I keep seeing this “get rid of tax exemptions for Churches and Non-Profits” all over Facebook. Its mostly backlash from the Same Sex Marriage debate. But what of this whole tax-exempt thing? Is it something we need to get rid of?
Let’s start by talking about what a non-profit organization is. To make this easier to process we will call Churches non-profits. Churches fall under the non-profit heading when it comes to paying taxes. They might have other special protections afforded them by the US Constitution, but for tax purposes they are non-profits.
A non-profit organization is one where it has no specified owners. Owners being shareholders that own pieces of the equity in the organization. From an accounting standpoint, Owners Equity is not accounted for since it does not exist.
All other types of businesses have an owner of one form or another. Whether that business is making or losing money it’s the owners that ultimately receive the benefit or detriment of the business. Non-profit organizations don’t pass on excess income on to a shareholder base and if they fail, their assets are applied to their central, tax exempt purpose.
What purpose does non-profits serve?
There are certain guarantees that are made by declaring an organization tax exempt. They must meet certain standards set out by the IRS to ensure they are not mismanaging their funds and lining the pockets of for-profit people. The IRS states:
The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency. IRS – Exempt Purposes
Without these protections and guarantees non-profits would be required to work within the bounds of regular for-profit businesses.
For Profit Restrictions
For-profit businesses have owners and those owners have a lot of rights when it comes to the assets of a company. A large charity with millions in its coffers could have its owners dissolve the company and pocket the cash with no obligation to the donators or their money’s intended beneficiaries.
Involvement in Politics
People of like minds tend to gather to groups they agree with. Whether that be churches, charities or other non-profit organizations the people that support them tend to be more homogeneous than a random selection of population. It is not surprising that the groups would parrot back the ideas of the group and vice versa. Either way, it doesn’t matter. The US Constitution guarantees freedom of speech to everyone, including organized groups of people. It has no bearing on the taxes they pay.
Do we get rid of non-profit organizations?
No, they fulfill the purpose to which they were created and they avoid paying taxes if they meet the exempt reasoning in the US Tax Code. I do not see a compelling reason to get rid of them, political or otherwise.
Update 3/1/2014: It seems an Atheist group filed against the IRS for unequal treatment under the law. After reviewing their arguments, I agree with their assessment and think that the Application fee and the 990 forms should be removed from all non-profits.