Group's study of housing allowance, love offerings could impact churches
WASHINGTON (BP)--In a move that could have a major impact on the tax status of churches and pastors nationwide, an independent national commission of religious and financial experts will review several church-related tax issues -- such as the limitations of the pastoral housing allowance and the IRS' power to investigate churches -- and issue its recommendations to U.S. Sen. Chuck Grassley.
The commission, formed by the Evangelical Council for Financial Accountability (ECFA) at the request of Grassley, will examine church-related tax issues in the wake of a mostly unsuccessful Grassley investigation into the financial records of six television ministries, most of whom have ties to what is known as the "health and wealth gospel." At least some of them have been accused of using donor money to live luxurious lifestyles.
Because they label themselves as churches, the ministries are tax-exempt and not required to submit detailed financial information to the Internal Revenue Service. Grassley, who began his probe in 2007, maintained from the start that his probe had nothing to do with doctrine but instead focused on whether donor money was being used for "legitimate, non-profit purposes."
Grassley, R.-Iowa, released the results of his investigation Jan. 6, a day after he sent a letter to the ECFA asking it to provide input "on how to address these issues" and "to help facilitate discussion on whether these issues can be addressed without legislation." "Self-correction," he said, would be best. The ranking GOP member of the Senate Finance Committee, Grassley said in a separate statement that "legislation should be the last resort."
Two of the ministries -- those of Joyce Meyer and Benny Hinn -- complied with Grassley's staff and "have undertaken significant internal governance reforms," Grassley said. Four ministries either didn't comply at all or supplied incomplete information: the ministries of Randy and Paula White, Eddie Long, Kenneth and Gloria Copeland, and Creflo and Taffi Dollar.
Even though much of the Christian community views the health and wealth gospel as unbiblical, the ministries' alleged abuses could impact every church in the country. The health and wealth teaching asserts that the Bible promises physical and financial blessings to followers of Christ. Critics say such teachings wrongly equate God's promises of blessing with temporal, materialistic success.
Grassley's staff wrote in a summary memo that the four ministries have "multiple for-profit and non-profit entities related to each church" and that the use of "private airports and aircraft leasing companies ... raises concerns about the use of the church's tax-exempt status to avoid taxation.
"However, given the four churches' refusal to provide tax information, we are unable to determine whether and the extent to which they are reporting and paying taxes on income earned in those entities."
ECFA President Dan Busby said that "based on a career of working with non-profit organizations" he is "convinced the reported practices are not pervasive." Formed in 1979, ECFA is an organization comprised of ministries that pledge to follow established standards for financial accountability, fundraising and board governance. Of the six ministries, only Joyce Meyer's ministry is a member.
The commission will be known as the Commission on Accountability and Policy for Religious Organizations and will be led by Michael Batts, a CPA and an ECFA board member. It will receive no government money.
"One of the very challenging issues that's going to come to a head ... is the fact that there are indeed a number of religious groups throughout the country who espouse a religious doctrine that, among other things, hold that their leaders should be blessed materially," Batts said during a Jan. 14 webcast. The question is, he said, "whether the government should have a role in telling churches and religious groups that sincerely hold a doctrinal position of that type, what their compensation for their leaders should be."
In its 61-page memo, Grassley's staff raised a number of issues that the commission will study and that could have major implications for churches. Among them:
-- Whether the income tax exclusion for pastoral housing allowances should be limited. The "size of the housing allowance" is at issue, Batts said.
"The stated concern is that the housing allowance is being used in ways that perhaps Congress may not have originally intended -- perhaps in terms of the amounts that are being granted as housing allowances to fund the cost of expensive homes," Batts said.
Meanwhile, Grassley's staff also raised the possibility that legislation may be necessary to protect the housing allowance rule against lawsuits. There are federal cases that could lead to the housing allowance being overturned.
-- Whether churches should be required to file the highly detailed IRS Form 990 that other nonprofits must file. The ECFA historically has opposed forcing churches to file the form, arguing it would lead to an "excessive entanglement" between the church and state.
Busby said many small churches -- if forced to complete the form -- "would probably have to engage professional assistance and pay several thousands of dollars."
-- Whether the current IRS audit protection for church leaders should be repealed.
"The specific question raised by [Grassley's] staff relates to whether the IRS should have more freedom to examine individuals who are church leaders if it is believed that those individuals engaged in transactions with the church that represent excess benefit transactions," Batts said.
-- Whether legislation is needed to make clear that "love offerings" -- paid by church attendees to ministers -- are taxable.
"There are some who look at those transactions and say that the substance of that arrangement is a gift," Batts said. "In other words, these are individual gifts made by individuals to the minister and they're not compensation for services rendered.... There are others who would look at that and say the substance of those transactions is no different than any other form of compensation, and it's the same as if these individuals had given to the church and the church turned around and paid a salary to the minister, and therefore they're taxable."
Among other issues, the commission will examine the current IRS prohibition on church involvement in political campaigns. Grassley's staff said the issue is mostly unrelated to the other issues but that it remains "one of the greatest sources of tension between the IRS and religious organizations" and that advice on the matter would be beneficial.
There is no timetable yet for the completion of the commission's work.
Michael Foust is associate editor of Baptist Press. To read Grassley's statement and other Grassley documents, visit http://bit.ly/fkDsam. To read the ECFA statement and other ECFA documents on the issue, visit http://bit.ly/hvJzD8.