US Government Faces Challenges in Regulating 'Churches' Under IRS Tax Laws

The US government is grappling with the issue of how to prevent certain organizations from being misclassified as 'churches' or 'associations of churches' under IRS tax laws. This concern has been highlighted by the recent classification of the Family Research Council, a conservative advocacy group, as an 'association of churches' by the IRS in 2020.

Current IRS Regulations and Concerns

Federal law grants churches and associations of churches unique protections and exemptions. Unlike other tax-exempt organizations, churches and church associations do not need to apply for tax-exempt status and are automatically eligible. Additionally, they face a lower likelihood of being audited by the IRS, with a senior IRS official required to 'reasonably believe' that the church or association has violated federal tax laws before an investigation can begin.

This special treatment has raised concerns among some lawmakers and legal experts. Democratic members of the House of Representatives have expressed worries over potential 'abuse' of the tax code by organizations that do not genuinely function as churches or church associations. They have urged the IRS to evaluate whether existing guidelines are adequate to prevent such misuse.

Proposed Changes to IRS Criteria

To address these concerns, there are calls for the IRS to revise its criteria for classifying organizations as churches. The current 14-factor test, which includes elements such as having ordained ministers, a formal doctrine, and a regular congregation, has been criticized for being outdated and biased towards traditional Protestant characteristics. Experts advocate for a new definition that could limit associations of churches to organizations representing a single denomination, which may have been Congress's original intent.

Such a change would make it harder for religious organizations primarily focused on advocacy or uniting churches from multiple faiths to obtain tax-exempt status. It is suggested that Congress, rather than the IRS, should implement this change due to the potential political sensitivities involved.

Impact on Transparency and Accountability

The current system lacks transparency and accountability for churches and church associations. Unlike other tax-exempt charities, these organizations are not required to file Form 990, which enhances the transparency and accountability of the nonprofit sector. The proposed changes aim to ensure that only genuine religious organizations benefit from the special tax exemptions and protections afforded to churches.