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Atheist Groups Sue Over Church Form 990 Exclusion

All 501(c)(3) organizations are required by law to file some version of IRS Form 990 annually, with the notable exception of churches.  Since the establishment of Internal Revenue Code Section 501(c)(3), churches have been exempt from this annual reporting requirement.  If several atheist groups get their way, the long-running compliance exemption may come to an end.

American Atheists, joined by two regional groups, Atheists of Northern Indiana and Atheist Archives of Kentucky, gave oral arguments last week in the US District Court for the Eastern District of Kentucky.  The plaintiffs allege that current tax law exempting churches from reporting requirements amounts to an unconstitutional favoring of religion.  They further allege that by not having to report financial activity and donors giving more than $5,000 per year, churches enjoy an advantage and cloak of secrecy that may effectively shield non-compliant behavior.

This is a very important case to churches.  Should the plaintiffs prevail, it will upend over 2 centuries of precedent in America, by which the so-called separation of church and state actually cuts both ways.  While most employ the term to decry supposedly unconstitutional religious activity in the public space, it also applies to the state interfering in church activity.  Subjecting churches to public fiscal visibility is unprecedented in the US.

My personal hope is that this lawsuit fails, but not because religion should be favored.  I oppose this effort because it is pointless.  If one truly believes in separation of church and state, then the argument should be consistent in its application.  I have long believed churches should be tax exempt via the first amendment establishment clause, not codified in tax law.  As it is, churches choosing to operate under federal tax-exemption already do so under 501(c)(3) restrictions and are fully subject to IRS review.  Requiring churches to file Form 990 does nothing to change that.  What it would accomplish, however, is putting the federal government further down the slippery slope of arbitrating church activity.

It will be interesting to see where the courts go with this.  If the court finds for the plaintiffs, expect this to end up in the Supreme Court eventually.  There you might expect a first amendment fight that redefines

…or prohibiting the free exercise thereof.

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 4 Comments

  1. The first amendment of the Constitution is addressed to Congress not to churches of whatever faith. According to Jefferson it was meant to establish a wall between church and state meaning the state should not cross that wall to establish or interfere with the faith and activities of a church….

  2. Some churches are “filthy” rich, by that I mean the ways & means are to be questioned and are not because of some laws. Let’s clean up religion.

    1. Your sentiment is no doubt shared by many others, but let me challenge your point. There are some “churches” that use the lack of reporting requirements to shield wrongdoing, but those are extreme, outlier situations. The vast, overwhelming majority of churches in America are small, community congregations of less than 100 people, regardless of particular faith. These churches are already subject to the exact same laws as every 501(c)(3). So, if there is reasonable cause to examine the finances of a church, the IRS can do so at any time…and even assess penalties accordingly. Requiring churches to publicly report on Form 990 does nothing to change or enhance that. What is does accomplish is forever changing the “pact” our government has had with the Church since America’s founding: religious expression (including how it’s funded) is (mostly) hands-off. My opinion, understandably different from yours, is that the gain in transparency is not worth the cost.

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