There are two main tax exemptions which churches benefit from in the US. The first is that donation are tax deductible for taxpayers that itemize their deductions. The second is that any income from investments is also tax free. This is the case for any 503b non-profit organization in the US, not strictly for churches. For example, if you local youth soccer program was a 503b the interest from their bank account isn’t taxed.
If a 503B puts its money into Microsoft stock, the profits that Microsoft makes are taxed. The capital gains the 503B gets wouldn’t get taxed when the stock was sold.
The main argument in the article, not fully stated, is that the Mormon Church doesn’t do enough beneficial works to qualify as a 503b. In the US, Churches are granted 503b status without specific reviews of their societal benefit. If you want to pay someone to operate a homeless shelter or ding a bell all day to prevent the end of times, it is all the same. This is part of separation of church and state as laid out in the constitution. If there was a specific review the State could “put its thumb” on the scales and favor some churches over others in granting non-profit status.
Churches, just like the local soccer club don’t have the same distribution requirements that a donor controlled 503b would have. For example if you are a billionaire and donate $1B of your appreciated stock to your donor directed fund you need to distribute 5% per year on charitable works to keep the 503b status. The article implies that the same requirement should apply to the Mormon Church that applies to a donor directed fund. This line of reasoning is incorrect.
A donor directed fund has substantially no other affiliated activity that has to be considered. This is more like Harvard’s endowment where there is a school controls the fund. In the case of Harvard, if the fund didn’t distribute anything in a year there still would be substantial educational work and research going on. In the case of a donor directed non-profit nothing would be happening. The Mormon Church argues that it operates more like Harvard and that the whistleblower did not have access to the larger organizations finances.
All global churches right now are facing a demographic cliff as wealthy nations are increasingly secular while most religions growth is in developing countries. In most cases Churches transfer a large amount of donations from wealthy countries like the US to less wealthy ones like Nigeria. In another 50 years many of those transfers will cease to be significant unless there is a religious revival in wealthier markets or a significant deviation in the number of children religious families have relative to the overall population in these countries. It is likely that many churches will need to wind down financial activities to be more aligned with the demographics.
> For example if you are a billionaire and donate $1B of your appreciated stock to your donor directed fund you need to distribute 5% per year on charitable works to keep the 503b status
This is the dirty little secret of billionaires' private foundations. That 5% has a lot of latitude and little oversight. For example, it includes administrative costs. A private foundation can pay each family member a salary (allowance) and that's a valid cost against the 5%.
As for the Mormon church (or any church for that matter) non-profits aren't meant to be politically active, as in campaigning for a particular party of candidate. We all know this happens all the time..
I'd be fine with keeping tax-deductability for contributions to complying non-profits. But why do they get to enjoy tax free status on, say, investment gains? Or income from investments (including property they own)? Get rid of that and I think a lot of problems go away.
In the case of religious organizations a lot of their assets weren’t purchased primarily as investments. Most religious organizations largest assets are in real estate sitting under their churches. The real estate may have appreciated over 100 years but taxing a church on “gains” when the building needs to be moved to make way for an office building isn’t generally what people think of as investment gains.
The same can be said for most charitable organizations. The community food pantry being taxed if it moves across town or simply trying to keep the rainy day fund even with inflation.
If a person is of the view that all good things come from the government then taxing charities makes a lot of sense. If, on the other hand a person believes that all good things originate from the people and that the government is just one of those good things it makes sense to allow room for other things that serve the people’s interests but don’t directly serve the governments interests.
I am certainly not saying that bad things don’t come from religious organizations, charities or the government. I am saying there is a belief in the US that power ultimately resides with the people. Actually with the people, not the government or through the government as representatives of the people.
> This is the dirty little secret of billionaires' private foundations. That 5% has a lot of latitude and little oversight. For example, it includes administrative costs. A private foundation can pay each family member a salary (allowance) and that's a valid cost against the 5%.
Here's an example of a 503(c)(3) organisation (in politics often referred to as "dark money" organisations due to their lack of need to report the identities of individual donors) putting a family member on the payroll:
There's also the "buy from myself" tactic which possibly isn't that important for the Mormon Church but can certainly be used to boost apparent popularity or to change the format of money:
If a 503B puts its money into Microsoft stock, the profits that Microsoft makes are taxed. The capital gains the 503B gets wouldn’t get taxed when the stock was sold.
The main argument in the article, not fully stated, is that the Mormon Church doesn’t do enough beneficial works to qualify as a 503b. In the US, Churches are granted 503b status without specific reviews of their societal benefit. If you want to pay someone to operate a homeless shelter or ding a bell all day to prevent the end of times, it is all the same. This is part of separation of church and state as laid out in the constitution. If there was a specific review the State could “put its thumb” on the scales and favor some churches over others in granting non-profit status.
Churches, just like the local soccer club don’t have the same distribution requirements that a donor controlled 503b would have. For example if you are a billionaire and donate $1B of your appreciated stock to your donor directed fund you need to distribute 5% per year on charitable works to keep the 503b status. The article implies that the same requirement should apply to the Mormon Church that applies to a donor directed fund. This line of reasoning is incorrect.
A donor directed fund has substantially no other affiliated activity that has to be considered. This is more like Harvard’s endowment where there is a school controls the fund. In the case of Harvard, if the fund didn’t distribute anything in a year there still would be substantial educational work and research going on. In the case of a donor directed non-profit nothing would be happening. The Mormon Church argues that it operates more like Harvard and that the whistleblower did not have access to the larger organizations finances.
All global churches right now are facing a demographic cliff as wealthy nations are increasingly secular while most religions growth is in developing countries. In most cases Churches transfer a large amount of donations from wealthy countries like the US to less wealthy ones like Nigeria. In another 50 years many of those transfers will cease to be significant unless there is a religious revival in wealthier markets or a significant deviation in the number of children religious families have relative to the overall population in these countries. It is likely that many churches will need to wind down financial activities to be more aligned with the demographics.