Academic journal article Harvard Journal of Law & Public Policy

The Taxation of Religious Organizations in America

Academic journal article Harvard Journal of Law & Public Policy

The Taxation of Religious Organizations in America

Article excerpt

INTRODUCTION

Christ taught his disciples to "[r]ender to Caesar the things that are Caesar's, and to God the things that are God's." (1) The Supreme Court has, to an extent, rendered to God what is God's by repeatedly acknowledging that it will not involve itself in the internal affairs of religious organizations. (2) Nevertheless, the extent to which religious organizations remain vulnerable to involvement from other branches of government remains a pertinent question, especially with regards to the government's power to tax. (3)

This Note investigates the extent to which religious organizations are vulnerable to such involvement. A prime example of such involvement is Congress' ability to use the Internal Revenue Code to the detriment of religious organizations. As it ensures that what is Caesar's (i.e., taxes) is rendered to Caesar (i.e., the federal government), any policy of Congress and the Internal Revenue Service (I.R.S.) that thwarts the faithful from rendering to God what is God's has the potential to impose a prohibitive burden on the operation of religious organizations. The potential to hinder the work of religious organizations through taxation is great. Indeed, "the power to tax involves the power to destroy." (4) Insofar as Congress retains the power to tax religious organizations, it likewise maintains the power to destroy.

In short, religious organizations benefit tremendously from their tax-exempt status. (5) However, this tax-exempt status is not a given; the tax-exempt status for religious organizations is neither a right that was found to be in existence prior to the formation of the United States and therefore enshrined in the Constitution, nor is it a right created by the Constitution. (6) Rather it is a status that is based on the consent of Congress and listed deep in the bowels of the United States Code. Therefore, religious organizations and their allies must remain vigilant in ensuring that their representatives in Congress and officials in the executive branch uphold those portions of the Tax Code that exempt religious organizations from tax obligations.

I. THE BASIS ON WHICH RELIGIOUS ORGANIZATIONS ARE GRANTED TAX-EXEMPT STATUS

In order to understand the threat to religious organizations from adverse changes to tax law, it is important to first understand the provisions in the Internal Revenue Code on which religious organizations are granted tax-exempt status, (7) as well as the legislative history behind these sections of the Tax Code.

A. Tax-Exempt Status for Religious Organizations Codified

At the federal level, all income to a person, be it to a corporation or to a non-corporation individual, is taxable by default. (8) On this principle hang all the law and the profits of the Tax Code. (9) Thereafter, deriving a person's tax burden involves accounting for various deductions and exemptions provided for in the Tax Code, (10) and multiplying this calculated amount by the appropriate tax rate. (11) But for the exemptions allowed for in [section] 501(a) and [section] 501(c), religious organizations would be considered ordinary corporations for tax purposes, (12) and thus would be subject to taxation on all received tithes, offerings, and donations at the corporate tax rate. (13) In other words, assuming similar levels of income, the local church, mosque, or synagogue, which exists to connect believers to the divine in a non-profit manner, would be taxed in the same way as the local grocer or hardware store, which exists to maximize shareholder value.

Congress, however, elected to exempt from taxation certain types of organizations. (14) Among these are corporations "organized and operated exclusively for religious, charitable, [and] scientific ... purposes." (15) This exemption releases a religious organization from the burden of paying taxes on any donations received, and thereby enables such an organization to devote more funds to its operations and efforts to fulfill its mission as a religious organization. …

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