In my last post, I explored the issues connected with religious institutions' support for political candidates or avowal of positions on issues that mirror those taken by a particular candidate or a particular political party. When religious institutions provide a framework for understanding an event more fully, as well as comprehending its impact on ordinary Americans, they serve an important function for the broader community as well as for the religious community that they shepherd. This can be seen as serving overall societal good, since it helps educate about moral principles that should underlay our actions and interactions. When religious institutions play a directly partisan role, however, they use a bully pulpit funded by special tax status to further their own aims rather than societal good. The candidate's platform reaches farther than it would otherwise, held aloft in part by the foregone tax dollars that buttress the religious institution.
So if we are to have tax-exempt status for religious institutions in this country, policing the line between partisan activity and vigorous instruction about moral choices must be done. The question is what checks and balances can operate to ensure that it is done evenhandedly rather than as a means of aiding the particular party in power?
One could imagine a national database of information on tax exempt religious institutions that would identify each religious institution that has acquired tax exempt status and provide a representative sample of the activities and events the religious organization has sponsored. The database should include information on the contributrions and income-producing activities (if any) of the religious organization. Other tax-exempt organizations are required to file an annual information return (Form 990), including information such as compensation of officers, that is made available to the public at large to ensure that the charity is complying with the requirements for tax exempt status. Those requirements include rules designed to ensure that individuals cannot use the charity's assets to benefit themselves rather than the project that is the intended beneficiary of the funds. If charities generally file such information, it is difficult to see what current justification there can be for failing to require similar documentation for churches. As several of my fellow tax professors have noted, churches, just like other charities, have received a significant benefit from the government in the form of tax exemption, and that benefit justifies measures that provide sufficient oversight to ensure that the tax-exempt status is not being abused. Furthermore, as my colleague John Colombo has observed to the taxprof listserv, the special exemption from filing afforded religious institutions appears constitutionally suspect because it "isn't religiously neutral on its face [and] clearly is a special deal for religious organizations."
Another commentator on the taxprof listserv suggested that warning letters from the IRS to religious institutions regarding partisan activities should be made public, without any option of keeping them secret. Otherwise, it is impossible for the public to judge whether the checks and balances in the system are adequately policing the partisan activities of religious institutions. In particular, without being able to compare the cases that inspire warning letters with the cases that do not, it is possible that the IRS could be using the warning letters in a discriminatory fashion, to attack only those religious institutions that tend not to support current administrative policies.
Sheldon Cohen, currently director of Farr, Miller & Washington, argues, however, that a blanket requirement of sharing IRS warning letters could be harmful. Sheldon chaired the special committee of the Administrative Conference of the United States that studied the issue of confidentiality of tax return information and issued a report leading to the recodification of sections 6103-6104 of the Code in the late 1970s. He therefore has some experience in considering the types of issues that may arise when transparency rules are adopted. He notes a concern that automatic posting of IRS letters could lead to considerable information being made available even though the allegation may be inaccurate. Posting warning letters might provide financial information about salaries of officers, degree of public support, and use of funds. Public dissemination of that financial information might be damaging, even if not yet proven. One suspects that pastors would worry, too, that their congregations would be damaged psychologically by the publicity surrounding receipt of a warning letter. It could be particularly damaging if it led to an early schism of the church or disenchantment of a major contributor.
While I respect the concerns about confidentiality of taxpayer (or, in this case, non-taxpayer) information, I believe they have been exagerated and play a larger role than they should in the formation of tax policy. If tax returns and reports were generally available to the American public except in extraordinary circumstances, it is more likely that incidents of fraud or other cheating could be spotted and the force of shame brought to bear on the perpetrator. If transparency were the rule, ordinary Americans' ability to compare IRS treatment of similar incidents would push the IRS to adopt guidelines and policies to ensure evenhandedness.
Would the information revealed by filing FORM 990s or by making determinations from the IRS on tax exempt status be devastating to a religious institution? First, many religious institutions regularly report contributions and costs to their members, as a way of encouraging recalcitrant members to give and modelling generous behavior by tithers. Having the information also made public by the IRS should not affect their operations at all. Second, religious institutions necessarily operate on the collective charity of their members, so opening access to this information should not be troubling. Transparency might even push some members to give more than they have in the past, when they see that their peers are giving more than they have habitually given, under similar financial circumstances. Third, transparency has a positive benefit for all religious institutions, since it helps ensure a more level playing field. If Church A is now supporting considerable partisan activity on behalf of a particular candidate and Church B is scrupulously avoiding any activity that could be viewed as partisan support of a particular candidate, Church A has managed to have its cake and eat it too--getting a tax subsidy through the charitable organization provisions, and getting the bonus of considerable support for the candidate that it prefers to hold office. Finally, and most importantly for ensuring that the tax system fosters democratic egalitarianism, transparency of filing status determinations would act as a check on the discretionary decisions of the IRS. Even though the IRS may still refuse to send a warning letter to some congregations and yet send warning letters to others, the fact that those letters will be available for all to compare should constrain the Commissioner's exercise of discretion.
Depending on Congressional oversight leaves these decisions out of the public eye and provides the review so far after the fact that the review may not be useful in affecting the conduct of those who overstep the bounds. Having the information available to the public from the beginning is more likely to have the incentivizing effect--on both the IRS and the religious institutions--that is desired.
While there are many issues to consider, it appears that making IRS determinations about tax exempt status public would, on the whole, be a marked improvement over current practice.
Note: any commentators mentioned by name have given permission to quote or report on their comments with attribution.
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