Religious Questions: Why churches don't pay taxes and why that's unlikely to change

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Editor's note: This article is part of a series answering your biggest religious questions. Each week, we will answer one submitted faith question. To send a submission, visit or email

Question: Why is it that churches do not have to file IRS form 990 or 990-EZ or 990-N like other nonprofits must do to ensure that money received is being used for charitable causes and not for personal profit? Why should churches be able to hide how they spend their money?

Answer: In short, because of the First Amendment to the U.S. Constitution.

Both provisions of the First Amendment - barring Congress from making laws establishing religion or prohibiting the free exercise of religion - are intended to limit entanglement of government and churches, said Jill Manny, executive director of the National Center on Philanthropy and the Law at New York University.

"There really was an issue for a long time about what was more entanglement: Was (it) tax exemption or taxing?" Manny said.

In the early days of the United States, churches were generally seen as a social good and were not taxed, said Lloyd Hitoshi Mayer, professor of law at the University of Notre Dame.

"Churches and religious institutions, generally, they fall under this broad charitable concept and that comes out of the English common law," Mayer said.

The roots of tax exemption legislation in the U.S. can be traced back to the mid-1890s when legislators allowed charitable organizations to be free of income tax and have donors receive a tax deduction for contributions, according to the Internal Revenue Service. These organizations were given special status to continue their role of serving the public.

Over time, Congress passed legislation asking for more tax information from charities, but not from churches, Mayer said.

"Congress has always been concerned about burdening the free exercise of religion, which of course is prohibited by the First Amendment," Mayer said. " ... When [Congress] started adding these burdens on to charities, they thought, 'We don't want to add these burdens to churches because maybe that's unconstitutional. Maybe that's burdening churches in a way that's not constitutional.'"

Churches, unlike other tax exemption organizations such as nonprofits, are not required to register with the IRS to receive their exemption status. And, unlike other tax-exempt organizations, churches do not have to file some version of the 990 form, which gives the public insight into the financial makeup of the organization. The 990 provides information on employee salaries and how donations are spent, for example.

These ideas have been challenged in court. In 1970, the U.S. Supreme Court decided in the case Walz v. Tax Commission of the City of New York that tax exemption status for religious organizations does not violate the establishment clause.

However, the federal government could force churches to pay taxes and doing so would likely not violate the First Amendment, Mayer said, pointing to the 1990 Supreme Court decision in Employment Division v. Smith. In the case, the court ruled Oregon's law banning peyote was constitutional, despite it resulting in Alfred Leo Smith and Galen Black losing their jobs after they ingested the drug as part of a religious ritual in the Native American Church.

The decision showed that the government can enforce general laws, such as requiring taxes from all organizations, and remain constitutional as long as the rules are not designed specifically to target religion, Mayer said.

But Mayer and Manny both said the likelihood of Congress changing the law to require churches to pay taxes is unlikely. Nearly all religious groups agree on the exemption, and religion has influence, Mayer said.

"The vast majority of churches have shoestring budgets," Mayer said. "The pastors are making dirt. The rest of the staff are making dirt. They rely on volunteers."

(Read more: Church pastors are struggling with money. This campaign aims to help.)

Contact Wyatt Massey at or 423-757-6249. Find him on Twitter at @News4Mass.