Thursday, May 26, 2005

Justifying Tax "Abatements" for Churches

Years ago when I visited people hospitalized at Baylor University Medical Center, I would occasionally see a rather eccentric gentleman picketing on the sidewalk in front of Criswell College on Gaston Avenue. The guy always carried a sign that read, "Churches Should Pay Taxes," or something to that effect.

I suppose he didn't realize that Criswell college was not a church, but a private, Bible college. However, he was correct that it enjoyed tax exempt status as a non-profit organization.

Forgive me for bringing it up again, but you know, the guy raises a good question with his little protest.

What if churches had to justify or prove up the legitimacy of their tax exempt status? What if there were forms to fill out and accountability standards to achieve in order to maintain what amounts to a tax abatement on the real estate churches own and operate?

Non-profit hospital systems are required to pass such tests to maintain their non-profit, tax exempt status.

For-profit businesses that receive tax abatements from taxing authorities, be they city, county, state or federal, do so because of the public benefit that they generate in the form of jobs, economic development, tourism, etc.

Why not churches?

What if churches had to account for their actions in the community?

What would the reports reveal? Would anything change in the community if churches had to report on substantive work accomplished in the neighborhoods where they work?

There is lots of talk and press these days out of the White House Office of Community and Faith-Based Initiatives about the important role of churches and other communities of faith in the hard work of transforming communities. You would think the time might be right for every congregation in the nation to offer a full accounting of the work being done in, for and with the community that would merit what under current policy amounts to a permanent tax abatement without review.

Now that would be a faith-based initiative with some real punch!

I know we have to submit a Form 990 annually to the IRS. It is our tax form as a non-profit. We list all revenue. We list the top salaries in the organization. We report on what our activities were for the year. It is an accounting to justify our tax exempt status.

Hmmm. What would the IRS reporting form look like for churches?

Possibly a modified Form 990 would work. Same reporting standards: revenue, top salaries, and report on activities. How about a line item on assistance extended to persons in need? How about the number of homeless persons housed either by the church directly through programs or members or via cooperation with a partner organization? How about children cared for in day car and after school activities? How about leadership development? How hunger relief? Hours spent mentoring students? Number of latch-key kids cared for in safe environments? Dollars donated to organizations who do make all of this and more their standard operating mission on a daily basis.

I am not suggesting that churches don't do good work.

I am just wondering what if they had to think it all through and report it out to community leaders?

I wonder what would happen if finance committees and pastoral leadership had to really think about every dollar spent in view of the challenges facing our cities?

I guess I am wondering about the benefit of churches becoming fully-functioning members of the community as institutions.

What about your church? Would such reporting requirements change anything in your congregation?


Jeremy Gregg said...

Requiring church audits is a good idea, particularly if churches expect to retain their tax-exempt status.

This is not the beginning of a slippery slope towards allowing governments to control churches. This is an argument for two things: accountability and effectiveness.

Look at this from a business perspective. The government provides tax exemptions to churches and non-profits as a form of contract -- they expect these funds to be spent in a way that has a more positive impact on communities than if those funds were spent on government-funded programs (i.e. if those funds were charged in taxes). By not taxing churches and NPOs, the Government has lost revenue. The proposed measures would be a strong way of proving that this loss of taxes was worth the investment.

Beyond that, good governance simply makes good business sense. Even though they are not taxed, churches still have to run a business. As they say: "No margin, no mission."

I have never seen a case in which increasing the levels of accountability had a negative impact on an organization. Rather, I have only seen how these measures allowed organizations to cut waste, improve performance and increase their impact. To me, the only reason why a church would oppose such an idea is if they have something to hide.

That's why I have major concerns with church leaders who prefer not to have their books examined or their ministries' impact measured.

True, there is some excess paperwork required. However, this is all part of my second point -- effectiveness. In particular, measuring their effectivness. It makes good sense that an organization whose purpose is to improve their community would want to measure whether or not they are actually doing it. Could you imagine if a for-profit business had no way of telling how many sales they had? Or if a school had no idea how well its students were doing?

At the very least, churches need to hold themselves accountable. Parishioners need to know that their tithes are being spent in the way that the Lord intended. Pastors need to ensure that their staff are doing the best job possible at reaching out to God's people. Even if the government does not require it, we should start demanding it of our churches.

Anonymous said...

Sounds more like a way for me to but into another church's business when I don't like how they are doing things. Accountability to the Head of the Body is the accountability that matters.

Fajita said...

I wonder what response there would be if there were a way for churches (a revised 990) to voluntarily account for their finanaces.

I do like that there are some non-gov't organizations that promote financial responsibility. However, I think their focus is not exactly what you are talking about.

I wonder if any churches would voluntter to fill out a 990, or would just recoil at "gov't intrusion."

Anonymous said...

Accountability for churches? Hmmm...This would seem to be very consistent with Bush's vision for accountability for education. Call it "No Church Left Behind"

Charles said...

I don't think it would intrude on churches. If they don't want to be audited, give up the tax exemption, which is a privilege granted by the government, not an inherent right. I've seen a number of churches who provide a similar accounting to members, and it feels better writing that check knowing the good it's doing. My only concern would be the privacy of those helped by the church, but I suppose the documentation is at a high enough level to preserve that, if other foundations do it.

James said...

I'm curious, do your congregations not already give a detailed accounting of the finances? I've never been a part of one that didn't. They've all been very transparent.

Larry James said...

James, good question. My concern is not financial accounting. I am not suggesting that churches are playing fast and loose with their books. What I am asking is simply this, does the programs and activities of a church bring actual benefit to the larger community that justifies and is in line with the financial benefit that the church receives by being tax exempt on a permanent and non-reviewable basis.

For example, if a church owns property valued at $6 million dollars and they escape all property taxes because of the fact that they are a church, does that church bring value to the larger community equal to the taxes that could be collected on that valuation if they were not a church?

Talk about a "witness." What if congregations all over the nation figured out the taxable value of their properties and then devoted an amount equal to or greater than that to community engagement efforts of all kinds--much like the President is now suggesting. Would the poverty relief, elder care, after school, housing, whatever community programs be stronger or weaker? I guess my thesis is that most churches don't pay enough attention to these matters. Maybe I am wrong.

Brandon Scott said...

Larry--I think your comment right before mine really hit it on the head. It's about witness. Commerce drives everything--or so it seems. It would be healthy, I think, for us to have to be accountable for the luxury so many of us allow and engage in with regard to church stuff. Thanks for this thought provoking post.

MarkS said...

Anonymous: I think it could also be called "No poor person left behind" or No person that Jesus had a tender spot for left behind" Perhaps, "No person that Jesus preferred to be with left behind."

Matt Tapie said...

This may seem like a good idea at first, but the IRS should not "keep the church accountable" to its mission in the world. The boot of the government on the neck of the church will not create the holistic, missional, ministries we need in the streets of our cities. Threatening a church with the loss of tax exempt status is not enough motivation, nor is it the right kind. The church needs mercy-driven leadership that is not afraid to sacrifice for Christ. The only thing that produces this type of motivation and vision, at least from a theological and historical perspective, is the mercy of God in Christ. The churches who have been convicted by the mercies of God and who are willing to offer their lives as "living sacrifices" are the ones who will not conform to the self-glorifying pattern of this world (Romans 12:1-2). You are right though to suggest there is definitely a "Tragedy of American Compassion."

Anonymous said...

M. Tapie, I guess that is fine. But, in the cases where churches opted not to report, they should just lose their exempt status. There is no reason to assume that the government would be an evil partner. But, again, let the churches who don't report pay property taxes.

IBreakCellPhones said...

No reason to assume the government would be an evil partner?

Let's look at some of the situations where the government started messing with the church:

1. Church of England. Henry VIII wanted a divorce, so he forced it down the church's throat.

2. Soviet Union. Bishops imprisoned, churches taken over, and other things.

3. China. Underground churches are smuggling Bibles in to get them around guarded borders.

When have you heard of government intervention in church affairs actually helping?

Larry James said...

Well, how about right now by giving every church a tax abatement when 45 million of us have no health insurance? Or, ask the President about the funding being passed out to church groups via the new White House office. As church folks it seems to me that we want it both ways--freedom to do our thing with the actual support of the state that no one ever talks about.