It's an election year again, and unless we're careful, we can easily be misled by vague assertions about "the dangers of losing our tax-exempt status."
Let me state categorically from the outset: it's not going to happen, period.
In this current series of columns, we are exploring and exploding some of the myths surrounding "tax exemption" and the silly ways we strangle our own freedom to speak the truth about elections.
What may come as a surprise for many is that Churches are not tax-exempt because of a form they fill out and a letter of determination that they receive from the government. Rather, Churches are already automatically tax exempt by law. Whether they seek a determination of that status from the government by filling out a form and receiving a letter is entirely up to them, if they want a piece of paper that proves that they have the exemption. But even without the piece of paper, they have the exemption anyway, as long as their mission corresponds to the criteria of tax-exempt entities. Under the IRC, the section that talks about this "mandatory exception" rule for Churches is section 508(c)(1)(A).
The federal court case Branch Ministries v. Rossotti (211 F.3d 137 (D.C. Cir. 2000)) refers to this fact when it says,
"Although most organizations seeking tax-exempt status are required to apply to the Internal Revenue Service (“IRS” or “Service”) for an advance determination that they meet the requirements of section 501(c)(3), id. § 508(a), a church may simply hold itself out as tax exempt and receive the benefits of that status without applying for advance recognition from the IRS. Id. § 508(c)(1)(A)."
The tax exemption of Churches actually dates back to ancient times. As the Supreme Court itself has noted, there is an "unbroken" history of such exemption in our country, and it “covers our entire national existence and indeed predates it" (Walz v. Tax Comm’n, 397 U.S. 664, 678 (1970)). As Erik W. Stanley points out in an article on which I will rely heavily in this chapter, "[T]he unassailable fact remains that, for as long as anyone can remember, churches have always been tax-exempt or enjoyed favorable tax treatment" (LBJ, The IRS, and Churches: The Unconstitutionality of the Johnson Amendment in Light of Recent Supreme Court Precedent, Regent University Law Review, Volume 24, 2011-2012, Number 2). The article refers to examples of the tax exemption of Churches from the priests of ancient Egypt and from ancient Sumeria in 2800 B.C.!
This is understandable from the perspective of our own Constitution and from a consideration of the nature of the Church. "My kingdom is not of this world," the Lord said. The Church is the breaking into history of the Kingdom of God. As we have already seen, good Christians are called to be good citizens. These identities are not incompatible. But neither are they identical, and that is why the Church does not seek permission for its mission from civil government, and our Constitution does not presume the authority to give such permission. Hence the First Amendment declared, "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof…"
So Churches are tax exempt by law. Most of them take the additional step of seeking a letter of determination from the government, and most will organize their activities under the umbrella of a section 501(c)(3) entity. But they do not have to do that either. A Church could choose to organize some of its activities under the c3 umbrella and others under the c4 model, or even organize an LLC or LL Partnership, hence allowing additional freedom.
More to follow in my next column!