I caught a news article (sorry, can’t find it now) about some church in California that was in some kind of trouble with the IRS regarding political sermons. They were threatening to remove their tax-exempt status, and the article mentioned only one other time that this had happened to a church (there may have been others).
This got me wondering just what kind of taxes a church would have to pay if they lost their “exempt” status.
As I understand it - church employees (ministers, admistrators, janitors) pay personal income taxes on their salaries, so such a ruling would make no difference there. Most churches are exempt from property taxes - but that’s a local issue, not related to the IRS (please correct me if that’s wrong). Furthermore, I expect that churches are orgainized as Non-profit organizations anyway.
So, what’s left to tax?
And how about the obviously political religious orgainzations like CBN? I believe they’re non-profit too, so what kind of taxes do they pay?
Can’t speak specifically for a church, but I can speak for my average, run of the mill non-profit organization.
We don’t pay corporate income taxes, capital gains taxes (some of our donors give us stock instead of cash) to either the IRS or state revenue department, and we don’t pay any local or state sales taxes.
All of those exemptions are dependent on our being certified as tax-empt by the IRS.
Think of a for-profit organization, like a store. The store (like the church) has employees who pay taxes on their income. However, the store ITSELF as an organization must file and pay taxes, as well.
Simplified example: If the store has sales of $100,000 (say) and pays salaries of $60,000 and pays $30,000 for supplies, merchandise, etc. … then they’d have a profit of $10,000 and be taxed on that. The employees would be taxed on their salaries; the store could take the salaries as a deduction.
It isn’t the Churches income that is the issue so much as your donations to the Church. Lose "tax exempt status’ and the donations become non-deductable. Thus, in general, become fewer & smaller.
I would think it is the church’s issue too. Is it not true that if their tax-exempt status is removed, all the donations turn into income and become taxable income? I imagine the IRS would also tack on interest and penalties.
Plus, if the church has an endowment or trust, the interest and investment earnings then become taxable income too.
Also, all local property tax laws that I’m aware of rely on the IRS for categorizing exempt land owners. If the church were to lose its non-profit status, they would have to pay property taxes too.
But let me clear, are you guys saying that donations would be taxed as income? I would have thought that the church’s expenses (lights, fixing the roof, etc.) and improvements (buy a new organ, etc.) would offset this income for tax purposes, and they’d only be liable on only what you’d otherwise call “profit”.
I hope I’m asking the dumb question clearly enough.
I know there’s a GD thread on this topic, but I wanted to get the, you know, straight dope, before jumping in.
The donations are still taxed as income. There might be deductions that lower the taxable base but they are still income first. That is, they can’t say the church took in $1,000 in donations and spent $500 on deductible business expenses, so they only have report $500 of “profit” on their tax return. They report the whole $1,000 and then take a deduction for the $500 of business expenses, just like any other business.