In the U.S. food industry in the late 1800s, dairy producers sometimes cut costs by diluting milk with water mixed with chalk or plaster. Pepper was sometimes cut with charred rope or dirt. Formaldehyde and borax were food preservatives. Some food dyes contained lead or arsenic. The food industry was constrained by few laws, and they encouraged politicians to keep it that way.
With the Pure Food and Drug Act of 1906, there was a new sheriff in town. Adulterating or mislabeling food and drugs had become a crime. The food industry and politicians, who would theoretically be responsible for identifying and solving the problem, were the problem. The industry couldn’t be trusted to police itself. The problem was addressed only after citizens woke up to the problem and demanded change.
We find a rough parallel with an ongoing problem today, church scandals like the recent financial and sexual scandal at Hillsong church. Before that, there were scandals involving Harvest Bible Chapel, Ravi Zacharias, and Mars Hill Church. Before that, Ted Haggard, Kent Hovind, Jimmy Swaggart, and Jim Bakker. It’s a long list.
Many of these scandals are financial—embezzlement, payment of hush money, and so on—and there is a simple and effective way to give the public a glimpse into church finances to spot small problems before they become large scandals. It’s the IRS 990 form.
Nonprofit organizations in the U.S. make a contract: society allows donations to be tax-deductible, and in return those organizations make a summary of their financial records public to show that they used that income wisely. Every nonprofit submits an annual IRS 990 to make its cash flow public—every nonprofit, that is, except churches.
In the same way that the food industry was in bed with politicians in the late 1800s, church leaders are in bed with politicians today. The disclosures in 990s might be embarrassing for churches, so politicians make sure that the exemption stays in place for their friends.
Today, a researcher can use sites like Foundation Center, Charity Navigator, or the IRS itself to bring up financial data on any nonprofit in seconds. For example, we can look up the latest 990 for Pat Robertson’s Christian Broadcasting Network. Income, expenses, assets, and the salaries of the key employees—it’s all there. In 2019, it had $290 million in total revenue and $147 million in total assets, and Pat Robertson’s salary was $578,464.
It’s ridiculous to imagine that all church financial scandals are behind us. Fortunately, we have a simple solution: the IRS 990 form has been around for 75 years, it’s tuned for large and small nonprofits, and filing one annually should be mandatory for all of them.
Not only is this exemption unfair, it makes churches look like they have something to hide. Given past financial scandals, some do, but this secrecy makes most churches look undeservedly bad. Christians should demand that this exemption be removed. This change would improve the reputation of American churches at a time when a little reputation polishing would be welcome.
11 reasons to remove the church exemption for filing the IRS 990
1. The status quo is embarrassing. Keeping church financial records closed is a PR black eye. It looks like churches have something to hide. And while some churches do hide behind this secrecy, opening the books will benefit the majority who are good financial stewards.
2. If God sees the finances, why not all of us? An omnipotent God can see the finances. Given the many scandals that still plague churches, some people apparently need more than just God looking over their shoulder. If the ultimate judge sees how they spend their money, why not open up to the citizens who are providing churches’ tax-exempt status?
3. The Bible insists on financial openness. Being fair should be instinctive for churches, but if extra encouragement is needed, the Bible agrees. Paul said: “We want to avoid any criticism of the way we administer this liberal gift [of money]. For we are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes of man” (2 Corinthians 8:20–21).
4. Transparency discourages impropriety. A 990 doesn’t provide all financial information—it’s not the same as the balance sheet—but it’s much more than most churches provide now. It lets any parishioner double-check the big financial picture. Anyone with access to a church’s money needs to feel that they can justify any expense.
5. Transparency is fair to taxpayers. How much does tax-exempt status benefit the church? Parishioners deduct church donations. Churches don’t pay real estate tax. In the U.S., it all adds up to $82.5 billion per year. Revealing how that money was spent would at least say thank you. It would also (finally) be fair to the other nonprofits who have been transparent for decades.
Christians can defer to church leadership on spiritual matters, but ordinary citizens shouldn’t have to defer to church leadership on financial matters.
6. Nonprofit status should be as transparent as other contracts. When someone receives a patent, they have a short-term monopoly for the idea in return for making the details of the invention public. And when a church is granted tax-exempt status, that should be in return for making their basic financials public.
7. Transparency is honest to parishioners. While all American taxpayers subsidize religion, it’s the church members themselves who directly fund churches ($124 billion annually). Pushed in part by the expensive child abuse settlements in Catholic parishes, many members want more transparency.
To take another church example, Daystar is a Christian television network with more than $200 million in assets. About their expenditures, one experienced nonprofit analyst said, “Daystar needs to tell people that only about 5 percent of their contributions are going toward hospitals, churches, needy individuals.”
Whether five percent is a lot or a little is for the donors to decide, but they can’t decide if that information is secret.
8. What are other churches hiding? The IRS exemption for churches conceals more than just bad Christian churches. Wouldn’t it be interesting to get a look at Scientology’s cash flow? Or groups like the Unification Church (“Moonies”)? Could this have given law-enforcement leverage against cults like NXIVM?
The Freedom From Religion Foundation argued that financial secretiveness allowed Jim Jones to hide the early signs of the meltdown that led to the 1978 massacre of almost a thousand church members in Jonestown.
9. Try to make an argument for secrecy. Fill in the blank: “In our church/denomination, we want to maintain financial secrecy because ___.” Do you want to stand before the congregation and justify the explanation? Churches granted nonprofit status should be more financially transparent than the Mafia.
10. Church governance becomes easier with 990 access. Imagine a dysfunctional church where a bullying pastor shuts down criticism—like Mark Driscoll of Mars Hill in Seattle. A board member might want to see the books but be afraid of the pushback. Maybe they knew they’d get no support from other board members. Perhaps they feared for their reputation within the church, afraid of being labeled “unsubmissive” or “disloyal.” But with 990s publicly available, anyone—board members, parishioners, or local citizens—can see the financial basics.
11. Could more transparency mean more revenue? Peeking behind the curtain at a mismanaged church might mean loss of parishioners or smaller donations. But if parishioners donate in proportion to their confidence that the money will be wisely spent, donations might divert to those churches on the good side of the scale.
Transparency can also shield a church from a scandal in another church. Rather than get tarred with the same brush, a church with good stewardship can point to the data showing that they’re more wisely managed.
Seeing the other side of the issue
Now consider arguments for the opposite side of the issue. I don’t think these criticisms hold.
1. Churches are trustworthy. This was the logic behind the church exemption when it was put in place in 1943, but the steady flow of church scandals shows that that assumption was overly optimistic. We’re no longer surprised to read that Ken and Gloria Copeland live tax-free in a $6.3 million “parsonage,” and that Mark Driscoll spent $210,000 of tax-exempt church income to buy his way onto the New York Times bestseller list.
2. Let the churches decide if they want to disclose. In one list of America’s biggest evangelists, seven are religious nonprofits, and they all file 990s as required. The remaining 23 are churches, and none file 990s. 250,000 churches are registered with the IRS, and only two percent file 990s. Churches have been allowed to decide, and they decided to keep their records secret.
3. Mandatory disclosure violates the First Amendment. The First Amendment violation is actually in the other direction. The IRS’s 501(c)(3) category was created to encourage organizations, including churches, to do good within society. Giving churches an exemption from the reporting requirement is the violation. Churches aren’t a law unto themselves, and they must obey laws just like any other organization—laws about building codes, public safety, employee rights, and so on.
4. Filing a 990 is burdensome. Over a million nonprofits already fill out the 990 without complaint.
The 990 has been around for almost eighty years, and it’s evolved. The four-page 990-EZ is for nonprofits with less than $200,000 in revenue and the 990-N, basically a postcard, is for nonprofits with less than $50,000 in revenue.
5. The 990 is unnecessary, because our church provides information to our members. This doesn’t help the ordinary taxpayers filling in for lost tax revenue. In many congregations, access is provided only by request, but anonymous access to public records would be much easier.
6. The 990 is unnecessary because of the ECFA. The Evangelical Council for Financial Accountability was created in 1979. Member organizations make a limited financial disclosure to the ECFA (not to the public), and ECFA membership provides a public seal of approval.
Problem 1: Fewer than one church in a thousand belongs to the ECFA. Problem 2: We already have the 990, so why invent something new? The unsurprising answer is that the ECFA reveals less information. The ECFA is transparency with training wheels, not a preventative to scandals.
7. It’s not the government’s job to snoop into churches’ conduct. One defender of the status quo said, “Government should not be determining if a minister is living too lavishly. It’s not for the government to determine if someone really needs an airplane for their ministry. That’s just not something government should be getting into.”
But that’s never been the point of the 990. The 990 could allow the public to decide if a minister is living too lavishly (or if a church is otherwise spending its money foolishly).
Oversight of nonprofits is already crowdsourced to the public with mandatory 990 filings, a nice application of the “sunlight is the best disinfectant” principle. Extending this to include churches adds no bureaucracy. Just take IRS document “Instructions for Form 990” and remove the section titled “Certain religious organizations” from the list of exemptions. Easy.
8. Disclosure would embarrass some churches. Few megachurch leaders would admit this, but this is likely the real reason.
Conventional nonprofits file 990s, and publicly traded corporations file disclosures mandated by the Securities and Exchange Commission. These disclosures may invite uncomfortable questions, but openness is for the best. If a few churches need to scramble to clean up their acts before their finances become public, that’s a good thing.
Trusting churches to police themselves hasn’t worked, and change hasn’t come through church leadership, who have let politicians know that touching the exemption is a political third rail.
Change will come after citizens become frustrated with the problem and demand change. Better: Christians, we need you to see the problem and demand change. Ordinary Christians would be the biggest winners from removing this suspicious-looking exemption, and they have the political power to make it happen.
My Christian friends, raise this topic with others in your congregation. Forward them this article. Write a letter to the editor. Complain to your congressperson. Do something. Don’t look to church leadership to do it for you. This is your opportunity to change things for the better.
I am ready to meet my Maker.
Whether my Maker is prepared
for the great ordeal of meeting me
is another matter.
— Winston Churchill, on his 75th birthday
Acknowledgment: I found a law journal article helpful, both for the authority of its comments on constitutionality and its extensive research: “The Law and Financial Transparency in Churches: Reconsidering the Form 990 Exemption” by John Montague.