A tax code that allows any institution to hoard money with no oversight should be considered a structural injustice.
By Robert Repino
Editor of Religious Studies and History
Oxford University Press
Every once in a while, a new scandal in the United States shines a spotlight on the tax-exempt status that religious institutions enjoy in this country. In 2019, a whistleblower alerted the IRS that the Church of Jesus Christ of Latter-day Saints had stockpiled about $100 billion in accounts that were originally intended for charitable purposes. The Church of Scientology’s revenue and investments are so notorious that even former President Donald Trump questioned the legitimacy of its tax-exempt status. There are numerous examples of religious institutions abusing COVID-19 relief funds that arguably should have never been available to them in the first place. Finally, the Catholic Church’s scandals — from the settlements paid out to victims of child abuse to a pair of nuns embezzling $835,000 and gambling it away in Las Vegas — are reason enough to consider revising the tax-exempt laws in the United States.
With or without a scandal, this year’s tax season provides another occasion to ask just how fair this system really is. Tax codes are notoriously complex, but for those who are new to the topic, it’s enough to understand that religious institutions benefit from an array of exemptions, both at the state and federal levels. They pay little to no taxes on their properties, and little to no capital gains taxes on their investments. Thanks to a parsonage exemption, payments to employees are often untaxed. Institutions can collect income tax-free, unless that revenue is part of a distinct, for-profit venture. And of course, donors can write off their contributions.
Maybe I could live with all that if religious institutions applied for tax-exempt status like a regular nonprofit. But they don’t. While secular nonprofits must demonstrate that they spend their income on their mission, religious institutions are under no such obligation. Money can go in and then, without exaggeration, simply disappear.
What is important to understand is that churches, mosques, synagogues, and other religious institutions enjoy these benefits simply because they are religious and not because of any charitable work they do. That’s not to deny the many charitable activities that they perform. But unlike secular nonprofits, religious institutions are not required to account for such activities. The IRS performs no oversight of them, and it does not enforce penalties on institutions that opt out of charitable work.
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