Churches – Part 2


Church Law and Tax 1989-01-01 Recent Developments

Churches – Definition

A federal appeals court rejected an individual’s claim that he was exempt from federal taxes since he was a “church.” The individual maintained that after “much Bible study” he had concluded that “if you believe you are a church and you are practicing your religion to your point of view, then you can have tax exempt status because churches are exempt.” He pointed out that the Internal Revenue Code contains no definition of the term “church,” and that churches are not required to file applications for exemption from federal income tax. The court, in rejecting the taxpayer’s “tax-exempt” status, observed that “it is obvious that one person cannot free all his taxable income from all tax liabilities by the simple expedient of proclaiming himself a church and making some religious contributions. Common sense makes this clear.” While acknowledging that a church need not submit an application for exemption, the court emphasized that federal law requires that churches satisfy certain conditions in order to be exempt, including the following: (1) assets upon dissolution are not to be distributed to a private individual; (2) no part of the net earnings goes to the benefit of private individuals; and (3) the organization is not organized for the private interests of its founder or his family. The court observed that if these requirements did not exist “there would likely be an overabundance of one-person churches paying no income taxes, and leaving to the rest of us the payment of their fair share of the expense of running the government. That attitude hardly seems like an act of churchly charity to one’s neighbors.” The court also relied on the 14 criteria announced in the American Guidance Foundation decision (see the preceding paragraph) in rejecting the taxpayer’s claim that he was a tax-exempt church. It concluded with this observation:

“Every year with renewed vigor, many citizens seek sanctuary in the free exercise [of religion] clause of the first amendment. They desire salvation not from sin or from temptation, however, but from the most earthly of mortal duties—income taxes. Any salvation sought from income taxes in this court is denied.” United States v. Jeffries, 88-2 USTC para. 9459 (7th Cir. 1988).

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