NYtimes: Taxing an Unfriendly Church

Editorial

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Published: November 22, 2005
Shortly before the last election, a former rector at All Saints Episcopal Church in Pasadena, Calif., gave a fiery antipoverty and antiwar sermon. He did not endorse a presidential candidate, but he criticized President Bush's policies in Iraq and at home. Now the Internal Revenue Service has challenged the church's tax-exempt status. It's important to know just how the tax police have chosen this church - and other congregations - to pursue after an election that energized churchgoers of most denominations.
I.R.S. officials have said about 20 churches are being investigated for activities across the political spectrum that could jeopardize their tax status. The agency is barred by law from revealing which churches, but officials have said these targets were chosen by a team of civil servants, not political appointees, at the Treasury Department. The I.R.S. argues that freedom of religion does not grant freedom from taxes if churches engage in politics.
That should mean that the 2004 presidential campaign would be an extremely fertile field. While some churches allowed Democrats to speak from the pulpit, the conservative Christians last year mounted an especially intense - and successful - drive to keep President Bush in office. Some issued voter guides that pointedly showed how their own religion was allied with Mr. Bush's views. Several Roman Catholic bishops even suggested that a vote for John Kerry would be a mortal sin. Since the election, Republicans have held two openly political nationally televised revival meetings at churches to support Mr. Bush's judicial nominations.
If the I.R.S. is pursuing any of those churches, we certainly have not heard from them about it. All Saints in Pasadena has released copies of the letter from the I.R.S., along with tapes of the sermon and a defense of the church's antiwar mission going back to the days when church leaders protested internment of Japanese-Americans during World War II. The I.R.S. letter stated that the agency had "concerns" about a sermon by the Rev. George Regas that The Los Angeles Times called "a searing indictment of the Bush administration's policies in Iraq."
Church leaders have hired lawyers and refused to agree to a settlement that requires them to admit that the sermon was over the line drawn by the I.R.S. The Rev. J. Edwin Bacon, the rector of All Saints, told parishioners that the church would continue to resist the government's efforts. That sounds right. With the feverish courting of religious voters these days, the I.R.S. does have the daunting task of separating politics from church policy. Still, it would seem to be hard to justify picking on a church that has a long record of opposition to wars waged by leaders from both parties.

Senate's Tax Bill Includes Incentives for Charity Gifts

November 22, 2005

By LYNNLEY BROWNING

The tax bill passed by the Senate last week includes several provisions to encourage giving to charities and could lead to a significant increase in donations.
The bill would add tax breaks for people who make small charitable contributions and for those who want to donate directly from their individual retirement accounts.
The Senate measure would have to be reconciled with the House's tax bill, which is now under consideration and lacks any substantial provisions on charitable giving.
Under the Senate bill, people who do not itemize deductions on their federal income tax returns would for the first time be able to deduct the amount they gave if it exceeded certain thresholds. The minimum would be $210 for individuals and $410 for married couples.
Taxpayers must now itemize, instead of taking the standard deduction, if they want a tax break for their gifts.
The provision would last two years and could increase charitable giving by $1 billion a year at little cost to the government, said Patrick Lester, director of public policy for the United Way of America, the nation's largest charitable organization.
"This is by far the most important provision" in the Senate tax bill, Mr. Lester said, adding that he was particularly pleased there was no maximum amount that could be donated tax free.
Because lower-income taxpayers are less likely to itemize, the provision could prompt charitable giving to nonprofit organizations like churches and soup kitchens.
Another provision in the Senate bill would make it possible for taxpayers who reach age 70 1/2 and who have not yet fully tapped into their individual retirement accounts to make tax-free donations to charities straight from the accounts. Taxpayers must now cash out of their accounts and pay taxes on the amount withdrawn before making donations.
The provision could lead to several billion dollars of additional charitable giving a year, according to estimates by the Congressional Joint Committee on Taxation. But it would cost the Treasury some $914 million a year in lost taxes.
Universities and nonprofit hospitals are expected to benefit the most from such a measure.
The Senate also intends to curb some abuses of the rules on charitable giving. The Internal Revenue Service has said that tax dodges through nonprofit organizations are the fastest-growing type of tax crime. The bill would make tax-exempt organizations liable for penalties if they participated directly or indirectly in prohibited tax shelters. A typical abuse involves a charity's temporarily holding taxable assets owned by a commercial entity.
Curbing abuses with life insurance contracts is another goal of the legislation. It would levy an excise tax, equal to the acquisition cost of the insurance contract, on any buyer of a contract that is then used partly to benefit a charity.
The Senate is hoping to clamp down on donor-advised funds, which are set up by individuals, families or businesses to make contributions to specific charities. Such funds have been a source of abuse, with some supporting lavish travel and other improper perks by family members.
C. Eugene Steuerle, a tax policy analyst at the nonpartisan Urban Institute, a research organization in Washington, said yesterday that the Senate tax bill was unusual in that it both "expands incentives and cuts back on abuses."
The combination, Mr. Steuerle said, "has ended up to be a fairly good one."