Mormonism in the Internal Revenue Code

Whenever possible on April 15, I like to put together a quick post about some Mormon-related trivia from the tax world. This year’s edition: church financial disclosure.

In brief: tax-exempt organizations by definition don’t pay taxes. Prior to 1943, they also didn’t file any tax returns—they were pretty much entirely outside of the tax regime. That changed with the Revenue Act of 1943, which required tax-exempt organizations to file annual information returns. Broadly speaking, those returns lay out the sources of the organization’s income and where it spends that money.[fn1]

The return-filing requirement continues today, in largely (though not entirely) the same form. And, in marked contrast with most tax returns, the law requires tax-exempt organizations’ returns to be made available for public inspection. (If you want to inspect some, sign up for a free account here and have at it.) 

There have been a couple exceptions to this information return-filing requirement, though, including one notable one: churches.

Actually, I should be a little more specific: from 1943 until 1969, “religious organizations” were exempt from the filing requirement. In 1969, Congress decided it needed more information about tax-exempt organizations, including churches. So, in its version of the Tax Reform Act of 1969, the House of Representatives eliminated the filing exemption for religious organizations.

The House’s bill shocked churches into action; they started to lobby the Senate to preserve their historic exemption from filing. Among others, the United States Catholic Conference and Ernest Wilkinson testified in the Senate about the deleterious consequences of eliminating the exemption.

But Wilkinson’s testimony isn’t my Mormon hook here: it’s far better than that. The church lobbying effort was mostly successful: the Senate didn’t follow the House in repealing the filing exemption for churches. But it was not fully successful—the Senate narrowed the exemption fairly significantly.

Rather than an exemption for “religious organizations,” Tax Reform Act of 1969 preserved the exemption for “churches, their integrated auxiliaries, and conventions or associations of churches.”

What is an “integrated auxiliary”? It isn’t a legal term of art; it has no established meaning in civil or ecclesiastical law. The best we have are the Treasury regulations, which define an integrated auxiliary as a tax-exempt organization that is affiliated with a church that does not offer goods or services to the general public.[fn2]

So where do the words “integrated auxiliaries” come from?

Senator Wallace Bennett of Utah.

Senator Bennett was concerned that Mormon church auxiliaries (like the Relief Society and the Mutual Improvement Associations) wouldn’t qualify as churches or conventions or associations of churches. So he added the word “auxiliaries” to the legislation, to preserve the filing exemption for various Mormon church-related organizations.

(And where did “integrated” come from? It’s not completely clear—“integrated auxiliaries” is not a Mormon phrase, and it doesn’t appear to be related to any other religion, either. Best guess? It may have been inserted by the Senate Finance Committee to ensure that any auxiliary that was exempted from the filing requirement have a tight enough connection to a church.)[fn3]

(Adapted loosely from a minor point in my article “The Present, Past, and Future of LDS Financial Transparency” in the Spring 2015 volume of Dialogue.)

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[fn1] Section 117(a), if you’re interest in looking.

[fn2] Treas. Reg. § 1.6033-2(h)(1) (as amended in 2011).

[fn3] A lot of the legislative history of integrated auxiliary comes from Charles M. Whelan, ‘Church’ in the Internal Revenue Code: The Definitional Problems, 45 Ford. L. Rev. 885, 914 (1977).