Thursday, July 24, 2008

God and Money - The Church and the IRS

A recent report heralded the fact that US donors gave more in private contributions this past year than ever before - over $300 billion. The people of the US are considered the most generous on the planet in their voluntary charitable giving (as opposed to what could be called involuntary giving, i.e. taxation!). We give more than double the amount of money (as measured by Gross Domestic Product)the people of the next most generous country give. Furthermore, the largest portion of that $300 billion goes to our houses of worship (referred to as churches by the IRS).

There are an estimated 350,000 churches in the US today and about half (the largest and most well established I suspect) opt to register themselves with the IRS. However, here is the first distinction from most other public charities - registering with the IRS is optional, not required - regardless of the church's size. For other public charities you must have less than $5,000 in gross receipts to be tax exempt without registering.

Then we get to the second and more troubling distinction. Every other type of public charity over $25,000 or more in annual gross receipts must file a report to the IRS (called a 990) every year. The churches are under no obligation to do so and the vast majority do not. In other words, over $100 billion dollars (that is an estimated amount, since we can not know for sure) was donated to churches last year and most do not report any information to the IRS on how much was taken in and what they did with the money. Doesn't that seem wrong?

We at Charity Navigator are able to rate charities based on the information provided on the IRS 990 forms. Since almost all churches do not file the form, it is impossible for us to evaluate over a third of the private contributions that go to charities. How can you as a donor be confident that your money is being spent for the purposes for which you gave it? We believe that, as with the public charities we rate, the vast majority of churches do the right thing. However, how are we as a society going to be able to hold to account those who are not doing right with the money we give? Given human nature, when this amount of money is involved, you better believe we have got some bad apples in the bunch.

Anyway, until such time as the laws change on this (some are predicting it will coincide with when pigs fly) we strongly encourage you who attend church to urge your religious leaders to opt in and file those 990s every year. We implore the church community as a whole to provide the transparency and accountability that is the hallmark of management best practices.

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