How does the IRS verify a church's validity?

[astorian]

Well, it IS fairly easy to start your own church. It just isn’t that easy to create a large, thriving church. And it’s even harder to turn a church into a money-making machine.

THAT’S a big part of the reason sham churches are rare. Another big reason is that the tax benefits for churches and clergy aren’t nearly as great (or, more importantly, as broad) as many people think.

Frauds who start their own “churches” in order to reap tax benefits usually get caught and punished severely precisely because they grossly overestimate the tax benefits they’re entitled to.

Back in the late Seventies and early Eighties, several dozen cops and firemen in New York were busted for this kind of scam. NOT because they had mail order ordination certificates and claimed to be clergymen of a new church, but because they seemed to think (WRONGLY!) that being clergymen meant all their income was tax free, and that all their homes were now property tax-exempt.

There are genuine tax advantages given to churches, but they’re not as great as many people seem to think.

For starters, even if you’re a legitimate clergyman, all your income is subject to the same income taxes everybody else pays. Andrew Greeley is a Catholic priest, but he has to pay taxes on the royalties from his mystery novels. Reggie White was an ordained minister, but he had to pay income tax on his hefty paycheck from the Green Bay Packers.

As for property taxes, ONLY property used directly for a religious purpose is tax exempt. Meaning that, if the Catholic Diocese of Austin owns a small chapel on a huge tract of pristine land, ONLY the land the chapel sits on is tax exempt, and the Church DOES have to pay property taxes on all the other acres.

It also means that my house is not exempt from property tax, just because I claim to be a minister in the Church of Divine Consciousness. And even if I’m actually holding religious services in my living room, ONLY my living room is exempt from property taxes- the rest of the house, plus my front and back yards, are still subject to property tax.

As scams go, this is NOT a terribly profitable one.

[Markxxx]

The courts have ruled churches get their tax exemption not from the IRS code but from the First Amendment, because to tax a church would present an undue burden on the freedom of exercising one’s religion.

This is why there has been litigation about whether or not churches can do certain things or not.

[Apex_Rogers]

@astorian

It also means that my house is not exempt from property tax, just because I claim to be a minister in the Church of Divine Consciousness. And even if I’m actually holding religious services in my living room, ONLY my living room is exempt from property taxes- the rest of the house, plus my front and back yards, are still subject to property tax.

As scams go, this is NOT a terribly profitable one.

What if ceremonies occur all over the grounds, ie: outside, in the living room, downstairs, upstairs, etc. It seems this part at least could be skirted by moving the ceremony around.

[Keeve]

@Munch

Oh, and non-profits can make all the money they want (as a direct result of their operations) - they just can’t distribute those profits to shareholders.

But they CAN pay those profits to employees.

[guizot]

@astorian

It also means that my house is not exempt from property tax, just because I claim to be a minister in the Church of Divine Consciousness. And even if I’m actually holding religious services in my living room, ONLY my living room is exempt from property taxes- the rest of the house, plus my front and back yards, are still subject to property tax.

Who determines how much your living room constitutes your property? If you say, “It’s 30%,” will the IRS come out and measure it?

[Mr.Slant]

@Tom_Tildrum

In the olden days, when SimCity was new, there was some debate from time to time as to whether one should routinely bulldoze churches, on the grounds that they detracted from one’s tax revenue. I don’t know if that question was ever settled.

Didn’t the game designers settle this dispute by causing earthquakes and powerful storms associated with such bulldozer use?

[Cub_Mistress]

The house I live in was once used as a church* in just this kind of sham set-up. All the members were members of one large extended family. When we bought the house we had to get the tax assessor to evaluate the property and give us a figure for property taxes because the previous owners had paid no property taxes. It was only used as a church for less than two years so perhaps the IRS and local government hadn’t caught on to the scam yet.

• It’s just an ordinary house: no steeple, no bell tower, no Alice’s Restaurant-style place to put the garbage…

[Qwakkeddup]

Around 20 years ago, One of the local hospitals got into Big Trouble. They had tax-exempt status as a non-profit. They bought up many of the houses surrounding them with intentions to future expansions. They then started renting them to employees, or in our case, we lived in the house they bought from our former landlord.

We basically were told we had to move. The hospital bulldozed all of the properties and paid back property and income taxes from the rentals. Most, if not all them were later sold off and have new homes built on them now. IIRC, they would have been fine allowing employees to live there, rent free, putting the tax burden on them, or just paying income tax.
They only wound up paying the property taxes after a lot of investigation into the way they handled the properties.

I believe they had our old house bulldozed within 4 days of our move. They got in trouble for that too. They took down the old houses so fast that gas electric and water companies didn’t get sufficient notice and they literally drove up with the bulldozers and commenced with the mayhem. Neighbors were very unhappy to have a gas or water leak, Plus LIVE electrical cables laying on the ground. (Bulldozer was the hospitals property, driver was a maintenance crew member.) The story behind this almost criminal behavior was to hopefully derail assesments so they could be charged with empty lots or something. I can’t remember if anyone went to jail though.