Yes, they’re tax-exempt under IRC Section 501c3. But how, exactly, are houses of worship such as temples, mosques, and churches nonprofits?
If you’ve recently discovered religious tax exemption and think it has something to do with the clout of modern mega-churches, you might be surprised that this is nothing new under the sun. In the U.S. churches have been officially tax exempt since 1894 and unofficially tax exempt since Day 1. Before the IRS even existed, their work fit the modern definition of the nonprofit sector – organizations that use private funds for the public good.
The legal underpinnings that make churches nonprofits are quite a bit murkier than the de facto ones that derive from long-standing practice. The Emperor Constantine explicitly granted the first known tax exemption to churches in the third century, but the highest law of our own land, the U.S. Constitution, is silent on the matter. Nevertheless, when the Supreme Court reexamined the nonprofit status of churches in Walz v. Tax Commission of the City of New York (1970), the rationale was attributed to the First Amendment. Tax exemption, according to that decision, “creates only a minimal and remote involvement between Church and State and far less than taxation of churches [would].”
The Walz decision is what’s always quoted today on this issue, though it was merely an attempt to explain why something is the way it’s always been. The Internal Revenue Code has since its beginnings in the late nineteenth century categorically defined religion (as well as science) as a 501c3 exempt purpose. Furthermore, it considers “charitable” actions to include “the advancement of religion.” So an honest answer to the question of what makes churches nonprofits is that they just are.
Churches are automatically considered nonprofits without having to apply for exempt status. Some choose to formally request a 501c3 letter to encourage contributions, which people seem more willing to give when they’re assured to be tax-deductible (who would’ve thought?).
While the Church of Satan famously spurned its nonprofit status, that status can generally only be pried from the cold, dead hand of religious organizations. The Church of Scientology lost theirs for 26 years only after being recategorized as a commercial rather than a spiritual business. For houses of worship that do not charge thousands of dollars for auditing sessions, the greatest risk is violating the 1954 Johnson Amendment to the tax code that prohibits exempt entities from endorsing or opposing political candidates. You may have noticed that in practice ministers endorse, oppose, and generally comment on politics all the time. The Johnson Amendment is so wishy-washy that although hundreds of churches are reported as violators the IRS has only ever stripped nonprofit status from one politically active entity – a small church in Upstate New York that ran anti-Bill Clinton ads in the newspapers back in 1992.
The term “churches” here, incidentally, is understood generically to include all sorts of houses of worship, regardless of religion. While there have been dozens of petitions to reclassify the Westboro Baptist Church as a hate group that doesn’t deserve tax exemption, there have been many more started by narrow-minded people floored by the idea that Islamic mosques, Buddhist temples, and other non-Christian houses of worship are equally considered nonprofits. To reiterate: Yes, they are. They just are.
Whether or not churches should be nonprofits is another story. From our perspective as nonprofit fundraisers, the most sophisticated argument against is that religious instruction is not work that the government otherwise would, or even could, do. Nonprofits are meant to solve public sector problems with private sector resources. Even if religiosity is a public good, it certainly falls outside the scope of the public sector. A much less convincing reason is the oft-repeated charge that churches aren’t even really helping people. Honestly, it’s nearly impossible to measure degree of helping people objectively across nonprofits and even if such a metric existed, we suspect no church would rank among the worst offenders.
In any case, wasting time petitioning to remove a 501c3 organization, or even a whole class of them, is silly. All of us are already empowered to make them flourish or fold. All of us should know that exempt organizations, religious and non-religious alike, only exist as long as we keep giving them money.
Want to know more about what makes churches nonprofits? You can find the IRS Tax Guide for Churches and Religious Organizations here!