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Thursday, July 24, 2008

God and Money - The Church and the IRS

A recent report heralded the fact that US donors gave more in private contributions this past year than ever before - over $300 billion. The people of the US are considered the most generous on the planet in their voluntary charitable giving (as opposed to what could be called involuntary giving, i.e. taxation!). We give more than double the amount of money (as measured by Gross Domestic Product)the people of the next most generous country give. Furthermore, the largest portion of that $300 billion goes to our houses of worship (referred to as churches by the IRS).

There are an estimated 350,000 churches in the US today and about half (the largest and most well established I suspect) opt to register themselves with the IRS. However, here is the first distinction from most other public charities - registering with the IRS is optional, not required - regardless of the church's size. For other public charities you must have less than $5,000 in gross receipts to be tax exempt without registering.

Then we get to the second and more troubling distinction. Every other type of public charity over $25,000 or more in annual gross receipts must file a report to the IRS (called a 990) every year. The churches are under no obligation to do so and the vast majority do not. In other words, over $100 billion dollars (that is an estimated amount, since we can not know for sure) was donated to churches last year and most do not report any information to the IRS on how much was taken in and what they did with the money. Doesn't that seem wrong?

We at Charity Navigator are able to rate charities based on the information provided on the IRS 990 forms. Since almost all churches do not file the form, it is impossible for us to evaluate over a third of the private contributions that go to charities. How can you as a donor be confident that your money is being spent for the purposes for which you gave it? We believe that, as with the public charities we rate, the vast majority of churches do the right thing. However, how are we as a society going to be able to hold to account those who are not doing right with the money we give? Given human nature, when this amount of money is involved, you better believe we have got some bad apples in the bunch.

Anyway, until such time as the laws change on this (some are predicting it will coincide with when pigs fly) we strongly encourage you who attend church to urge your religious leaders to opt in and file those 990s every year. We implore the church community as a whole to provide the transparency and accountability that is the hallmark of management best practices.

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chicagoswer said...

There is a difference between accountability and transparency on the one hand, and filing government forms on the other hand. I have never belonged to any church where I had any doubts about financial integrity. There was never any secret about the budget or of the amount of donations. The donation amount was often printed right in the church bulletin (for the previous week) and if you were a member of the church long enough, you would likely be recruited at some point to serve on the Church Finance Committee. That is how things are run in the United Methodist Church system, and from what I can tell, most other churches are similarly run. Every penny is accounted for, and any member has the right to see the financial records and the budget, and to discuss any concerns that they might have with the lay leader or the pastor. Forcing the churches to file 990s would be rightly resisted, in my opinion, as an unconstitutional infringement on the freedom of religion.

There are affiliated entities, such as the United Methodist Committee on Relief (UMCOR) that file 990s and are rated (highly) by Charity Navigator. It would be helpful if organizations such as the Salvation Army, which solicits actively from the general public, would do likewise, but I don't know if they are organized in such a way that they could protect the privacy of their houses of worship while giving a public accounting via the Form 990 of their social ministries.

Anonymous said...

Thank you so much for your feedback. I have replied broadly to your comment in my most recent posting. Although we may disagree on some points, there is one critical area where I think we agree. You mention the Salvation Army. We have asked them a couple of times to voluntarily file but they have declined. You say that they could file if the privacy of their house of worship was protected. What if there was a church without a house of worship? Then I think we would be on the same page. Correct?

Volunteers of America (founded by the son of the founder of the Salvation Army). fits the bill to a T. VOA has no congregants at all, no houses of worship, and yet it has church status. Each of its affiliates is incorporated separately and it is estimated that combined they had over $860 billion in revenues in 2006. In 2006 it was the 19th largest public charity in the US(see NonProfit Times Top 100 report). Most of its affiliates do not voluntarily file a 990. For example, the largest affiliate; VOA-Greater New York, which is over $90 million (I am told) in revenues, does not. I worked there and I can tell you that they provide the EXACT same services as other human service charities and yet do not file a 990. Furthermore, tremendous tax breaks are given to "Ministers" who provide the same social services as other agencies. Pretty messed up don't you think?

Anonymous said...

CORRECTION: In my comment above I incorrectly wrote the amount of income VOA had in 2006. It is $806 MILLION, not BILLION! Sorry.

L. Durington said...

Hi Ken, this is more of a general comment/suggestion on blogging. To really facilitate dialog, it is helpful that when you reference another blog post, charity rating, or any other information that already exists on your blog and website that you hyperlink to it. You don't need to post this - it's just a suggestion for future posts. Thanks!

Anonymous said...


I am new at all of this technical internet sort of thing and just learned how to do what you suggest after this was posted. So on a couple of occasions since then I have tried to make that hyperlink connection when I think of it! Thanks for the feedback!

Dan Barker said...

I'm co-president of the Freedom From Religion Foundation, a charity that you rate (currently with a fourth 4-star rating), and of course, we file the cumbersome but important 990 form every year. We wonder why a charity would NOT want to be accountable to the public. After all, their tax break (as well as ours) amounts to a subsidy, and whether you view that subsidy as coming from the government or coming from the rest of us taxpayers who have a consequently higher tax burden, it is ALL Americans who are supporting their work. Since ALL the public is involved, then ALL the public should have access to information about how that money comes in and how it goes out. Why are churches treated differently from groups like ours, which is explicitly secular? Are churches automatically more trustworthy? It should be a basic principle of fairness that where public money goes, public accountability should follow. (And they do receive "public" money by not paying taxes.)

You are right that this setup is an opportunity for abuse. Look at the Grassly investigation of high-flying evangelists, for example.

I agree that most religious charities do good work, although not necessarily better work than secular charities. But why is one group "special" and the other not?

If churches are nervous about government entanglement, then they should pay taxes like everyone else, or they should a minimum provide accountability. Because, of course, they have absolutely nothing to hide.

Michelle Cubillas Hogan said...

First off, you assume that the government (as you say it, society) needs to be able to hold churches accountable for "doing right" with their money. I am almost positive that I previously read on CNav's website that they often could not rate faith based organizations because society in a general sense might not recognize a church's main objectives. So how can you say that they should be regulated? Also, you stated holding them account with the money you give. Your readers, more than anyone else, show a concern to know what is being done with their contributions. Because of moving I have belonged to more than one church, and I would not contribute/belong to a church that did not have checks and balances and a level of transparency. To me, the possible negative effects of enforcing 100% compliance by involving the government could be far worse than the occassional bad apple.

Anonymous said...


I totally agree with you that we must be wary of government interference in the affairs of churches as it relates to freedom of belief. I also agree that once you open the door to additional information being provided to the government, there is a potential danger of creeping regulation. Nonetheless, I am confident that the church community would never let such creeping activity succeed. As long as churches opt to be tax exempt organizations – a designation provided by government and overseen by government – I believe that informational reporting via the 990 that all other public charities (over $25,000) must provide, is appropriate.

I agree with you also that a savvy donor should not be associated with a church that doesn’t provide the type of financial disclosure to its congregants that you mention. However, not everyone is a savvy donor and we have seen more than enough evidence of ‘bad apples” and swindled congregants to be concerned. Part of the role of government is to protect and defend the public from such shenanigans (that is my professional term for it).

At the end of the day, I suspect you “win” anyway, because most churches will continue to opt not to voluntarily file.

lenaghen said...

Chicagoswer said, etc. and defends the church from not have to either report donations or where those monies are spent. He/she defends those remarks as "separation of church and state." Without reporting there is no way to determine how those monies are spent. We all know they are frequently used in political arenas of every type. That negates the idea of separation of church and state. They need to have some accountability.