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Should Churches be Tax-Exempt?

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Repost from 2015. Edited, updated, and corrected.

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, 63, lives in rural Northwest Ohio with his wife of 42 years. He and his wife have six grown children and thirteen awesome 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. For more information about Bruce, please read the About page.

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14 Comments

  1. Avatar
    Ian

    I felt that way while still attending church. Seems to me, there is a story about Peter paying taxes. Jesus said pay for me and thee, lest we offend. Oh yeah, Matthew 17:24-27; I knew it was there somewhere.

    Taxes, and not paying them, do offend a lot of people. Why not be a church that pays for what it receives? Like Bruce says, then they could get involved in politics. Wait, they already are. This involvement is in direct contradiction to the law, which means they aren’t following Romans 13.

    See, we ex-Christians can quote scripture too.

  2. Avatar
    Dennis

    Then again, the clergy would really brow beat the laity (another non-scriptural NT dichotomy) for the unbiblical NT practice of the OT ‘tithe’. It always amazes me when churches that claim the OT is not for the modern church; the ‘law’ no longer applies, yada, yada, yada, still put the guilt trip of the ‘tithe’ on their members.

    I agree, Bruce, look at church’s financial statements and the majority of the expenses are for buildings, maintenance, staff salaries, etc. Very little actually goes toward putting anything back into the community or helping the congregation. In fact, they require extra giving to do anything of actual benefit.

    So, to answer the articles question, my answer is NO!

  3. Avatar
    Joshua

    You’ve forgotten to mention the real reason why the IRS stays away from churches: the separation of church and state (which, according to our founders, was meant to protect the church from the state). The money given to a church is money given to God; the church simply manages what belongs to God. Thus it’s fitting to do what is necessary to promote God with God’s money. Churches have never pretended to be charities, though nearly every church I’ve attended has a portion of its budget set aside for charity. Some more, some less. Congregations build buildings for worship services. Many churches pay their pastors, because it’s the pastor who preaches God’s word to them. Thus, God’s money goes to God’s servant. Interestingly, though, the IRS does tax pastors, because they consider pastors to be self-employed. This is how every non-profit operates, and I think pastors and everyone else are happy with that setup.

    • Avatar
      Bruce Gerencser

      You ignore much of what I said in this post.

      If the money is given to God, why are donations tax deductible? Why do churches churches and clergies receive special tax deductions if donated belongs to God?

      Using your errant understanding of separation of church and state, churches would be exempt from building and fire codes and every other law that currently applies to them.

      You might also want to do some reading on 501 (c) (3) status.

    • Avatar
      Becky Wiren

      Funny, none of that money goes to God. It goes to pay the ministerial staff and upkeep for the church. Very little goes to help people outside of those parameters.

  4. Avatar
    Brian

    Unless the guv agrees that religion is a necessary balm for our wicked, fallen selves, then there is no reason on earth that I can manage to see why the Church is free of taxes. It is simply wrong and offends common decency. The Church needs to start paying for the damage it does. A regular taxation would be a fine start as I see it.

  5. Avatar
    MJ Lisbeth

    As a survivor of sexual abuse by a priest, I agree with Timothy Reynolds. Moreover, I would like to see churches pay a special tax for mental health services to help people who have been traumatized by clergy members and others who hold positions of authority in said places of worship.

  6. Avatar
    Steve Ruis

    Re “No church should be tax-exempt just because they say we are a church.” … e.g. Scientology.

    Also, should church “Daycare Centers” be exempt from discrimination in hiring and other labor laws and regulations regarding the qualifications of workers in their centers? In many states they are.

  7. Avatar
    BJW

    Bruce, I think you SHOULD start a church of secular humanism. (At least after this pandemic has stopped screwing us over?) If your home was big enough, have one good gathering a week, maybe Sunday afternoon. Have everyone bring food. Give everyone a nice talk and/or have people take turns each week. Then…BINGO! Tax exemptions galore, and you would be doing a nice thing for us. <3

  8. Avatar
    Brian Vanderlip

    I have not always believed that churches should be taxed and should insist on contributing to the greater good by setting an monetary example to others. I love the idea of repurposing church buildings to meet community needs for low-cost meeting places and that this practice not exclude members of the community that are not in-sync with religious views.
    BJW, as I see it, Bruce does have a gathering here, a regular meeting to share the faith that is not! And I do think he should indeed partake of the opportunity to reduce taxes and continue the good work.

  9. Avatar
    dale m

    As I understand, The Rt. Rev. Billy Graham once had his real-estate holdings audited (such as his 32 bdrm mansion sitting on 5 acres of prime land). He went ballistic claiming the I. R. S. had become a tool of Satan and hinted at a 120 million tax-payer revolt if the I. R. S. ever went through with the audit. In a rare gesture, the I. R. S. backed down. Billy was already in the Whitehouse with President Nixon. He wanted whoever was in the I. R. S. personally exposed. He became quite vindictive when that person was exposed. That investigator was then sacked by Nixon (quietly). That opened the door for Scientology. The I. R. S. became a great shield for those criminals. Christians aren’t persecuted when they literally OWN the I. R. S. We don’t have that kind of criminal power. We play by the rules. Criminals don’t. Play nice guy during a war …. you’re sure to lose. These guys know the weapons of power. $$$$ and politics. Don’t want to fight fire with fire? Then back away and bow as U do so. Let them know that you would never lift a finger against them. Why? Because we’re nice. (That doesn’t cut it in the real world of power struggles). My 3cents …. again.

  10. Avatar
    ObstacleChick

    John Oliver did a segment on televangelists and, as an experiment and a joke, started his own “religious organization/church” to show how easy it is to pretend to be a religion in order to get people’s money.

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