Is there a minimum legal size for a church?

Factual Questions
1

So, I’ve studied finance and economics at university and am interested in politics. Lately, I’ve become quite interested in the religion industry. It seems the United States is remarkably relaxed about how churches are treated, especially with regard to taxation.

Churches in the U.S. are not required to pay taxes. But, this leads to the next question: What is a church? That’s where I went down the rabbit-hole. Basically, it looks like pretty much anyone can call themselves a church and only the most blatant and transparent of frauds would lead to any consequences.

Firstly, the post title. I couldn’t find any standard for a minimum size for a church. I googled, couldn’t find any regulations, IRS rules, or any other information suggesting a minimum number of members or leaders. Could a married couple found a church (or whole religion), name themselves clergy and board of trustees?

What I’m really looking for is either the answer “yes, and here are the documents explaining what it is” or a “no, here is the explicit statement or court case establishing that”.

This is only one aspect of the virtually completely absent regulation of the industry, but figured I’d start with it. I’ll put additional questions/discussion up if the thread gets any traction.

2

While it doesn’t point to a hard and fast number, here is a synopsis of the IRS guidelines:

More detail in this IRS PDF.

3

Here’s a great video on the forming of Our Lady of Perpetual Exemption:
(Spoiler: They set up an actual church just to show how easy it is)

4

I think the answer is that the US Government isn’t in the business of determining what is and isn’t a church. Anyone can start a church and if they look like a church, and act like a church, they’re good as least as far as the IRS is concerned. If you intentionally defraud people or are clearly not a real church they can come after you. Where the line is I don’t know, but the IRS has been dealing with churches for quite a while and I’m sure they have internal guidelines agents use to determine whether a church is legitimate or not.

5

Wow, didn’t really expect a response so quickly. Yes, I’m very familiar with this video. Kinda sparked my interest. A few interesting things about churches:

  • A church has to function as a church, doing ‘churchy’ things. Now what those are can be vague, but may include charity in the form of material or financial assistance, proselytization, education on what the sect believes, etc. But, a church doesn’t necessarily need real estate. Our Lady of Perpetual Exemption was obviously a publicity stunt. But, it was still a real church for legal purposes. The collection of money in the name of the church and subsequent distribution to other charitable causes is probably the most robust legal defense.

*Alternatively, if one sets up a church as a tax shelter (and it seems they could be really abused in that respect), but ONLY interact with it as a tax shelter, it seems they could (and should) see tax or legal repercussions for this. Of course, this brings up another issue. How much churchy stuff has to be done to justify said tax treatment.

*I should clarify that tax treatment can be complicated. Legally speaking, the individual, as either a board member or member of a congregation, is taxed as a private citizen. Meanwhile, the church itself is a distinct entity, which is not taxed. But, the board controls the untaxed resources of the church, even though it doesn’t ‘own’ them. Normally, misappropriation of said resources would be embezzlement. The problem with churches is that there is, again, no regulation. In fact, churches are not required to organize as 501c3s, they can avail themselves of such favorable tax treatment without it. However, even if they DO organize as 501c3s, they STILL don’t have to file yearly statements demonstrating that they actually operate as a non-profit.

*It seems that the Mega-Reverend Oliver could just as easily taken all those donations and done whatever he wanted with them. Bought property (untaxed as a parsonage), durable goods (like private jets, no luxury tax, since it ‘belongs to the church’), or financial assets. In fact, the Mormon church possesses over $37 billion (yes ‘with a b’) in common stock alone. While this revelation (ha!) caused a stir when it was made, it was not in conjunction with any legal investigation. It appears that no capital gains tax was ever paid on these assets, may never be paid on it, and the government doesn’t seem to be interested in collecting any.

*Normally the law regulating 501c3s limits some of the activities administrators/founders/etc can engage in. For example, some of the shenanigans a budding church operator might engage in would be illegal in any other 501c3. How illegal varies, it may void the 501c3 tax-exempt status or mean personal legal consequences, but these seem to not apply specifically to churches. “Inurement to private benefit” is the most prominent here. But, a salary or tax-exempt housing allowance obviously can’t count as inurement, since that would basically devastate the religion industry (as a professional venture, volunteer organizations could still exist). Another thing that is, at least, grey area is nepotism. But, nepotism in religion is a tradition that is literally thousands of years old.

What is to stop the following scenario?

Guy makes some $60,000/yr at conventional office job. Organizes a church and registers as a 501c3. Establishes himself and spouse as members of the board. Donates 60% of his income to the church (maximum amount for charitable deduction). This obviously radically reduces his tax burden. He is ‘out’ of that money, but still controls it from the board. He’s theoretically not at liberty to do whatever he wants with it, due to private inurement, but tax-exempt housing allowance is well-established. Time for a new car? The church buys it instead and allows him to drive it. The church can invest in financial instruments like stock without paying capital gains tax (at least up to 37 billion, apparently). If he falls on hard times, the church will be there for him and his family, since the leadership IS him and his family.

I was an auditor for a while, and this all seems shady, but I can’t find where any of it is against specific rules. It’s just applying the rules that are there. Am I missing something, because it sure doesn’t seem right?

I know there are some crazy interactions with the tax code. Companies that use offsets, carry profits forward indefinitely, moving lawsuits to subsidiaries that subsequently file bankruptcy under the judgements, leaving the parent co. unscathed, etc. And these things are horrible and exploitative, but by the letter of the law, legal. But, these are the kind of things that are not accessible by regular citizens.

6

In the greater Cleveland area there are any number of churches that are former homes or store fronts. They generally plaster all kinds of posters on the front and post hours for the services. My favorite was a combined Christian Refuge, book store and exterminator business.

7

That’s the thing. They AREN’T making the determination what is and isn’t a real church. All they would have to do is remove the distinction between 501c3 non-religious and 501c3 religious. Same rules. Just file the paperwork and show the IRS you are operating as a non-profit. Even taxing churches and non-profits would not hurt the good guys. They aren’t clearing much, pouring donations into their causes, so there’s not much left to tax. But, the mega-churches would have to show they are not hoarding wealth or else pay tax on it.

There are special regulations limiting the IRS from auditing churches, n section 7611 of the Internal Revenue Code, and the numbers of churches that have been audited are crazy. To date, there seems to have been only ONE church that has ever lost its tax exempt status. Additionally, there are church associations, which are not churches or behaving like churches, also getting treated as churches for purposes of taxation. Of course, this was a result of evangelical Christian orgs putting pressure on legislators. Similarly, a California lawsuit involving Rick Warren had the end result of establishing a law that clarified that his entire $70k+ salary could be regarded as a pastoral allowance to which no income tax would be applied.

What I’m wondering is: What is stopping every household in the nation from establishing a miniscule church using the same mechanisms that rich mega-church pastors use to dodge taxes?

I feel like the auditor in me has just found an unlocked door that no one is watching and leads to somewhere sensitive and is wondering how exactly this isn’t a huge problem.

8

So book store, exterminator service, and church. Normally, the stuff like books and extermination would be covered under ‘unrelated taxable business income’ so would be captured under tax, but not having to pay rent would change the expense profile of the venture and there would be no property tax if the building was owned by a church.

9

There’s a famous person I heard on a podcast claim that his family was dirt poor growing up, so his father set-up a “church” at his house so he wouldn’t have to pay most taxes and somehow he pulled it off. I always wondered how true that storry is.

10

Folks of a certain age may remember Fred Sanford of Sanford and Son attempting this gambit. Unfortunately, he was being scammed as well - leading to amusing consequences.

11

In his autobiography, Malcolm X talked about shady inner city churches that were clearly scams to get money. When he first got out of jail, Malcolm talked about having to convince his old friends that his religious conversion was genuine, and that he wasn’t just running the “preacher racket.”

12

Yeah, if you’re referring to Alex Haley’s book, I’ve read that, though I don’t remember that exact part.

13

Is a church’s tax exemption different from a secular nonprofit organization? Say, the Cancer Society or a homeless shelter or a scholarship fund?

14

Church tax exemption is similar, but different in a few ways. One, the church is not required to organize as a 501c3, like a charity would. Secondly, even if the church IS organized as a 501c3, it is not required to file paperwork with the government detailing its financial dealings or open its books to auditors. There are also certain elements of 501c3 organization that are publicly available, which are not in the case of religious non-profits (501c3 or not).

This is a major complaint of folks who want churches held accountable. Basically, any organization that calls itself a church is tax exempt until it is demonstrated that it should not hold tax exemption, which is problematic because it is not required to actually demonstrate that it IS appropriate for being exempt. There are positive barriers for IRS audit of churches and a general and profound neglect of auditing activity of such organizations.

Personally, I don’t mind churches being exempt from taxation, on the basis of them performing charitable work. But, I don’t think they should occupy a different legal space than other 501c3s. They should have to open their books to the government and SHOW that they are operating as a non-profit, instead of just being trusted on the matter.

15

Is there any possible set of curbs on church scams that the IRS does not already have that would not impact on larger churches with enormous amounts of influence, friendly representatives in Congress, and huge amounts of money to fight? Or much worse?

If you’re not familiar with it, the fight put up by Scientology when the IRS wanted to remove its tax-exempt status is instructive.

16

Not much. Quite similar.

The scam won’t work.

Other than the parsonage every thing you get is taxable.

And parsonage allowance IS an audit issue. That is your 1040, and reportable on a w2.

Without a church building, parishioners, etc, it won’t be allowed.

The church pays taxes on unrelated income, but not donations. So, interest etc is taxable.

17

I’d like to think that. But, the parsonage allowance alone can be a substantial amount. Over $70k/year in the above cited example.

The word ‘church’ can be ambiguous. It can mean a building or structure, a religious community, or a legal-social entity. The legal entity may be organized as a 501c3 or not and it may own real estate or not. Neither of those is necessary for its status as a church and tax-exempt entity.

Unrelated income is normally taxed, but the LDS example above seems to have not been. Despite this coming to light, I’ve not found any reports of legal or regulatory action against the organization.

“Without parishioners” is kind of the question of the OP. Legally speaking, how many parishioners? Two? Three? A dozen?

18

I’ve heard some church’s definition as to what is a church. It is a gathering of believers in the name of Jesus. Scripturally speaking at least 2 or 3 gathered in His name and Jesus is there also. Is it not a building, but. the gathering of believers. This would leave a lot of leeway for IRS purposes and a definition many churches would like to use as it is advantageous for them.

But it seems to be a bit more involved than that as I take it from scriptures. The origins of the church however was not with Jesus’ earthy life, but after the release of the Holy Spirit, when common man really started playing with God’s powers at such gatherings. Though some churches deny that the play time with God’s power is still in effect and they are basically waiting and trying to be good. The early churches appear to be fairly well sized and attended in the bible, Seem to be the gathering of believers in a general area, and most seemed to start with ministry (such as Paul) who was apparently a good enough speaker (also give the God powers), that none of the early churches seemed very small IIRC.

19

I distinctly recall reading about 50 years ago about a town (in Pennsylvania?) where people were claiming tax exempt status for churches - and their church was their home; the church members were the people in their family. So many people were successful in doing this that about half the property had been taken off of the tax roles. The remaining citizens were not happy about it.

Alas, My internet search isn’t finding this.

20

Could’ve been this: “In the face of rising taxes, half the residents of this Catskill Mountain town have been ordained to qualify them as tax‐exempt clergymen … they also appreciate its jocund side, addressing one another as “Reverend” and asking one another, “Have you seen the light?” … They were all ordained by George McClain, a 41‐year‐old plumber from the nearby village of Liberty. Mr. McClain, by taking a series of correspondence courses, had become a bishop of the Universal Life Church last November.”