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Critics of churches' favorable tax treatment gained ammunition from a recent investigation by National Public Radio, which questioned why the Internal Revenue Service (IRS) has granted church status to 22 of America's 30 largest television ministries.
Only two are accredited by the Evangelical Council for Financial Accountability. But such filings can be legitimate, said president Dan Busby. "The advent of new technologies used by churches to disseminate their message has only served to make distinctions between church and parachurch organizations more complex."
Many churches leverage today's technology so those beyond their walls can participate. But Christian legal experts are concerned that blurred lines between "church" and "ministry" will eventually spur the IRS to reexamine what constitutes a church. (The agency last stripped a nonprofit of church status in 2004, largely because the broadcasting- and publishing-focused group mostly ceased to gather its followers in a physical space.)
In late 2012, the Freedom From Religion Foundation sued the IRS, arguing that churches should be subject to the same Form 990 paperwork as nonprofits are. A Wisconsin federal court decided that the atheist group had legal standing to proceed.
If the foundation prevails, church formation may be stifled, said Chicago attorney Rich Baker. Few of the hundreds of churches he has represented have the financial resources to complete registration forms and audited financial statements.
"Each signals a greater degree of oversight," said Baker. "If they make churches file as charitable entities, it would have major repercussions."
A federal judge in Kentucky recently dismissed a similar lawsuit, ruling three atheist groups did not have standing. But the Wisconsin lawsuit is "of direct relevance to every church," warns legal adviser Richard Hammar. Form 990 is 12 pages long but can run to nearly 100, and includes disclosure of employee compensation, travel reimbursements, and charitable contributions from donors.
Legal experts say since Senator Charles Grassley (R-Iowa) completed his high-profile probe of televangelists in 2011, the federal government has been asking for more information.
Steve McFarland, chief legal officer for World Vision, said the forms now solicit so much information that they can potentially threaten religious liberty. "We're all for transparency," he said. "But you don't have to be a Chicken Little sort of person to be a bit concerned … where is this going to stop? Do we as a religious community want to continue answering ever-increasing questions?"
One underlying problem is that lawmakers have never defined the term church, said tax-law specialist Frank Sommerville. That means courts typically resort to a "duck" test to see if an organization "looks, acts, and quacks" like a church, he said.
The IRS has its own 14-point test for assessing churches. "Regular congregations" is the criteria most often cited in court. But Sommerville sees the essential of a physical gathering as no longer meaningful.
"When a church extends participation in its worship gatherings electronically, it is no less a church," he said. "The government is not free to claim that the organization loses its church status just because the electronic audience is bigger than the in-person audience."
Ministry Watch's Rusty Leonard advocates a middle road. The certified public accountant believes all churches should be required to disclose audited financial statements to the public—but not have to report them to the government. "This would go a long way toward cleaning up bad behavior," he said. "We could greatly improve things and keep the government out of the situation."