Two Quick Things Related to the Freedom From Religion Foundation

A quick announcement, and a quick related link:

I’ve been blogging about the Freedom From Religion Foundation’s suit challenging the parsonage allowance for several years, both here and at Surly Subgroup (and, at least once, at Times and Seasons). And, a week from Wednesday, the Seventh Circuit is going to hear oral arguments in the case. Right here in Chicago! Which means you know where I’ll be Wednesday, Oct. 24, at 9:30 am.

And, in anticipation of the case, Professor Anthony Kreis and I are going to do a preview of the case. This Wednesday at noon, here at the Loyola University Chicago law school. If you’re in the Chicagoland area, please feel free to come. The discussion will be great, and there’ll be pizza! (If you’re interested in coming, I’m attaching the official announcement at the bottom of this post; please RSVP here so we have a rough count of how much pizza to order.)

Second thing: the Freedom From Religion Foundation has filed a new constitutional tax challenge. See, most tax-exempt organizations are required to filed information returns with the IRS. Those returns must also be made available to the public. Churches, however, are exempt from the information return requirement, which is one reason why we don’t know much about the finances of the Mormon church, among other religious organizations. I blogged some preliminary thoughts about the suit here. (Tl;dr: preliminarily, I’m not convinced that this suit can succeed, but that’s on blog-level research and thought, so it’s possible that I’m wrong.)


  1. Interesting! Makes me wish I still lived in Chicago. Well, many things do, but Baltimore is pretty great, too. Anyway, I’m a T&E lawyer with a significant exempt organizations practice, so this kind of thing is super interesting to me. I’m not generally very sympathetic to the Freedom From Religion Foundation, but it’s not 100% clear to me why churches shouldn’t have to file some form of return. The burden argument is not very compelling to me, since small nonprofits already get to file simpler versions of the 990-series, and the argument that it would be interfering with religion in an impermissible way somehow is, to me, not a very good argument. Modest transparency in exchange for protected tax status seems to be a pretty fair exchange and the burden to religious freedom seems pretty immaterial. I could even imagine some sort of 990-C that’s tailored to churches below a certain size threshold.

    Of course, many churches voluntarily file nonprofit returns and/or are financially transparent in other ways without their worlds crashing down.

  2. jaxjensen says:

    “Churches, however, are exempt from the information return requirement, which is one reason why we don’t know much about the finances of the Mormon church” Just for the sake of discussion, if this were to change which of the following would happen: The church would file the forms and make their financials public and subject to scrutiny, or; they’d give up their tax-exempt status and keep the books closed to the public/members?

  3. I’ll be attending in spirit (and eating the pizza in spirit as well). Too bad I can’t be there. This is exactly the kind of thing I enjoy (along with the oral arguments, although I may want to kibbitz during the arguments. Guess I’ll just have to fall back on your book, Sam.

  4. jaxjensen, the Church would certainly file. Filing a 990 is not the same thing as full financial transparency by any means (it’s some, but not all), and the potential tax hit on investment income could be potentially very large, and I suspect that money would outweigh principle.

    That said, do note that income tax liability and Form 990 filing requirements are a federal matter, and property tax is a separate local,state matter. For many churches that are tax-exempt, especially smaller churches that own a building, the property tax exemption is just as or more important than income tax (small churches may not have have any investments at all, and it’s not clear to me that donations would be taxed as income) and deductibility of contributions.

  5. jax, with the caveat that I don’t have any inside information, I suspect that Kullervo is right. And not just for financial reasons (leaving aside property tax exemption—which is valuable, but in many states is at least a little divorced from federal exemption). On bulk, I suspect that most churches would pay little, if any, tax, even without the exemption. (And, in fact, I’ve argued that the NFL gave up its exemption precisely to avoid financial disclosure.)

    That said, the tax exemption lends a certain amount of legitimacy to tax-exempt organizations, deservedly or not (and honestly, it’s not). The church of Scientology, for example, used its hard-fought exemption to show other countries that the U.S. recognized its legitimacy. Even if that signalling isn’t accurate, it at least has some currency, and I’d be surprised if our church—or many others—were willing to give that up.

  6. Kevin Barney says:

    Sam, I’m planning on coming. The RSVP link isn’t working for me (when I click on it it just minimizes), so maybe you could add me to the list.

  7. Will do. (Also, sorry: the link doesn’t work–I had to just make the email announcement into a .jpeg. If you want to RSVP, you can click here. I’ll also add a working link to the post.)

  8. jax, when I answered your question, I was running late to an appointment, and forgot to mention one other reason I think the church would file information returns if they were required: it already does. Both the UK and Canada require charities, including churches, to file public returns. You can find the church’s respective disclosures here and here.

  9. I’ll miss the argument by less than a week. Unfortunately.

    Regarding the new case, it isn’t immediately obvious that a filing requirement and loss of status go together. With absolutely no research, I can imagine a decision that churches must file, but the loss of tax-exempt status as penalty cannot apply. In effect that the tax status of churches is independently derived. It wouldn’t be the first rule without an effective enforcement mechanism.

  10. The term “untaxed housing allowance” is a slight misnomer. The entire amount of the housing allowance is subject to FICA (Social Security/Medicare) tax at the full 15.3% self-employment tax rate. It is also subject to ordinary income tax to the extent that it exceeds the actual cost of housing (a rare occurrence).

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