Church tax policy report recommends increased donor involvement
Jan 2, 2013

WASHINGTON (BP)—A commission examining several church-related tax issues—such as the limitations of the pastoral housing allowance and the IRS’ power to investigate churches—submitted a 91-page report to U.S. Sen. Chuck Grassley Dec. 4.

The report by the Commission on Accountability and Policy for Religious Organizations said its 43 recommendations to increase accountability would not impose excessive legislation, giving careful attention to the preservation of religious freedom.

“The vast majority of religious and other nonprofit organizations in America operate with a genuine commitment to financial integrity and appropriate accountability,” Michael Batts, a CPA and chairman of the commission, wrote in the report. 

“Occasionally, we see a few exceptions.”

When nonprofits spend money in ways that the public perceives as extravagant, it raises the risk that all nonprofits will face increased scrutiny, Batts noted. Media reports often identify leaders of television ministries with ties to the “health and wealth gospel” as examples of such spending.

In the wake of a mostly unsuccessful investigation of six of those ministries and in an effort to discourage questionable spending, Grassley of Iowa, the ranking GOP member of the Senate Finance Committee, asked the Evangelical Council for Financial Accountability to examine the issues. The ECFA created the commission which submitted the report after nearly two years of work.

Federal policy, Batts wrote, should continue to encourage the public to financially support religious and other nonprofit organizations and should not burden the organizations with harsh or excessive legislation or regulation.

Regarding the pastoral housing allowance, the commission addressed concerns that a small number of ministers live in employer-provided homes with high values or receive allowances to live in high-value homes. They also considered the fact that the clergy housing exclusion is being challenged in federal court by some who claim it violates constitutional provisions. “Additionally, observations have been made that some religious organizations consider significant portions of their workforce to be ministers,” the report stated. “Accordingly, they treat them as ministers for income tax purposes, which may include providing housing or a housing allowance. Observers have expressed concerns that practices in this area by some organizations may be abusive.”

The commission encouraged all religious organizations to “help raise the bar of reasonable and ethical conduct” in determining who should participate in the clergy housing allowance. 

Congress should not apply a dollar limit to the housing allowance because attempting to do so would create more challenges than it would solve, the commission said. For example, some clergy members are required, due to the location of their houses of worship, to live in high-cost locales.

Also, “an effort by Congress to expand the clergy housing exclusion in an attempt to protect its constitutionality would be counterproductive,” the report said. “Legal experts advised the Commission that there is good reason to believe the clergy housing exclusion can withstand a legal challenge to its constitutionality. Further, we are concerned that expanding the exclusion ... could actually enhance the risk to the law’s constitutionality.”

Regarding the IRS’ power to investigate churches, the commission said Congress should never pass legislation requiring churches to file the highly detailed Form 990 that other nonprofits must file because it would place an unnecessary burden on churches and the government.

“The fact that some may take offense over a particular church’s practices does not justify eroding the freedom from government interference that is so central and inherent in our country’s framework,” the report said.

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