Churches under US tax law benefit from tax-exempt status, minimal reporting obligations, and broad latitude in how they define their missions. The policy rationale is that religious organizations serve a public good that warrants public support.
But that doesn’t hold water when the presumed public good turns out to be obvious private luxury.
In Community Worship Fellowship v. United States, the US Court of Federal Claims upheld the IRS’s decision to revoke a church’s 501(c)(3) status after nearly all of its donations were channeled into the founding family’s personal expenses.
Remarkably, the court found no genuine issue of material fact and granted summary judgment to the government. The court apparently saw all the Prada handbags, boat payments, Disneyland vacations, and family home renovations and decided it had seen enough.
To qualify for tax-exempt status, an organization must operate exclusively for exempt purposes, and no part of its earnings can inure to the benefit of private individuals. Inurement isn’t a matter of degree; it’s an on-off switch.
Community Worship Fellowship flipped that switch with gusto. Of the roughly $1.08 million the church spent from 2013 to 2016, $933,000 went to the founding family. The payments were made through handwritten checks, reimbursements, and use of the church’s credit card—which was managed by the founder and his wife.
This case underscores structural weaknesses in how the federal tax code treats religious nonprofits. The IRS doesn’t routinely audit churches without specific, high-level approval. And unlike secular charities, churches aren’t required to file annual Form 990s. Without meaningful oversight, enforcement generally doesn’t come until abuse becomes egregious and undeniable.
The takeaway from Community Worship Fellowship isn’t that the system worked. Rather, the system had to be broken for any safeguards to kick in.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined Zohran Mamdani’s New York City mayoral election victory, the Washington digital ad tax, and more.
The Exchange—It’s where great ideas on tax and accounting intersect.
Insights
Ireland Enhances Tax System to Boost Multinational Investment
The Irish government is keen to implement tax policies aimed at attracting and retaining inward investment in the country while still meeting its OECD and EU commitments.
Sidelining IRS’s Criminal Tax Counsel Would Harm Taxpayers
A plan to reduce the role of the IRS Criminal Tax Counsel’s office in tax prosecutions risks losing the “devil’s advocate” perspective in criminal tax cases.
IRS Vow to Amp Up Audits Puts Tax-Exempt Entities in Crosshairs
Criminal investigations of tax-exempt entities aren’t new. What is new, however, is the perceived emphasis on using them as the primary method of investigation instead of the civil examination process that tax practitioners are most accustomed to.
Mamdani Win to Bring Tax Shift to New York’s Wealthy, Businesses
The proposed tax policies of NYC’s mayor-elect should prompt businesses and wealthy city residents to establish a risk factor for exposure, such as individual and corporate tax surcharges, real estate, and employment costs.
Digital Ad Tax Isn’t How Washington Should Modernize State Code
Washington’s attempt to modernize its state sales tax is a noble goal, but doing so will hurt state businesses—and violates fundamental principles of sound sales tax policy.
UN’s Public Transfer Pricing Database Faces Serious Roadblocks
Vested interests and questions of sovereignty seem likely to undermine the United Nations’ efforts to eliminate information asymmetries in transfer pricing.
Columnist Corner
A Pennsylvania proposal to tax and regulate skill games is questionably timed given the state’s budget shortfall, Andrew Leahey says in his latest Technically Speaking column, writing that “it appears the regulatory scaffolding was built around the fee, not the other way around.”
Pennsylvania should first establish the infrastructure for skill games and ensure the industry operates with transparency and accountability before trying to collect revenue from it, Andrew argues. Read More
News Roundup
IRS Moves to Boost Tax Software After Industry Lobbying Push
The Trump administration is moving toward working more closely with tax preparation companies as Republicans look to wind down the Biden-era Direct File program, the Treasury Department wrote in a long-expected report to Congress.
Rollbacks of Tax Rules to Take Back Seat to Guidance for New Law
Ambitious Treasury Department and IRS plans to roll back tax regulations that business doesn’t like could stall as the agencies tackle rules implementing the huge GOP tax law and deal with government-shutdown hiccups.
Canada Sets Up Big Changes for Company Affiliate-Pricing Rules
Canadian tax professionals see a future with more tax disputes and probably higher tax bills under rules the government proposed this week strengthening its power to decide if a company’s affiliate transaction pricing is out of line.
Texas Voters Ban Future Capital Gains, Stock Transaction Taxes
Voters in tax-averse Texas closed off any possibility of the state taxing capital gains or securities transactions, ahead of the opening of the Texas Stock Exchange next year.
Tax Management International Journal
Liberty Global Reflects a Continuing Decline of Regulatory Weight
Courts are trending toward setting regulations aside and making determinations based on statutory interpretation alone.
Safe Harbors: Is the Arm’s Length Principle Losing Its Grip?
While the full arm’s length principle is reserved for complex, high-stakes cases, safe harbors can be deployed for routine fact patterns.
Career Moves
Charles Russell Speechlys Brings Romanoff to London Tax Team
Vadim Romanoff joined Charles Russell Speechlys as a partner in its corporate tax and incentives team in London, the firm announced Monday.
Dentons Taps Jochem Calis as Tax Partner in Amsterdam Office
Jochem Calis joined Dentons as a partner in its tax practice in Amsterdam, the firm announced Monday.
White & Case Adds Two Partners to Global Tax Practice in London
Arun Birla and Jiten Tank joined White & Case as partners in its global tax practice in London, the firm announced Tuesday.
Weil Adds Partner to Transactional Tax Practice in Los Angeles
Josh McLane joined Weil, Gotshal & Manges as a partner in its transactional tax practice in Los Angeles, the firm announced Tuesday.
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