2007 Lane Reports

Tax Exemptions for Religion Break Against Business

Monday, January 1, 2007
by Marc J. Lane



In the Bill of Rights, James Madison and his brethren wisely proclaimed religious freedom and tolerance. Congress followed through by exempting religious organizations from federal income tax and delimiting the IRS' authority to audit religious congregations. But today, religious organizations escape tax charges other non-profits face, exploiting the taxpayer and gaining an unfair advantage over for-profit concerns with which they can commercially compete.

For example, Cook County rarely issues tax-exempt bonds for secular charities, let alone businesses. Yet recently, the county issued $28.5 million in tax-exempt bonds to fund the construction of the Catholic Theological Union's new academic center and another $8.5 million in tax-exempt bonds to build and equip athletic facilities at Bernard Zell Anshe Emet Day School.

What's more, religious organizations are regularly written out when taxes are imposed on businesses and even other non-profits, often for no good reason. Take the so-called "parsonage exemption." Ordained clergy members don't pay income tax on the fair rental value of their furnished homes, amounting to about one-third of their compensation, supposedly because the clergy is poorly paid and needs the subsidy to continue doing good work. But day-care workers or inner-city teachers get no such break. Instead, along with the rest of us, they pick up the tab, estimated in the current congressional budget records at $500 million a year.

The parsonage exemption isn't the only tax break enriching clergy members and their religious employers at the expense of others. Ministers of every faith have the legal right to opt out of Social Security if they conscientiously object to receiving public welfare benefits. About one in three ministers declines to participate, burdening the already fragile public retirement fund, but saving a 15.3% contribution to the system, effectively a raise in the same amount.

And 49 states -- Illinois among them -- give religious employers a pass on paying state unemployment contributions. Included in that pass are schools operated for a religious purpose even if they're not affiliated with any institution or denomination. The employers pocket the cash, but their employees are denied jobless benefits when they're let go, too often ending up on the public dole.

Houses of worship have also been granted exemption from local property taxes. But so have their religious organizations' fitness centers, their broadcast transmission towers, their biblical theme parks and the housing they provide teachers at church-run schools.

Religion should always be accommodated by government, but never favored. Let's urge our legislators to reform our tax laws and restore the balance.

This month's Lane Report is adapted from a guest editorial published in Crain's Chicago Business on December 4, 2006.



Marc J. Lane is the President of The Law Offices of Marc J. Lane, a Professional Corporation, and of its financial-services affiliates. He is a business and tax attorney, a Master Registered Financial Planner, and an Adjunct Professor of Law at Northwestern University School of Law.




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The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright © 2007 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.

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