Churches and Taxes - Pros and Cons
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Should Churches (Defined as Churches, Temples, Mosques, Synagogues, etc.) Remain Tax-Exempt?
Churches and Taxes

US churches* received an official federal income tax exemption in 1894, and they have been unofficially tax-exempt since the country's founding. All 50 US states and the District of Columbia exempt churches from paying property tax. Donations to churches are tax-deductible. The debate continues over whether or not these tax benefits should be retained.

Proponents argue that a tax exemption keeps the government out of church finances and thus upholds the separation of church and state. They say that churches deserve a tax break because they provide crucial social services, and that 200 years of church tax exemptions have not turned America into a theocracy.

Opponents argue that giving churches special tax exemptions violates the separation of church and state, and that tax exemptions are a privilege, not a constitutional right. They say that in tough economic times the government cannot afford what amounts to a subsidy worth billions of dollars every year. Read more...


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* Churches and Taxes ProCon.org is a nonpartisan, nonprofit website that presents research, studies, and pro and con statements related to tax exemptions for houses of worship which we, like the US Internal Revenue Service (IRS), broadly reference as "churches.” The IRS Tax Guide for Churches and Religious Organizations (5.1 MB) PDF logo (publication 1828 (11-2009) Catalog Number 21096G), [1] uses the term church "in its generic sense as a place of worship including, for example, mosques and synagogues," as well as "conventions and associations of churches [and] integrated auxiliaries of a church." The IRS distinguishes "churches" from "religious organizations," which are defined as "nondenominational ministries, interdenominational and ecumenical organizations, and other entities whose principal purpose is the study or advancement of religion."
Did You Know?
  1. The first recorded tax exemption for churches was during the Roman Empire, when Constantine, Emperor of Rome from 306-337, granted the Christian church a complete exemption from all forms of taxation following his supposed conversion to Christianity circa 312. [2] [3] [4]

  2. The law against churches intervening in political campaigns was passed by the US Congress in 1954. Since then, the Internal Revenue Service (IRS) has been successful in using the law to revoke the tax-exempt status of only one church: the Church at Pierce Creek in Binghamton, NY, which had placed an advertisement in USA Today and the Washington Times rebuking Bill Clinton four days before the 1992 presidential election. [6] [7]

  3. If the "parsonage exemption" on religious ministers' housing costs were revoked, American clergy members would cumulatively lose an estimated $2.3 billion over five years. [60]

  4. In spring 2010, the state of Oklahoma awarded tax-exempt status to a Satanist group called The Church of the IV Majesties. [8]

  5. According to former White House senior policy analyst Jeff Schweitzer, PhD, US churches own $300-$500 billion in untaxed property. [9] New York City alone loses $627 million in annual property tax revenue due to 9,500 churches being tax-exempt, according to a July 2011 analysis by New York's nonpartisan Independent Budget Office. [10] [11]
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Pro & Con Arguments: "Should Churches (Defined as Churches, Temples, Mosques, Synagogues, etc.) Remain Tax-Exempt?"
PRO Tax Exemption for Churches

  1. Exempting churches from taxation upholds the separation of church and state embodied by the Establishment Clause of the First Amendment of the US Constitution. The US Supreme Court, in a majority opinion written by Chief Justice Warren E. Burger in Walz v. Tax Commission of the City of New York, decided May 4, 1970, stated: "The exemption creates only a minimal and remote involvement between church and state, and far less than taxation of churches. It restricts the fiscal relationship between church and state, and tends to complement and reinforce the desired separation insulating each from the other." [5]


  2. Requiring churches to pay taxes would endanger the free expression of religion and violate the Free Exercise Clause of the First Amendment of the US Constitution. By taxing churches, the government would be empowered to penalize or shut them down if they default on their payments. [12] The US Supreme Court confirmed this in McCulloch v. Maryland (1819) when it stated: "the power to tax involves the power to destroy." [13]


  3. Churches earn their tax exemption by contributing to the public good. [14] Churches offer numerous social services to people in need, including soup kitchens, homeless shelters, afterschool programs for poor families, assistance to victims of domestic violence, etc. [15] These efforts relieve government of doing work it would otherwise be obliged to undertake.


  4. Taxing churches would place government above religion. The Biblical book of Judges says that those who rule society are appointed directly by God. [2] Evangelist and former USA Today columnist Don Boys, PhD, asked "will any Bible believer maintain that government is over the Church of the Living God? I thought Christ was preeminent over all." [16]


  5. A tax exemption for churches is not a subsidy to religion, and is therefore constitutional. As stated by US Supreme Court Chief Justice Warren E. Burger in his majority opinion in Walz v. Tax Commission of the City of New York (1970), "The grant of a tax exemption is not sponsorship, since the government does not transfer part of its revenue to churches, but simply abstains from demanding that the church support the state. No one has ever suggested that tax exemption has converted libraries, art galleries, or hospitals into arms of the state or put employees 'on the public payroll.' There is no genuine nexus between tax exemption and establishment of religion." [5]


  6. Poor and disadvantaged people relying on assistance from their local churches would suffer if churches were to lose their tax-exempt status. According to Vincent Becker, Monsignor of the Immaculate Conception Church in Wellsville, NY, the food and clothing programs his church offers would be threatened by a tax burden: "All of a sudden, we would be hit with something we haven't had to face in the past… We base all the things that we do on the fact that we do not have to pay taxes on the buildings." [17] Crucial services would either be eliminated or relegated to cash-strapped local governments if churches were to lose their tax exemptions.


  7. US churches have been tax-exempt for over 200 years, yet there are no signs that America has become a theocracy. If the tax exemption were a serious threat to the separation of church and state, the US government would have succumbed to religious rule long ago. As the Supreme Court ruled in Walz v. Tax Commission of the City of New York (1970), "freedom from taxation for two centuries has not led to an established church or religion, and, on the contrary, has helped to guarantee the free exercise of all forms of religious belief." [18]


  8. Taxing churches when their members receive no monetary gain would amount to double taxation. The late Rev. Dean M. Kelley, a leading proponent of religious freedom, explained that church members are already taxed on their individual incomes, so "to tax them again for participation in voluntary organizations from which they derive no monetary gain would be 'double taxation' indeed, and would effectively serve to discourage them from devoting time, money, and energy to organizations which contribute to the up building of the fabric of democracy." [19]


  9. The only constitutionally valid way of taxing churches would be to tax all nonprofits, which would place undue financial pressure on the 960,000 public charities that aid and enrich US society. If only churches were taxed, government would be treating churches differently, purely because of their religious nature. [20] [21]


  10. Small churches, already struggling to survive, would be further endangered by a new tax burden. A 2010 survey by the Hartford Institute for Religion Research found that congregations facing financial strain more than doubled to almost 20% in the past decade, with 5% of congregations unlikely to recover. [22] If these churches were obliged to pay taxes, their existence would be threatened and government would thus be impeding religious expression. [20]


  11. The vast majority of churches refrain from political campaigning and should not be punished for the actions of the few that are political. The Internal Revenue Code (IRC) gives churches the freedom to either accept a tax benefit and refrain from political campaigning like all other nonprofit charities, or reject the exemption and speak freely about political candidates. [1] [23] There are 450,000 churches in the US, yet only 500 pastors made political statements as part of Pulpit Freedom Sunday on Oct. 2, 2011. [35] [58] The tax exemption should remain in place to benefit the vast majority of churches.


  12. Withdrawing the "parsonage exemption" on ministers' housing would cost American clergy members $2.3 billion over five years, [60] which would be a major blow to modestly paid men and women who dedicate their lives to helping people in need. According to the National Association of Church Business Administration (NACBA), the average American pastor with a congregation of 300 people earns less than $28,000 per year. The NACBA also states that one in five pastors takes on a second job to earn extra income, and that only 5% of pastors earn more than $50,000. [59] As stated by D. August Boto, Executive Vice President and General Counsel of the Executive Committee of the Southern Baptist Convention, "the housing allowance is critically important for making ends meet—it is not a luxury." [62]
CON Tax Exemption for Churches

  1. Tax exemptions for churches violate the separation of church and state enshrined in the Establishment Clause of the First Amendment of the US Constitution. By providing a financial benefit to religious institutions, government is supporting religion. Associate Justice of the US Supreme court, William O. Douglas, in his dissenting opinion in Walz v. Tax Commission of the City of New York, decided May 4, 1970, stated: "If believers are entitled to public financial support, so are nonbelievers. A believer and nonbeliever under the present law are treated differently because of the articles of their faith… I conclude that this tax exemption is unconstitutional." [24]


  2. A tax exemption is a privilege, not a right. Governments have traditionally granted this privilege to churches because of the positive contribution they are presumed to make to the community, but there is no such provision in the US Constitution. [25]


  3. Churches receive special treatment from the IRS beyond what other nonprofits receive, and such favoritism is unconstitutional. While secular charities are compelled to report their income and financial structure to the IRS using Form 990 (Return of Organization Exempt From Income Tax), churches are granted automatic exemption from federal income tax without having to file a tax return. [1]


  4. A tax break for churches forces all American taxpayers to support religion, even if they oppose some or all religious doctrines. As Mark Twain argued: "no church property is taxed and so the infidel and the atheist and the man without religion are taxed to make up the deficit in the public income thus caused." [26]


  5. A tax exemption is a form of subsidy, and the Constitution bars government from subsidizing religion. William H. Rehnquist, then-Chief Justice of the US Supreme Court, declared on behalf of a unanimous court in Regan v. Taxation with Representation (1983): "Both tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income." [27]


  6. The tax code makes no distinction between authentic religions and fraudulent startup "faiths," which benefit at taxpayers' expense. In spring 2010, Oklahoma awarded tax exempt status to Satanist group The Church of the IV Majesties. [8] In Mar. 2004, the IRS warned of an increase in schemes that "exploit legitimate laws to establish sham one-person, nonprofit religious corporations" charging $1,000 or more per person to attend "seminars." [28] The Church of Scientology, which TIME Magazine described in May 1991 as a "thriving cult of greed and power" and "a hugely profitable global racket," [29] was granted federal income tax exemption in Oct. 1993. The New York Times reported that this "saved the church tens of millions of dollars in taxes." [30]


  7. Churches serve a religious purpose that does not aid the government, so their tax exemptions are not justified. Tax exemptions to secular nonprofits like hospitals and homeless shelters are justified because such organizations do work that would otherwise fall to government. Churches, while they may undertake charitable work, exist primarily for religious worship and instruction, which the US government is constitutionally prevented from performing. [31]


  8. Exempting churches from taxation costs the government billions of dollars in lost revenue, which it cannot afford, especially in tough economic times. According to former White House senior policy analyst Jeff Schweitzer, PhD, US churches own $300-$500 billion in untaxed property. [9] New York's nonpartisan Independent Budget Office determined in July 2011 that New York City alone loses $627 million in property tax revenue. [11] Lakewood Church, a "megachurch" in Houston, TX, earns $75 million in annual untaxed revenue, and the Church of Scientology's annual income exceeds $500 million. [32] [33]


  9. Despite the 1954 law banning political campaigning by tax-exempt groups, many churches are clearly political and therefore should not be receiving tax exemptions. [9] [34] Every fall, the Alliance Defense Fund, a Christian legal group, organizes "Pulpit Freedom Sunday," encouraging pastors to defy IRS rules by endorsing candidates from the pulpit. More than 500 pastors participated in Oct. 2011, yet none lost their churches' exemption status. [35] In Oct. 2010, Minnesota pastor Brad Brandon of Berean Bible Baptist Church endorsed several Republican candidates and dared the "liberal media" to file complaints with the IRS. Brandon later announced on his radio program: "I'm going to explain to you what happened… Nothing happened." [35]


  10. American taxpayers are supporting the extravagant lifestyles of wealthy pastors, whose lavish "megachurches" accumulate millions of tax-free dollars every year. US Senator Chuck Grassley, MA (R-IA) launched an investigation into these groups in Nov. 2007 after receiving complaints of church revenue being used to buy pastors private jets, Rolls Royce cars, multimillion-dollar homes, trips to Hawaii and Fiji, and in one case, a $23,000, marble-topped chest of drawers installed in the 150,000 square foot headquarters of Joyce Meyer Ministries in Fenton, Missouri. [36]


  11. The tax break given to churches restricts their freedom of speech because it deters pastors from speaking out for or against political candidates. [1] As argued by Rev. Carl Gregg, pastor of Maryland's Broadview Church, "when Christians speak, we shouldn't have to worry about whether we are biting the hand that feeds us because we shouldn't be fed from Caesar/Uncle Sam in the first place." [37]


  12. The "parsonage exemption" on ministers' homes makes already-wealthy pastors even richer at taxpayers' expense. The average annual salary for senior pastors with congregations of 2,000 or more is $147,000, with some earning up to $400,000. [61] In addition to the federal exemption on housing expenses enjoyed by these ministers, they often pay zero dollars in state property tax. Church leaders Creflo and Taffi Dollar of World Changers Church International had three tax-free parsonages: a million-dollar mansion in Atlanta, GA, a two-million-dollar mansion in Fayetteville, GA, [63] and a $2.5 million Manhattan apartment. [64] Kenneth and Gloria Copeland, leaders of Kenneth Copeland Ministries in Fort Worth, TX, live in a church-owned, tax-free $6.2 million lakefront parsonage. [62]
Comment Comment
Background: "Should Churches (Defined as Churches, Temples, Mosques, Synagogues, etc.) Remain Tax-Exempt?"
US churches received an official
LifeWay Research Church Politics Poll
(Click to enlarge image)
A June 2008 survey of more than 1,200 adults showing Americans' views on churches endorsing political candidates.
Source: LifeWay Research, "New Research on Politics and the Church," blogs.lifeway.com, Sep. 24, 2008
federal income tax exemption in 1894, [38] and they have been unofficially tax-exempt since the country's founding. [39] All 50 US states and the District of Columbia exempt churches from paying property tax. [5] [40] Donations to churches are also tax-deductible. [41] The debate continues over whether or not these tax benefits should be retained.

Proponents argue that a tax exemption keeps the government out of church finances and thus upholds the separation of church and state. They say that churches deserve a tax break because they provide crucial social services, and that church tax exemptions have been in place for over 200 years without turning America into a theocracy.

Opponents argue that giving churches special tax exemptions violates the separation of church and state, and that tax exemptions are a privilege, not a right guaranteed by the US Constitution. They say that in tough economic times the government cannot afford what amounts to a subsidy worth billions of dollars every year.

The tax exemption for churches can be traced back to the Roman Empire, when Constantine, Emperor of Rome from 306-337, granted the Christian church a complete exemption from all forms of taxation following his supposed conversion to Christianity circa 312. [2] [3] [4] Church property used for religious purposes was also tax-exempt in medieval England, based on the rationale that the church relieved the state of some governmental functions, and therefore deserved a benefit in return. [2] The English Statute of Charitable Uses of 1601, which included churches along with all other charitable institutions, formed the basis of America's modern tax exemption for charities. [45]

By the time of the American Revolution, nine of the 13 original colonies were giving some kind of tax relief to churches. [2] In 1777, Virginia officially enacted an exemption from paying property tax to "houses for divine worship." [5] New York followed in 1799, and Congress exempted all churches in the District of Columbia from paying property tax in 1870. [48] [5]

During the 19th Century, opposition to churches retaining property tax exemptions was expressed by at least three US presidents: James Madison, James Garfield, and Ulysses S. Grant. [49] [24] [50] President Grant submitted a 900-foot long petition containing 35,000 signatures to Congress in 1875, demanding "that churches and other ecclesiastical property shall be no longer exempt from taxation." Grant told Congress that "in 1850, the church properties in the U.S. which paid no taxes, municipal or state, amounted to about $83 million. In 1860, the amount had doubled; in 1875, it is about $1 billion. By 1900, without check, it is safe to say this property will reach a sum exceeding $3 billion....so vast a sum, receiving all the protection and benefits of government without bearing its portion of the burdens and expenses of the same, will not be looked upon acquiescently by those who have to pay the taxes." [50]

First Amendment Monument in Philadelphia
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A monument located in Philadelphia, PA displaying the First Amendment of the US Constitution, which contains the Establishment and Free Exercise clauses at the heart of the churches and taxes debate.
Source: "Mary House's Boarding House (Fifth & Market Streets)," teachingamericanhistory.org (accessed Nov. 9, 2011)

US churches' federal income tax exemption was not formerly enacted as legislation until the Tariff Act was passed by Congress in 1894, providing tax exemptions to "corporations, companies, or associations organized and conducted solely for charitable, religious, or educational purposes." [51] This was the first time the federal government declared any group exempt from paying taxes, as opposed to its earlier practice of only listing entities subject to taxation. [38] Although the Tariff Act was declared unconstitutional in 1896, the church tax exemption was reinstated by the Revenue Act of 1913, which defined the modern American income tax system. [45] [46] On Jan. 14, 1924, the US Supreme Court interpreted the reason for the exemption in Trinidad v. Sagrada Orden: "Evidently the exemption is made in recognition of the benefit which the public derives" from churches' "corporate activities." [47]

The US Internal Revenue Service (IRS) classifies churches as 501(c)(3) nonprofit charitable organizations, which are exempt from federal income tax and are able to accept tax-deductible donations. [1] Unlike secular charities, however, churches are automatically considered to be 501(c)(3) organizations, and, while they may do so voluntarily, they are not required by law to submit an application for exemption or pay the application fee (up to $850 as of Oct. 24, 2011 [42]). [1]

In addition, using a benefit known as the "parsonage exemption" (or "parish exemption"), "licensed, commissioned, or ordained" ministers of religion may deduct most of the money they spend on housing from their federal income tax, and these properties are often exempt from state property taxes. [41] [43] [44] The exemption has existed since 1921, and no equivalent tax break is available to leaders of secular nonprofit charities. [60] [41] A legal battle has ensued to determine whether the exemption can apply to multiple homes used by a single pastor. In Mar. 2011, a 7-6 US Tax Court decision ruled that Phil Driscoll, an ordained minister and Grammy Award-winning trumpeter imprisoned for tax evasion, was exempt from federal income tax on $408,638 used to purchase a second home near Cleveland, TN. The court determined that the word "home" used in the tax code is equivalent to "homes." [62] However, on Feb. 8, 2012 the Eleventh Circuit Court of Appeals in Atlanta overturned the earlier decision in a 3-0 ruling, stating that "Congress intended for the parsonage allowance exclusion to apply to only one home.” [65]

A ban on church intervention in political campaigns became law in 1954 with the passage of then-Senator Lyndon Johnson's amendment to Internal Revenue Code (IRC) section 501(c)(3), which covers tax-exempt charitable organizations in general. [7] [52] The amendment was passed with no recorded input from churches or any other charitable groups. [7] Under the amended IRC, churches and all other 501(c)(3) charities are "absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office" if they are to remain tax-exempt. [IRC 8] Contributions to political campaign funds in support or opposition to candidates are also prohibited, but pastors may campaign as individuals without the imprimatur of the church, and churches may speak out on public issues so long as they don't "devote a substantial part of their activities to attempting to influence legislation." [1]
Satanist Church Lord High Master James Hale
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James Hale, the Lord High Master of the Church of the IV Majesties, granted tax-exempt status by the state of Oklahoma in spring 2010.
Source: Sarah Netter, "Satanist Church Rents Out Oklahoma City Civic Center for Exorcism," abcnews.go.com, Sep. 1, 2010

In practice, however, the IRS rarely investigates churches for violating the political campaign ban. [35] The IRS has successfully used the Johnson Amendment to revoke the tax-exempt status of only one church since the law was enacted in 1954: the Church at Pierce Creek in Binghamton, NY. [6] The church had placed a full-page advertisement in USA Today and the Washington Times four days prior to the 1992 presidential election, listing some of Bill Clinton's views on abortion, homosexuality and the distribution of condoms to teenagers in public schools, and comparing them unfavorably with the Ten Commandments. The ad went on to ask, "How then can we vote for Bill Clinton?" and specified, in fine print at the bottom of the page: "This advertisement was co-sponsored by The Church at Pierce Creek... Tax-deductible donations for this advertisement gladly accepted." [7]

On May 4, 1970, the US Supreme Court upheld property tax exemptions for churches, declaring them to be in accordance with the Establishment Clause of the First Amendment of the US Constitution. In the majority opinion written by Chief Justice Warren E. Burger in Walz v. Tax Commission of the City of New York, the Court stated in its 8-1 decision that the exemptions did not equate with "the 'establishment' of a religion [that] connoted sponsorship, financial support, and active involvement of the sovereign in religious activity," all of which are prohibited. [5] [53] The Court also defended the tax benefit on the basis that churches "foster [the community's] 'moral or mental improvement.'" Furthermore, the court warned that taxing churches would be a violation of the Free Exercise Clause of the First Amendment, which bars government interference in religious affairs. [53]

The 1983 US Supreme Court case Regan v. Taxation With Representation Of Washington upheld the 1954 Johnson Amendment barring churches (and other nonprofit charities) from receiving tax exemptions if they intervene in political campaigns. Then-Associate Justice William H. Rehnquist, on behalf of the unanimous Court, wrote that the IRS is under no obligation to grant a tax benefit to lobbying organizations, and that the freedoms guaranteed by the First Amendment do not have to be sponsored by the federal government in the form of a tax break. [27]

The Church of Scientology battled the IRS for 25 years to regain its tax exemption after the IRS withdrew it 1967, claiming the organization was a commercial enterprise rather than a church. [30] The IRS decision was upheld by numerous courts, despite Scientology and its members bringing 2,200 lawsuits against the IRS and its officials over the course of the dispute. [30] [54] The New York Times revealed in Mar. 1997 that during Scientology's campaign against the IRS, the organization's lawyers had "hired private investigators to dig into the private lives of I.R.S. officials and to conduct surveillance operations to uncover potential vulnerabilities." [30]
Time Scientology cover
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TIME magazine cover featuring the Church of Scientology, which battled the IRS for 25 years to prove it was a nonprofit church and not a business enterprise.
Source: "Scientology Exposed," www.time.com, May 6, 1991

In 1991, Scientology's ecclesiastical leader David Miscavige met with then-IRS Commissioner Fred T. Goldberg Jr. and offered to call off the group's lawsuits in exchange for regaining its tax-exempt status. The New York Times stated that in agreeing to Miscavige's proposal, Goldberg "created a special committee to negotiate a settlement with Scientology outside normal agency procedures" and that IRS "tax analysts were ordered to ignore the substantive issues in reviewing the decision," according to IRS files. [30] In order to receive the exemption, Scientology agreed to pay the IRS $12.5 million and "agreed to more Federal Government intrusion than perhaps any religious organization has ever allowed." [54]

In Nov. 2008, the Church of Jesus Christ of Latter-day Saints (Mormon church) was accused by protesters of violating its tax-exempt status by supporting the passage of California's Proposition 8, a ballot initiative outlawing civil marriages for same-sex couples. [55] [56] However, Americans United for Separation of Church and State (AU) Executive Director Barry W. Lynn explained that the Mormons "almost certainly have not violated their tax exemption. While the tax code has a zero tolerance for endorsements of candidates, the tax code gives wide latitude for churches to engage in discussions of policy matters and moral questions, including when posed as initiatives." [55]

The campaign ban issue rose to prominence in the lead up to the 2012 US presidential election. On Oct. 12, 2011, AU wrote to the IRS to report Pastor Robert Jeffress, who had posted a video of himself endorsing Texas Gov. Rick Perry on the First Baptist Church of Dallas website. [57] No response from the IRS had been announced as of Nov. 11, 2011.
Video Gallery
TV news report on the "parsonage exemption," a tax break on housing for ministers of religion.
Source: "Some Maryland pastors Get Tax Exemptions on Multi-Million Dollar Homes" ABC2, WMAR-TV Baltimore, www.youtube.com, May 25, 2010
Promotional video from the Alliance Defense Fund (ADF) Pulpit Initiative, encouraging pastors to speak out politically, despite the IRS prohibition on churches intervening in political campaigns.
Source: "Pulpit Initiative," speakupmovement.org (accessed June 17, 2011)

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