The easiest way to avoid paying taxes is to form a religious organization.
But be careful what you do in the age of whistleblowers.
A whistleblower complaint to the IRS reported by the Washington Post accuses The Church of Jesus Christ of Latter-day Saints of building a $100-billion investment portfolio using donations intended for charitable purposes, potentially in violation of federal tax laws.
The complaint was filed by David Nielsen, a former portfolio manager for the church’s nonprofit investment arm Ensign Peak Advisors. It claims that the funds collected were not used for charity, unless charity can be considered a contingency plan in “the event of the second coming of Christ”.
In terms of actual charity, the 16 million-member church--whose members include Senator and former Presidential candidate is Mitt Romney--did toss some cash at two for-profit businesses, including a mall, and bailed out a failing church-run insurance company following the 2009 financial crisis. But the rest is a bit muddier.
In 2012, Reuters reported that the church owned some $35 billion worth of temples and meeting houses around the world.
Nielsen’s complaint describes the church collecting roughly $7 billion in member contributions each year, through “tithes” in which members donate 10% of their yearly income.
Of that $7 billion, the whistleblower says that $6 billion is spent on operating costs and $1 billion goes to Ensign Peak Advisors to bolster the church’s investment portfolio. When the church formed Ensign in 1997, it was valued at $12 billion.
Nielsen is now calling on the IRS to “strip the nonprofit of its tax-exempt status and alleges that Ensign could owe billions in taxes”.
And he wants something in return, too: A reward from the IRS, which offers whistleblowers a cut of the unpaid taxes that it recovers.
Since the 1800s, churches and religious organizations have been exempt from income taxes with all 50 states and the District of Columbia giving them a pass on property taxes, federal income taxes and more.
There is no publicly available data on how many separately registered religious organizations there are in the United States but considering that there are 313 religions and denominations in the country, that number has to be high. The Encyclopedia of American Religions, published in 1978, lists 1,584 religious organizations in the U.S.
A 2013 study by the University of Tampa suggests the American taxpayer subsidized religion to the tune of $82.5 billion per year.
Although the IRS does have a tax guide for churches and religious organizations, the term “church” isn’t even defined in the tax code. Therefore, there are quite a few loopholes in the system with several cases of tax fraud schemes.
So far, only one church has lost its tax-exempt status.
In 1992, the IRS used the Johnson Amendment enacted in 1954, revoking the tax-exempt status of churches that participate in political campaigns, against The Church at Peirce Creek for saying that it was a sin to vote for Bill Clinton due to his views on abortion.
Even though there are other cases of religious groups being involved in politics, the IRS’ hands have been tied since Congress’ passage last year of a measure to block the tax agency’s use of the Johnson Amendment. A year prior, President Donald Trump vowed to "destroy" the amendment.
The IRS is also limited in its auditing of churches and religious organizations, and can do so only if it “reasonably believes, based on a written statement of facts and circumstances, that the organization may not qualify for the exemption or may not be paying tax on unrelated business activity or other taxable activity”.
The recent whistleblower complaint might trigger the audit.
The IRS conducted only three audits of churches in total in 2013 and 2014, and zero between 2009 and 2013.
Given this situation, church tax-exempt status is unfathomably desirable for would-be tax avoiders. It’s so desirable, in fact, that when one seeks to educate oneself on churches and taxes, one of the most frequently asked questions is: “Can I start a church to avoid taxes”.
The answer is “yes”, and it appears that it is not that hard to start one up.
In 2015, comedian and satirist John Oliver announced the creation of the Church of Our Lady of Perpetual Exemption, proclaiming himself ‘Mega Reverend’. He shut down the church after a month, reporting that it had received thousands of donations.
Apparently, the Kardashians also have a church, co-founded by Kris Jenner, the family matriarch. The family has been accused of supporting the Life Change Community Church as their own personal tax haven.
And then there is The Satanic Temple, which in April this year earned the same tax-exempt status as a church by the IRS.
By Anes Alic for SafeHaven.com
