This post was originally published on Forbes Aug 23, 2015
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 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.
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
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.
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.
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