CRS Report for Congress
Special Provisions for Religion in the Tax Code
Marie B. Morris
Legislative Attorney
American Law Division
Scattered throughout the Internal Revenue Code are special provisions designed to
accommodate either religious organizations or the beliefs and practices of the members
of those organizations. This short report lists a number of code sections which contain
exemptions or special treatment for religion.
This report lists a number of tax provisions which accommodate religious groups in
a special way. There is no attempt to analyze these provisions, other than to briefly note
the special treatment. Most of these provisions do not depend on the particular beliefs of
the church or religious organization, but they provide special treatment for churches,
ministers, or religious organizations. The provisions are organized according to whether
they benefit clergy, churches, or other religious groups. Of course, some provisions
benefit more than one of these groups, and some benefit non-religious groups.
There is no statutory definition of a church in the Internal Revenue Code, although
for purposes of the code section relating to audits of churches, 26 U.S.C. § 7611, a church
is defined as “any organization claiming to be a church.” The Internal Revenue Service
has some internal criteria that it uses to determine whether or not an organization is
actually a church for purposes of determining tax-exempt status.1

Although the Internal Revenue Service applies a neutral approach to religious1
organizations, the terms “church” and “minister” are often used in the statute and the
regulations. The terms “church” and “minister”are interpreted broadly and encompass
non-Christian religions and religious leaders.
In an to attempt to define “church,” the Internal Revenue Service has announced
fourteen criteria which it uses as requirements for an organization to constitute a church
for federal tax purposes.
Congressional Research Service ˜ The Library of Congress

The two principal income tax benefits for churches are their tax-exempt status and
their eligibility to receive deductible contributions. Churches or a convention or
association of churches are eligible to receive tax-deductible charitable contributions (26
U.S.C. §§ 170(c), 2055, 2522) and organizations organized and operated exclusively for
religious purposes are eligible for exemption from income taxes (26 U.S.C. § 501(c)(3)).
Churches generally must withhold income and FICA taxes on their non-clergy employees,
but churches which are opposed to FICA taxes for religious reasons may elect out of
FICA coverage (26 U.S.C. § 3121(w)). Churches, certain church-related organizations,
and certain religious elementary and secondary schools are exempt from federal
unemployment taxes (26 U.S.C. §§ 3306(c)(8) and 3309(b)).
Unlike most tax-exempt organizations, churches, their integrated auxiliaries, and
conventions or associations of churches and the exclusively religious activities of any

(1) a distinct legal existence;
(2) a recognized creed and form of worship;
(3) a definite and distinct ecclesiastical government;
(4) a formal code of doctrine and discipline;
(5) a distinct religious history;
(6) a membership not associated with any other church or denomination;
(7) an organization of ordained ministers;
(8) ordained ministers selected after completing prescribed studies;
(9) a literature of its own;
(10) established places of worship;
(11) regular congregations;
(12) regular religious services;
(13) Sunday schools for religious instruction of the young; and
(14) schools for the preparation of its ministers.
According to General Counsel Memorandum [GCM] 38699, dated April 23, 1981,
the Internal Revenue Service first used these 14 criteria in connection with a ruling to
determine whether the Salvation Army was a church for purposes of the charitable
contribution deduction. Rev. Rul. 59-129, 1959-1 C.B. 58, was published in digest form,
and the ruling did not set out the criteria. As of the date of GCM 38699, according to the
GCM, the General Counsel's office had resisted publishing the criteria either as a revenue
ruling or in the Internal Revenue Manual "out of concern for the potential prejudice to
various mail order church cases under consideration by the Tax Division of the
Department of Justice. It was feared that the Service would be the subject of criticism for
attempting to define the term 'church,' and that the criteria could be interpreted as
providing a safe harbor for mail order churches." The GCM recommended that the criteria
be published in the Internal Revenue Manual because they would be helpful to agents who
are required to make determinations about church status.
The specific guidelines were published in the Internal Revenue Manual, IRM 7(10)

69 HB 321.3 in a transmittal dated April 5, 1982.

religious order are not required to file annual tax returns (26 U.S.C. § 6033(a)) or returns
regarding liquidation or dissolution (26 U.S.C. § 6043(b)).
The Internal Revenue Service must observe certain special procedures before
beginning, and during, any inquiry or examination of a church's exempt status or obligation
to pay taxes under 26 U.S.C. § 7611.
There are numerous provisions scattered throughout the Internal Revenue Code,
including 26 U.S.C. §§ 401-457, 4975, 4980B, 4980D, 6057, and 9802(c), which exempt
church plans from provisions of the Internal Revenue Code governing qualified retirement
and employee benefit plans. There are also counterpart provisions of many of these
provisions in title 29 of the U.S. Code.
There are also numerous provisions exempting churches from various provisions of
the unrelated business income tax on exempt organizations and the tax on debt-financed
acquisitions in 26 U.S.C. §§ 511-514.
Special Religious Groups
Certain religious organizations have rules which prevent their individual members
from being holders of private property. Some of these organizations own property and
conduct business in the corporate form for the common benefit of their members. Section
501(d) permits these organizations to be exempt from tax providing the members of the
organization include a pro rata share of the organization's income in their individual gross
incomes. This essentially treats the organization as if it were a partnership. The
organizations cannot qualify for the 501(c)(3) exemption because they are not considered
to be operated exclusively for religious purposes (26 U.S.C. § 501(d)).
Similarly, members of recognized religious sects who are adherents of established
tenets of the sect who are conscientiously opposed to accepting the benefits of any public
or private insurance for old age, death, disability, retirement, or medical care may be
exempted from paying self-employment taxes (26 U.S.C. § 1402(g)).
A related provision, enacted in 1988, provides that employers who qualify for
exemption under section 1402(g) who have employees who are also members of the same
sect who have filed applications for exemption from the application of FICA taxes to
themselves on the same grounds may be exempt from the employer share of FICA taxes
on those employees, and it also exempts the employees from the employees' share of FICA
taxes (26 U.S.C. § 3127).
Members of the clergy are subject to income and self-employment taxes, and there
are special tax provisions for them in both statutes. By statute, services performed by "a
duly ordained, commissioned, or licensed minister of a church or a member of a religious
order" are covered under the Self Employment Contributions Act [SECA]. Internal
Revenue Code [IRC] § 1402(a)(8). Ministers, members of religious orders, and Christian
Science practitioners who are conscientiously opposed to accepting the benefits of any
public insurance which pays benefits for old-age, death, disability, medical care, or

retirement, may be exempted from payment of self-employment taxes (26 U.S.C. §
1402(e)). They must follow certain procedures for making an irrevocable election out of
the SECA system. Clergy are not subject to FICA (Social Security) unless they are
employees of an organization other than a church. SECA taxes are roughly twice as high
as FICA taxes because the worker pays the full amount of the tax, rather than sharing the
cost with the employer.
For purposes of the income tax, clergy may exclude the value of living quarters or a
rental allowance furnished as part of their compensation from their gross income (26
U.S.C. § 107). The regulations require that the parsonage allowance be furnished in
exchange for services such as the performance of sacerdotal functions, the conduct of
religious worship, the administration and maintenance of religious organizations, and the
performance of teaching and administrative duties at theological seminaries. There are
revenue rulings, e.g., Rev. Rul. 58-221, 1958-1 CB 53, and Rev. Rul. 78-301, 1978-2 CB
103, which state that persons of the Jewish faith, including rabbis and cantors, who
perform the types of duties listed above are included within the statutory term "ministers
of the gospel."
Income tax withholding is not required on salaries for services performed by duly
ordained, commissioned, or licensed ministers of a church in the exercise of their ministry
or on members of religious orders in the exercise of duties required by the order (26
U.S.C. § 3401(a)(9)). Clergy are not covered by unemployment compensation (26 U.S.C.
§ 3309(b)).