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Richard Hammar is editor of Church Treasurer Alert! and Church Law and Tax Report, both CT sister publications. An expert on church law and tax, Hammar has written more than 100 books for churches and clergy. CT associate editor Rob Moll e-mailed Hammar about the Senate Finance Committee's investigation into the spending practices of six churches.

Why would the Senate Finance Committee be interested in the finances of these six churches? How unusual is this step?

Senator Grassley's letter to the six religious ministries pits the constitutional protection of religious liberty against the legitimate interest of the federal government in ensuring that religious organizations are in compliance with the tax code. Section 501(c)(3) of the tax code exempts public charities, including religious organizations, from federal taxation so long as they comply with five requirements. One of those requirements is that the charity does not pay unreasonable compensation. This is the main concern that Senator Grassley is addressing. Let me add that another requirement of section 501(c)(3) is that public charities may not intervene in political campaigns. This limitation clearly applies to religious organizations, and all attempts to challenge its constitutionality have failed.

Congress has broad authority under the Constitution to "make all laws which shall be necessary and proper" for carrying out the powers "vested by the Constitution in the government of the United States or in any department or officer thereof." Implicit in the power to make laws is the power to conduct investigations to determine the need for legislation, and it is in this context that Senator Grassley issued his request for financial information. Senator Grassley has stated that his sole purpose is to ensure that these six large ministries, that receive a substantial amount of charitable contributions, are operating consistently with the law. Most if not all of them are exempt from filing the annual information return (Form 990) that most other tax-exempt charities must file with the IRS. As a result, the IRS has very little information concerning them.

Certainly, at some point, a Senate investigation may cross the line from gathering information to harassment, but the location of that line is not clear. You must balance the constitutional protection afforded churches on the one hand, and the legitimate interest of the government in ensuring compliance with the tax code on the other.

I believe that a good analogy is the Church Audit Procedures Act. This federal legislation balances the constitutional rights of religious organizations against the legitimate needs of government by permitting IRS audits of churches under carefully prescribed limitations. This approach has worked well for 20 years, and I think it provides a basis for evaluating Senator Grassley's letter. We can recognize that Congress has a right to gather information concerning religious organizations' compliance with the tax code, but this right must be limited in order to protect the constitutional guaranty of religious freedom. The limitations spelled out in the Church Audit Procedures Act provide a useful roadmap.

Any attempt by Congress to obtain financial information from religious organizations raises concerns. The constitution treats churches differently than Wal-Mart. It guarantees religious freedom. At some point, a congressional investigation into the finances of religious organizations may cross the line from a legitimate request for information to ensure compliance with the law, to an abridgement of religious freedom.

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November (Web-only) 2007, Vol. 51