Nonprofit organizations in the U.S. make a contract: society allows donations to be tax deductible, and in return those organizations make their financial records public to show that they used that income wisely. Every nonprofit fills out an annual IRS 990 form to make its cash flow public—every nonprofit, that is, except churches.
Not only is this exemption unfair, it makes churches look like they have something to hide. Given past financial scandals, some do, but this secrecy makes most churches look undeservedly bad. Christians should demand that this exemption be removed. This change would improve the reputation of American churches at a time when a little reputation polishing would be welcome.
This article has four sections: a brief overview of the problem enabled by the exemption, arguments against removing the exemption, arguments for removing it, and a conclusion.
Church scandals
This isn’t an indictment of all churches, just the bad actors hiding behind the good ones.
One problem enabled by secrecy is fraud. “In 2000, an estimated $7 billion was embezzled by leaders of churches and religious organizations in the United States. Several other studies have suggested that about fifteen percent of all individual churches will suffer embezzlement.”[1] Worldwide, the estimate of fraud is $35 billion annually.[2][3]
Scandals of various sorts have brought down famous church leaders—Jimmy Swaggart, Ted Haggard, Mark Driscoll, and others.[4] James MacDonald of Harvest Bible Chapel is just the most recent.[5] Even sex scandals sometimes have a financial component, such as the hush money paid by Jim Bakker.[6]
Secret finances have sheltered outlandish salaries, like Jim Bakker’s $1.6 million more than thirty years ago.[7] While that salary wasn’t illegal, it was embarrassing. It’s only fair that the people who are ultimately paying know how their money is spent.
Church finances can be hidden even from church leadership. In James MacDonald’s church, “one elder resigned over this, after asking to see the finances and being overruled by the rest of the board.”[8]
Of course, the presence of a few bad actors doesn’t mean that churches don’t do good work, that Christians are bad people, and so on, but that’s precisely the point. When good and bad churches blend together into an indistinguishable gray mass, public financial disclosure would let the good churches be seen for what they are.
Contrast the Catholic Church’s sexual abuse lawsuits, paid using church funds,[9] with conventional nonprofits. Yes, there have been scandals with them—excessive CEO compensation with United Way in 1992 and the Smithsonian Institution in 2007, for example[10]—but all evidence argues that financial transparency has prevented far worse. Churches would benefit from following their lead.
The status quo is broken. It’s ridiculous to imagine that all church financial scandals are behind us. Fortunately, we have a simple solution: the IRS 990 form has been around for 75 years, it’s tuned for large and small nonprofits, and filing one annually should be mandatory for all of them.
Let’s move on to consider arguments pro and con mandatory filing of 990s. First, the arguments against.
CON #1: Churches are trustworthy
The assumption that churches are inherently trustworthy was the reason churches were given the exemption in the first place in 1943,[11] but the summary above shows that that assumption fails. Churches are run by imperfect people, and people sometimes do bad things. The Bible says, “We know that anyone born of God does not continue to sin,”[12] but if church leaders aren’t sinning, they’re certainly doing something questionable. Daystar spent half a million dollars sponsoring a Christian NASCAR driver, Ken and Gloria Copeland live tax-free in a $6.3 million “parsonage,”[13] and Mark Driscoll spent $210,000 of church funds to buy his way onto the New York Times bestseller list.[14]
When outlandish expenses are made public, credibility can be lost. Pastors Creflo Dollar, Jesse Duplantis, and Ken Copeland publicly asked for extra donations for new business jets costing tens of millions of dollars, and the public responded with ridicule. One commenter asked, “Can a business jet pass through the eye of a needle?”[15]
CON #2: Let disclosure be at the churches’ option
This argument wants to let church leaders decide to open the books or not, as they choose, but in practice they choose secrecy. In one list of America’s biggest evangelists, seven are religious nonprofits, and they all file 990s as required. The remaining 23 are churches (“televangelists” might be more accurate), and none file 990s.[16] Of the 250,000 churches registered with the IRS, only two percent file 990s.[17]
CON #3: This violates the First Amendment
Would requiring the filing of a 990 form be a violation of the First Amendment to the U.S. Constitution?
It would not. The rules of tax-exempt status have nothing to do with religion. To encourage nonprofit organizations that do good for society (including churches), the IRS created the 501(c)(3) category. Donors can give to these organizations tax free. In return, the organizations make public their finances by filing annual 990 forms.
This demand for transparency is no special burden on churches. In fact, the reverse is true: giving an exemption unfairly benefits religion and so violates the First Amendment’s requirement that “Congress shall make no law respecting an establishment of religion.” Removing the exemption is no violation of rights when it shouldn’t have been given in the first place, especially when churches have shown that they can’t self-govern.
Churches aren’t a law unto themselves, and they must obey laws just like any other organization—laws about building codes, public safety, protection of copyright, liability, and so on. Financial transparency is just one more obligation of nonprofit organizations that are good citizens within society.
CON #4: Filing a 990 is too burdensome
We don’t hear church leaders arguing that it’s too big a burden for the 1.5 million nonprofits who now must fill them out; rather, they’re just saying that it’s too much of a burden for them. No, if other nonprofits can fill out a form, churches can too.
The 990 has evolved in the 75 years that it’s been around, so any church’s worries about the form have been raised long ago. There is a four-page 990-EZ version for organizations with less than $200,000 in annual revenue, and a 990-N for organizations with less than $50,000 in revenue. The 990-N takes minutes to complete, so the fear of overburdening a church with a tiny congregation is unfounded.
Completed 990s were first made public in 1950, organizations were obliged to mail one to anyone who asked by 1996, and they began to be put online in 1998.[18] Today, a researcher can use sites like Foundation Center, Charity Navigator, or the IRS itself to bring up financial data on any nonprofit in seconds. For example, the 990 for Pat Robertson’s Christian Broadcasting Network is here. Income, expenses, assets, and the salaries of key employees—it’s all there. In 2016, it had $308 million in revenue and $143 million in assets, and Pat Robertson’s salary was $478,299.
What if the church doesn’t keep good financial records so that filling out the form is difficult? (The stereotypical example might be the disorganized small business owner dropping a shoebox stuffed with last year’s receipts onto the accountant’s desk.) Putting good financial management practices into place might be difficult, but they would be their own reward. “We’re too disorganized” is no reason for an exemption. Good financial management is proper stewardship of the money the congregation has entrusted to the church.
Five years after removing the exemption, once the 990 becomes assumed and churches are comfortable with the process, I predict that almost no one would advocate for going back to secret finances.
CON #5: It’s unnecessary, because we provide information to our members
Many churches share financial information with their members (though not all do), but this is not enough. Tax-exempt status is a financial bonus to nonprofit organizations, but the lost tax revenue must come from somewhere. Less tax on nonprofits means more tax on ordinary citizens. Since they’re footing the bill, they deserve to know, whether or not they’re members of a particular church.
Even when members can technically access financial information, this can be a difficult route. Asking a pastor to see the books might imply criticism and could harm a parishioner’s standing within the church. By contrast, access to a 990 is anonymous.
CON #6: We already have a solution—the ECFA
The Evangelical Council for Financial Accountability was created in 1979 in response to public pressure from mainline churches against televangelists. Member organizations make a limited financial disclosure to the ECFA (not to the public), and ECFA membership provides a public seal of approval.
But why invent something new when the 990 had been in place for decades? Christian leaders were trying to complete the awkward sentence, “Churches need secrecy and can self-regulate because ___,” and they opted for transparency with training wheels. Yet again, this suggests their members have something to hide.
We’ve had forty years with the ECFA, and church scandals continue. Self-regulation relies on the consent of the regulated, and bad actors can simply not bother to join. The ECFA has 1700 members, of which only 150 are churches[19] (out of 330,000 churches in the U.S.), so it is no satisfactory alternative to true financial transparency.
CON #7: It’s not the government’s job to judge churches’ conduct
“Government should not be determining if a minister is living too lavishly. It’s not for the government to determine if someone really needs an airplane for their ministry. That’s just not something government should be getting into.”[20]
That’s a fair point, but that’s not the goal of mandatory 990s. With anonymous access to financial information, parishioners (not government) can decide if their church is using their donations wisely. If they disapprove, they can find a better fit by looking into other churches.
This is one of the advantages of the 990—it’s already being collected from other nonprofits, and adding churches to the list doesn’t increase the IRS bureaucracy. Checking on churches’ financial stewardship can be crowdsourced, a nice application of the “sunlight is the best disinfectant” principle.
CON #8: Disclosure would embarrass some churches
This is not an argument any church leader would admit to, but it’s likely the real reason. U.S. churches don’t want public critique of how they spend their $34 billion in annual income.[21]
Conventional nonprofits file 990s, and publicly traded corporations file disclosures mandated by the Securities and Exchange Commission. Their disclosures may invite uncomfortable questions, but they muddle through. If a few churches need to scramble to clean up their acts before their finances become public, that’s a good thing.
Let’s now consider the pro arguments, those in favor of mandatory 990 filing for churches.
PRO #1: The status quo embarrasses all churches
This is the dual of the previous argument, and it may be the most powerful. Church scandals tar all churches. You can argue that your church is above reproach, but that’s just what the bad church was saying before its scandal became public. Make finances public, let them speak for themselves, and the churches that can be proud of their financial stewardship will separate from the rest.
PRO #2: If God knows, why can’t we all know?
From the Christian standpoint, any human disapproval is inconsequential compared to God’s. God knows everything, including how church leaders spend the money entrusted to them. If God is satisfied with the finances, how could a church be embarrassed to open its books to society? Said the other way around, if they’re embarrassed to show society, they’ve got some serious explaining to do before God.
Those church leaders who hesitate to open their books to the public place man before God as an authority. One wonders if they believe their own story.
PRO #3: The Bible encourages financial openness
It shouldn’t be necessary to argue that financial transparency is a cornerstone of good church management, but the Bible supports this principle.
We want to avoid any criticism of the way we administer this liberal gift. For we are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes of man. (2 Corinthians 8:20–21)
Live such good lives among the pagans that, though they accuse you of doing wrong, they may see your good deeds and glorify God on the day he visits us. (1 Peter 2:12)
PRO #4: Transparency discourages impropriety
Open financial records mean that church members can monitor church operations. 990s aren’t the same as on-demand access to the church’s financial spreadsheet, but they can be read anonymously and are far better than the status quo.
Anyone who can spend the church’s money would know that it’s more than just God looking over their shoulder, which should reduce the temptation toward both embezzlement and unjustifiable expenses. Any financial scandals that are still possible might be caught earlier when they are smaller and less embarrassing.
This principle that openness encourages honesty pushed Billy Graham and some associates in 1948 to write the Modesto Manifesto, a set of guidelines for avoiding scandals that were a problem among Christian leaders even then. His organization published annual financial audits, and it summarized the financial results of revival meetings in local newspapers.[22]
Knowing that self-imposed rules could be broken, Graham constrained himself with these external rules. According to his biographer, “He has never thought that he was beyond temptation or that anything he wanted to do was all right.”[23]
PRO #5: Transparency is honest to taxpayers
The subsidy that American society gives religion because of its tax-exempt status is estimated at $83 billion per year.[24] The 990 would be the way for churches to say to the American taxpayers who are picking up the slack, “Thank you, and here’s how we’re spending the money you gave us.” Removing the exemption would also be fair to the other nonprofits who must fill out the 990.
Christians might defer to church leadership on spiritual matters, but it doesn’t follow that taxpayers should defer to church leadership on financial matters.
PRO #6: We find transparency in other contracts
Anyone who gets a patent receives legal protection for the invention in return for revealing the secrets of the invention. And any organization that gets 501(c)(3) status receives tax-free donations in return for opening its books.
Annie Laurie Gaylor, co-president of the Freedom From Religion Foundation, said, “Having tax-exempt status is a great privilege, and in exchange for that privilege, all other groups must file a detailed report annually to the IRS and the public on how we spend donations. . . . Why should churches be exempt from basic financial reporting requirements? Equally important, why would churches not wish to be accountable?”[25]
PRO #7: Transparency is honest to church members
American taxpayers are subsidizing religion, but it’s the members themselves who are directly footing the bill. Not only must churches open their books to be fair to those members, but polls show that members want more transparency.
Financial secrecy helped keep the Catholic sexual abuse scandals hidden for so long, and Catholics are pushing back by demanding more financial transparency.
A 2002 Gallup poll found that sixty-five percent of Catholics agreed that the church should be more accountable for its finances, and seventy-nine percent wanted bishops to give a complete account of the financial impact of sexual abuse victim settlements. A study conducted by the National Leadership Roundtable on Church Management found that a majority of Catholics wanted “full financial disclosure” from the church [emphasis added].[26]
That certainly seems fair, given that their donations fund the settlements.
Another case is Daystar, a Christian television network with over $200 million in assets and which takes in donations of $35 million annually. As a church, its books are secret, but records made available due to a lawsuit show that far less of the donations are given away as charity than promised. One experienced nonprofit analyst said, “Daystar needs to tell people that only about 5 percent of their contributions are going toward hospitals, churches, needy individuals.”[27]
Is 5 percent a lot or a little? Does it match what Daystar has promised on air or not? That’s not for me to judge, but it is for the donors to judge. Covert finances are not honest.
PRO #8: What cults are hiding behind this IRS loophole?
Scientology filed thousands of nuisance lawsuits against the IRS to protest its loss of church status. It finally dropped its lawsuits in return for nonprofit status.[28] What churches would you like to see the finances of? Hare Krishna? The Unification Church (“the Moonies”)? Nxivm? You may think that your church is operating ethically, but what about the other guys?
The Freedom From Religion Foundation argues that financial secretiveness allowed Jim Jones to hide the early signs of his church’s meltdown that led to the 1978 massacre of almost a thousand church members in Jonestown.[29]
And it would be good to get the IRS out of the church-defining business. While the IRS never reviews or assesses religious doctrine,[30] it does have a 14-point checklist[31] to decide if an organization is a “church.” The IRS says, “Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. The IRS considers the facts and circumstances of each organization applying for church status.”[32]
With no 990 loophole, the IRS wouldn’t have to decide who is and who isn’t a church.
PRO #9: There is no argument for secrecy
Fill in the blank: “In our church/denomination, we want to maintain financial secrecy because ___.” Do you want to stand before the congregation and justify the explanation?
Or imagine it from the other direction. Suppose churches have been using the 990 for years, and everyone is accustomed to the transparency. Now someone proposes that the IRS provide a loophole to exempt churches from that requirement, and you need to make the argument. How would you argue for financial secrecy in the future?
Churches should be more financially transparent than the Mafia.
PRO #10: The 990 makes church governance easier
Church scandals often center around charismatic leaders who bully others in church leadership to get their way. Someone on the church board might suggest more financial transparency to the membership. Perhaps it’s criticism of an extravagant expense or a suggestion to apply the financial checks and balances used in business. They’re all shot down by the charismatic leader. Board members could push harder, but they risk their position on the board and their reputation within the church. Let’s make it easier on these church leaders who try to do the right thing by resolving this debate for them.
Here’s one take on the difficult position of these church leaders.
Those who confront pastors . . . may be told that they are “unsubmissive” or “disloyal”. . . . Churches, as they currently exist, actually foster and shelter malfeasance. The dynamics of religious leadership discourage laypeople from pressing for financial accountability even in more democratic polities, suggesting that it is imperative for the government to apply the same laws to churches that mandate transparency for other nonprofits.[33]
Mandatory 990s are like round thermostats. In the 1950s, industrial designer Henry Dreyfuss noticed that rectangular thermostats were often mounted on the wall slightly crooked. He designed the popular Honeywell round thermostat that couldn’t be mounted on the wall crooked. The opportunity to mount it wrong was gone. 990s are like that—the debate about how open to be and who is allowed to see what information is gone. Constraints can be freeing.
The risk to board members with a potentially bullying pastor is also reduced. The hands of the board are tied—churches must be financially transparent; the debate is over; next issue. The IRS becomes the hero in this story, because they took the burden from the board.
PRO #11: More transparency might mean more revenue
Is the IRS 990 bitter medicine, or is it the route to greater church income?
Financial transparency helps revenue in two ways. First, it gives members more confidence that their money is being spent wisely. Second, it reduces the chance that one church scandal will contaminate the entire community. Members can state that their church isn’t like the one with the scandal and back that up with data.
One study found that “giving rates within the Catholic Church varied in proportion to transparency and accountability” and almost half of respondents to another said they’d be more generous “if [they] understood better what the church does with its money.”[34]
At a time when churches nationwide are scrambling for members, wise financial stewardship is a nice selling feature. Your church might be more generous in helping the less fortunate than other churches in your neighborhood, but without universal 990s, how would anyone know?
Conclusion
Our situation is a little like that of the food industry in the U.S. in the late 1800s. Milk was sometimes diluted with water infused with chalk or plaster to cut costs. Pepper was sometimes diluted with charred rope or dirt. Formaldehyde and borax were food preservatives. Some food dyes contained lead or arsenic, and so on.[35] The food industry was constrained by few laws, and they encouraged politicians to keep it that way.
The food industry was in bed with politicians in the late 1800s, and church leaders are in bed with politicians today. Filing 990s might be embarrassing, so politicians removed that little problem for their friends. Churches and politicians (with some exceptions) like the status quo.
The food industry liked the status quo, too, but with the Pure Food and Drug Act of 1906, there was a new sheriff in town. Adulterating or mislabeling food and drugs had become a crime. The food industry and politicians, who would theoretically be responsible for identifying and solving the problem, were actually part of the problem. The industry couldn’t be trusted to police itself. Change came after citizens woke to the problem and demanded change. Press about the science behind the problem plus exposés like Upton Sinclair’s The Jungle (1904) made the difference.
That’s the lesson for financial transparency today. Trusting churches to police themselves doesn’t work, and change apparently won’t come through church leadership, who have assured politicians that the exemption is a political third rail. Maybe they can eventually be cajoled to do the right thing, but they won’t be leading the charge. Change will come after citizens see the problem and demand change. Better: Christians, we need you to see the problem and demand change.
There are many beneficiaries from financial transparency. Not only are typical Christians the biggest winners from this change—by opening church finances that had looked suspicious—they’re the ones with the power. Politicians will listen to them.
At the turn of the twentieth century, we needed new science to build the case for food safety. Today, we don’t need anything new to make the case for financial transparency, since the case is obvious to anyone interested enough to look for it. What we need is a critical mass of Christians demanding change.
My Christian friends, raise this topic with others in your congregation. Forward them this article. Write a letter to the editor. Complain to your congressperson. Do something to make this an important topic of conversation.
Don’t look to church leadership to do it for you. This is your fight, and you’ll be the beneficiary.
Sunlight is said to be the best of disinfectants;
electric light the most efficient policeman.
— Future SCOTUS Justice Louis Brandeis
.
Acknowledgement: I found a law journal article particular helpful, both for the authority of its comments on constitutionality and its extensive research: “The Law and Financial Transparency in Churches: Reconsidering the Form 990 Exemption” by John Montague.
[1] John Montague, “The Law and Financial Transparency in Churches: Reconsidering the Form 990 Exemption,” Cardozo Law Review 35, no. 203 (2013): 232.
[2] Veronica Dagher, “Trust in the Lord…But Check Out the Church,” Wall Street Journal, May 7, 2012.
[3] “Status of Global Mission, 2014,” International Bulletin of Missionary Research 38, no. 1, see item 56 (Ecclesiastical crime).
[4] Montague, 236.
[5] Libby Anne, “The Harvest Bible Chapel Scandal in a Nutshell (And Why You Should Care),” Love, Joy, Feminism blog, February 20, 2019.
[6] Montague, 218.
[7] Montague, 218.
[8] Libby Anne.
[9] Montague, 238.
[10] Montague, 222–3.
[11] Montague, 230.
[12] 1 John 5:18; see also 1 John 3:6–9.
[13] John Burnett, “Can A Television Network Be A Church? The IRS Says Yes,” NPR, April 1, 2014.
[14] Husna Haq, “Pastor reportedly buys his way onto New York Times bestseller list,” The Christian Science Monitor, March 7, 2014.
[15] Washington Post, “Televangelist wants his followers to pay for a $54-million private jet. It would be his fourth plane,” Los Angeles Times, May 29, 2018.
[16] “Thirty Leading Religious Broadcasters,” NPR, April 1, 2014.
[17] Leonardo Blair, “Growing Fraud Sucks Billions From Churches Annually; This IRS Fix Could Help, Expert Says,” The Christian Post, August 12, 2018.
[18] Montague, 213, 224, and 229.
[19] Montague, 256.
[20] John Burnett.
[21] Montague, 206.
[22] Montague, 254–5.
[23] Montague, 255.
[24] Dylan Matthews, “You give religions more than $82.5 billion a year,” The Washington Post, August 22, 2013.
[25] Freedom From Religion Foundation, “FFRF sues IRS over preferential treatment of churches,” Freethought Today, Jan/Feb 2013.
[26] Montague, 252.
[27] John Burnett.
[28] “Scientology and law,” Wikipedia: The Free Encyclopedia, Wikimedia Foundation, Inc.
[29] Annie Laurie Gaylor, “To avoid another Jonestown, reform IRS church reporting policy,” Freethought Now!, November 19, 2018.
[30] “Tax Guide for Churches & Religious Organizations,” IRS Publication 1828, 2015.
[31] “ ‘Churches’ Defined,” IRS.
[32] “Tax-Exempt Status for Your Organization,” IRS publication 557, 2018.
[33] Montague, 243–4.
[34] Montague, 247–8.
[35] Ari Shapiro, “How A 19th Century Chemist Took On The Food Industry With A Grisly Experiment,” NPR, October 8, 2018.
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