June 12, 2013
Should Churches Reject Tax Exemption, As Huckabee Suggests?
Such a move might trade one set of potential problems for another.
Mike Huckabee raised an intriguing, provocative question on Monday while addressing pastors ahead of the Southern Baptist Convention annual meeting in Houston: Should churches reject their tax-exempt status as a way to break free of government oversight and restriction?
According to the Associated Baptist Press, the former Arkansas governor and presidential candidate said the unfolding Internal Revenue Service scandal should give pastors and church leaders pause:
"The recent revelations that the Internal Revenue Service has been targeting people of faith--people who are conservative, people who are pro-Israel--and have been picking out the parts of belief and speech and faith that government seems to approve and that which it doesn't approve has brought up a very important reality that I think, sooner or later, as believers, we need to confront," said Huckabee, host of a top-rated Fox News Channel weekend program.
"You may not clap real loud for this, but at least hear me out and think about it and pray about it," he said. "I think we need to recognize that it may be time to quit worrying so much about the tax code and start thinking more about the truth of the living God, and if it means that we give up tax-exempt status and tax deductions for charitable contributions, I choose freedom more than I choose a deduction that the government gives me permission to say what God wants me to say."
Huckabee said it may be time for churches to say: "Keep your deductions. Keep the exemptions. We stand more faithful with what God would have us to say, and we choose our freedom more than our financial benefit."
The Huffington Post's Politics section picked up on the story, and included a tweet made Tuesday by Huckabee reiterating his position.
IRS enforcement of its rules governing the tax exemption of churches, especially with respect to political speech, has been inconsistent, at best, during the past several years. Revocations have been few and far between, the most public case coming in the early 1990s, when a New York church was stripped of its exemption after paying for an ad opposing then-presidential candidate Bill Clinton.
More recently, the Alliance Defending Freedom's Pulpit Freedom Sunday has challenged IRS rules regarding churches and political speech, but no IRS action has emerged. That inaction, in part, prompted the Freedom From Religion Foundation earlier this year to file a lawsuit against the IRS, demanding the agency enforce its rules.
Meanwhile, the IRS halted audits of churches in 2009, when a federal court ruled the agency "wasn't following its own regulations," according to ChristianityToday.com, a sister site to ManagingYourChurch.com. A review of those regulations remains ongoing.
Regarding Huckabee's recommendation to church pastors and leaders, church law expert Richard Hammar says the potential negative consequences "must be carefully considered by any church considering revoking its exempt status." Those consequences, noted in Hammar's 2013 Church & Clergy Tax Guide, include the following:
- The church's net income would be subject to federal income taxation.
- The church's net income would be subject to state income taxation (except in the few states not having an income tax).
- Donors no longer could deduct charitable contributions they make to the church.
- The church would be ineligible to establish or maintain 403(b) tax-sheltered annuities.
- The church could lose its property tax exemption under state law.
- The church could lose its sales tax exemption under state law.
- The church could lose its exemption from unemployment tax under state and federal law.
- The church's status under local zoning law may be affected.
- The church could lose its preferential mailing rates.
- The church could lose its exemption from registration of securities under state law.
- Nondiscrimination rules pertaining to various fringe benefits (including an employer's payment of medical insurance premiums) would apply.
- In some cases a minister's housing allowance may be affected.
- In some cases the exempt status of ministers who opted out of Social Security may be affected.
- The significant protections available to a church under the Church Audit Procedures Act would not apply.
- The exemption of the church under the state charitable solicitation law may be affected.
- The exemption of the church from the ban on religious discrimination under various federal and state employment discrimination laws may be affected.
- The exemption of the church from the public accomodation provisions of the Americans with Disabilities Act may be affected.
Our colleague Paul Pastor is troubled by the tax-exempt status that U.S. churches receive--but not for the same reasons as Mike Huckabee. Read his thoughts on our sister site Out of Ur.