If people give money, services, or property to a church, they can use the amount of their donation to reduce their federal income tax liability. Every year, billions of dollars of money, services, and property are given to churches. All churches, by default, are tax-exempt. Many people wrongly think that a church must be 501(c)(3)-approved to be tax-exempt. But that’s not the case. All a group needs to say to be tax-exempt is this: we are a church. That’s it. By 9:00 a.m. next Sunday, I could start a church that would be completely tax-exempt by IRS standards, even if only my family attended. (Please see How to Start an Independent Baptist Church.)
The IRS deliberately steers away from explicitly defining what a church is. In their view, if it looks and acts like a church, it is a church. Here are the main criteria the IRS uses to decide whether a church is tax-exempt:
- a distinct legal existence and religious history,
- a recognized creed and form of worship,
- established places of worship
- a regular congregation and regular religious services, and
- an organization of ordained ministers
As you can see, it is very easy for a group to be considered a church by the IRS.
Churches are also, in many states, exempt from paying sales and real estate taxes. Ohio is one such state. Churches can even operate for-profit businesses that are tax-exempt. In the 1970s, churches were encouraged to start daycare centers as a way to maximize building use and generate income – uh, I mean, minister to the poor. Just because a church tacks the word “ministry” on the end of a business name doesn’t make it one.
The question I ask is this: Should church donations be tax-deductible? Should churches be tax-exempt?
Christians will quickly state that their church is a charity and does good in the community, so their church should be tax-exempt and members should get a tax deduction for their donations. Relative to the amount of money they take in, do churches really do a great amount of good in the community? If the average church closed its doors tomorrow, would anyone outside of the membership care? Take a look at a church’s budget. Where does MOST of the money go? Salaries, benefits, insurance, utilities, buildings, and programs that only benefit the congregation. If a “real” charity spent their money in this manner, the IRS would pull their tax exemption and donations to said charity would no longer be tax-deductible. Yet, the IRS and federal and state governments give churches a blind-eye pass.
I have written on churches and their finances many times over the years. If you are getting ready to object, here’s my challenge. Send me your church’s budget. Let me take a close look at it. I have eagle-like eyes for seeing through the budget secrecy and bullshit many churches practice. Let’s take a close look at the numbers. Not the annual generic summary, but the actual income and expenses, I have made this challenge many times over the years, and not one church, pastor, or Christian has taken me up on it. They whimper, whine, and complain, but they never produce their financial documents. Why? They know the emperor has no clothes. They know if they shared their financials that the truth would be revealed.
If a church wants to be considered a tax-exempt charity, then they should be required to apply for charity status. They should then be required to spend the bulk of their money on charitable services that benefit the community. No church should be tax-exempt just because they say we are a church.
Most churches are social clubs and the price of membership is what people give in donations. The club rightly spends the bulk of its money on things that directly benefit the membership. As a club — a for-profit business — a church should be required to pay taxes and fill out all the tax forms that other businesses do. Isn’t it about time churches start paying their own way, just as every other business does? Why should First Baptist Church or St Peter’s Catholic Church be tax-exempt and receive free fire and police service and free infrastructure improvements? Why shouldn’t Betty’s Coffee Shop or Bob’s Bar and Grill get the same tax treatment as a church?
I support the elimination of all church tax exemptions (sales, real estate, income, social security), church donation tax deduction, and the clergy housing tax allowance/deduction. A practical side effect of eliminating these exemptions is that churches would then be free to endorse political candidates. No more Christian whining about their “free” speech being stifled. Churches would be FREE to do what they want AND pay taxes just like everyone else.
Bruce Gerencser, 66, lives in rural Northwest Ohio with his wife of 45 years. He and his wife have six grown children and thirteen grandchildren. Bruce pastored Evangelical churches for twenty-five years in Ohio, Texas, and Michigan. Bruce left the ministry in 2005, and in 2008 he left Christianity. Bruce is now a humanist and an atheist.
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