comes to its “hands off churches’ policies the IRS is pretty well following the directions of Congress.
Pointing The Finger Of Blame At The IRS
I was thinking of not blaming Oliver so much for the “blame the IRS” take away from his piece, but as I went through it again it was clearly there.
He gives a clip from an IRS training video in which the presenter says
The point is that – for reasons as old as the United States – the tax laws and regulations that govern churches and religious organizations are purposely broad and sometimes a little vague.
He then uses the phrase “according to their tax codes”, clearly from context referring to the IRS and goes on to mock the IRS for not determining whether religious beliefs are, you know, religious. He also discusses the very low chance that a church will ever be audited.
Ironically the GAO report that he cites to demonstrate the paucity of church audits is about the IRS not having strong enough controls to eliminate the possibility that they will ever consider belief content in selecting organizations for audit.
The GAO report actually explains why it is so hard for the IRS to audit a church.
Statutory requirements must be met before EO can initiate an examination on a church.34 Specifically, after determining that there is reasonable belief (based on facts and circumstances recorded in writing) that a church may not qualify for exemption, IRS must first issue a Notice of Inquiry to the church.35 An inquiry serves as a basis for determining whether the organization qualifies for exemption as a church, whether it is engaged in activities subject to tax, or whether an excess benefit transaction has occurred.36 If there is a reasonable belief that an inquiry is necessary—based on facts and circumstances of the case, including committee review if a referral is involved—then the information is sent to a designated official, who must be an “appropriate high-level Treasury official.”37 Currently, the designated official is the Director, Exempt Organizations, who must also get concurrence from the TE/GE Commissioner, according to EO officials. Under the statute, an “appropriate high-level Treasury official” must reasonably believe that an inquiry is necessary
The IRS had suspended church audits after a district court ruled that director of exempt organizations was not “an appropriate high-level Treasury official”.
Oliver talks about “being designated” a church. Under Code Section 508 churches do not have to apply for exempt status. The designation is a self-designation.
Oliver illustrates abuse of the parsonage exemption with a shot of Kenneth and Grace Copeland’s $6,000.000 + home. When it comes to parsonage, don’t get me started. The fight over the dubious constitutionality of unlimited tax-free cash housing allowances for “ministers of the gospel” has been one of the persistent themes of this blog. And it is perhaps parsonage that provides one of the best stories to illustrate why John Oliver is pointing his finger in the wrong direction when it comes to church tax abuse.
Congress Does Not Have IRS’s Back – Except To Stab It
It may seem like ancient history but Revenue Ruling 70-549 is a great example of how Congressional pressure keeps the IRS from enforcing the tax law when religious organizations are involved.
Revenue Ruling 70-549 seems pretty innocuous. It talks about an ordained minister who serves as a department head of a college, which is, in practice, operated as an integral agency of a church. The Service was “encouraged” to issue this ruling by Congressman Omar Burleson, who was known for taking good care of his district. Abilene Christian College, which was in the Congressman’s district and now houses his papers, was facing an IRS audit. Burleson and another Texas Congressman, George Bush, were ready to propose legislation but, Burleson encouraged the IRS to solve the problem, administratively. In his letter to Treasury General Counsel, Paul Eggers, he wrote:
Admittedly, Abilene Christian College is not organically connected to the Church. In practice, however, this relation strictly exists. The College and other like institutions do not employ any teachers who are not members of the Church, and all Board of Trustee members must be members of the Church in good standing.
In truth and in fact, Abilene Christian College and the few other Church of Christ colleges in the country are integral agencies of a religious organization.Teachers who are ministers perform their duties in accordance with the purposes set forth in section 107 of the Internal Revenue Act of 1954.
The rentals on their homes are a part of their compensation They are truly ministers of the Gospel and should qualify under the Law and regulations the same as other religious bodies engaged in education.
Here is the kicker. The Churches of Christ has a “priesthood of all believers” theology. So everybody who is a member can be a minister and their entitlement to a housing allowance is independent of their role in the colleges – hence “basketball ministers”. The most well known college that benefits from this arrangement is probably Pepperdine University.
Ask The Presidential Candidates?
John Oliver might be able to have an even more entertaining take on issues surrounding clergy tax abuse if he would get Presidential candidates to go on the record about whether churches should be exempt from the transparency required of other not for profits and whether “ministers of the gospel” should be able to exclude housing allowances with no dollar limit.We know where Jill Stein stands on the issue. What about the rest of them?
Update – Legal Scholar Weighs In
Edward Zelinsky of Yeshiva University has written quite a bit about the problems that taxation creates in regard to church state issues under our First Amendment, which they don’t have where John Oliver grew up.
Like many John Oliver skits, this spoof, while amusing, raises serious issues. To identify three of these: First, the IRS does not write the Internal Revenue Code. Congress does and the American people elect Congress. To minimize church-state entanglement, Congress has constrained the IRS’s ability to audit churches. Mr. Oliver criticizes this low audit rate without explaining who is responsible for it, namely, Congress.
Second, a minister’s personal use of a church-owned plane is taxable income, just as a corporate executive’s personal use of a company plane is taxable income. More generally, churches pay more taxes than many people believe. For example, ministers pay self-employment taxes while churches pay FICA taxes on the salaries of their nonclerical employees. In most states, churches are subject to sales tax, either as buyers or sellers and sometimes in both capacities.
Finally, the legal issue of defining a church involves serious trade-offs. We could define “church” more restrictively to crack down on the kind of schemes Mr. Oliver so effectively satirizes. However, a narrower definition of a “church” could also be used against nonconformist and unconventional religions–which at times in our country’s history could have included abolitionist churches, the Catholic Church, the Church of Latter Day Saints and other now mainstream organizations. For that reason, as a society, we generally seek to minimize church-state entanglement even though the resulting zone of religious autonomy can be exploited by the kind of ministers Mr. Oliver so effectively satirizes