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Petition, lawsuits demand changes in tax perks favoring religious institutions

Petition, lawsuits demand changes in tax perks favoring religious institutions

On Christmas, a petition was filed on the White House's "We The People" site, asking that the Obama administration lead an effort to get Congress to repeal the parsonage income tax exemption enjoyed by religious ministers.

The petition states,

Internal Revenue Code section 107 allows ONLY "ministers" to receive unlimited amounts of income tax free income as long as it is spent on housing. The IRS has extended the benefits to employees of many private, non-church organizations such as the basketball coach at Pepperdine University. Many tax and legal scholars have written and spoken on the issue of its obvious UNconstitutionality, but there has been no political will to repeal the law or modify it to curb abuses and make it constitutional. Only in recent years has judicial effort been made to have the law ruled UNconstitutional, but that litigation could take many more years when Congress and the President could resolve the issue quickly. The President should take a leadership role in proposing that the law be repealed.

The parsonage exemption in IRS Section 107 is criticized by the Richard Dawkins Foundation for Reason and Science and others. The Dawkins Foundation points out that the tax-free "parsonages" enjoyed by some popular megachurch leaders are mansions worth millions of dollars.

Peter J. Reilly, a contributor at Forbes magazine, defended the parsonage exemption in an article published in Sept. 2012. Reilly says that in a historical context, the exemption was based on employer-provided housing, including housing for military personnel. "If Section 107 is analyzed as part of the employer assisted housing tax exemption, it appears to be a reasonable accommodation to religious freedom and constitutional," he argues. He writes that "The basic premise: taxable compensation does not include housing and meals provided for the convenience of the employer. Other governments have typically excluded this type of benefit from taxation for thousands of years. Seaman, ranchers, innkeepers, ministers, military officers and the President of the United States all have benefited from this doctrine since at least 1919," but does not address the issue of parsonages being multi-million dollar estates, as pointed out by the Dawkins Foundation.

A petition to "We The People" must have 150 signatures before it is publicly searchable on WhiteHouse.gov.  After that, it needs 25,000 signatures within a month to warrant review by the administration.  As of this writing, there are 93 signatures.  The petition can be accessed here.

The parsonage exemption is the subject of a federal lawsuit filed by the Freedom From Religion Foundation (FFRF) in September 2011.  In August 2012, U.S. District Judge Barbara Crabb, Western District of Wisconsin, issued a strong 20-page opinion permitting FFRF Co-Presidents Dan Barker and Annie Laurie Gaylor and President Emerita Anne Gaylor to pursue their challenge of the law.

The parsonage exemption is not the only tax perk available to religious organizations that is being contested.  In November, FFRF filed suit in the United States District Court, Western District of Wisconsin, over churches engaging in political activity, which is prohibited under the tax code but not enforced.  FFRF asked  the federal court to enjoin IRS Commissioner Douglas Shulman from continuing "a policy of non-enforcement of the electioneering restrictions against churches and religious organizations."  Additionally, FFRF seeks to order Shulman "to authorize a high-ranking official within the IRS to approve and initiate enforcement of the restrictions of §501(c)(3) against churches and religious organizations, including the electioneering restrictions, as required by law."

Last week, FFRF filed a separate lawsuit demanding that churches file 990 Forms for non-profits, just like other non-profits are required to do.

“Why should churches be exempt from basic financial reporting requirements? Equally important, why would churches not wish to be accountable?” asks Annie Laurie Gaylor, FFRF co-president in a news announcement. “Having tax-exempt status is a great privilege, and in exchange for that privilege, all other groups must file a detailed report annually to the IRS and the public on how we spend donations.”

“The unfairness of this is so overwhelming,” says FFRF President Emerita Anne Nicol Gaylor. “Churches are allowed to play by different rules.”

As we reported in August, a Reuters analysis found that tax breaks on church giving shaved approximately $12 billion from total U.S. tax collections in 2011 and approximately $145 billion over the last decade. Property tax exemptions as of 2006 were worth approximately $12.7 billion, enough to have helped deal with city and state budget deficits.

About D. Beeksma

One of the growing crowd of American "nones" herself, Deborah is a prolific writer who finds religion, spirituality and the impact of belief (and non-belief) on culture inspiring, fascinating and at times, disturbing. She hosts the God Discussion show and handles the site's technical work. Her education and background is in business, ecommerce and law.
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  • Alex

    “Why should churches be exempt from basic financial reporting requirements? Equally important, why would churches not wish to be accountable?” asks Annie Laurie Gaylor, FFRF co-president in a news announcement. “Having tax-exempt status is a great privilege, and in exchange for that privilege, all other groups must file a detailed report annually to the IRS and the public on how we spend donations.”

    “The unfairness of this is so overwhelming,” says FFRF President Emerita Anne Nicol Gaylor. “Churches are allowed to play by different rules.”

    Many churches are very corrupt and play fast and loose with the finances. They do enjoy special privileges and they get away with all sorts of things. Many make a complete mockery of the Jesus of the bible they profess to be preaching. There is much needed accountability and the points made above are valid and ring true. The answer to why many churches don't want the scrutiny…is because they are cheating the system and getting away with it. Many of the churches don't spend much of the money they collect in tithes and offering on helping the poor and the orphan and widow etc as Jesus taught. The money is spent on the lifestyle of the Leadership and their friends and family and on big buildings, cafes, trips, perks, expensive sound systems etc etc. Not all churches, but far too many. The gaping tax subsidies have to come from somewhere to pay for govt. programs that actually do help the poor etc…and that burden is shifted onto non-church businesses and the middle class etc.

    I agree that the Tax Code for Churches needs to change, big time. If folks knew how bad many of these churches abuse the privilege, they'd be up in arms. Unfortunately. these churches don't have to report like other non-profits (as pointed out above). They operate in opacity and secrecy…which are recipes for corruption.

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