FROM THE SACRED TO PROFANE: RELIGIOUS ORGANIZATIONS IN THE TAX COURT

Ahmed Ebrahim
Michael Coyne
Fairfield University

ABSTRACT

The main goal of this study is to analyze and classify taxation issues litigated in the court
system that involve tax-exempt religious organizations. The study highlights the main arguments
presented by religious organizations, governmental taxation authorities and the general tendency
of court rulings. The study will not focus on pure non-tax constitutional issues such as separation
of church and state and the establishment clause under the first amendment. Rather, the study will
focus on” court disputes” related to different types of taxes. The issues highlighted and discussed
include (but are not limited to) the following: (1) The exemption of the religious organization when
the Internal Revenue Service (IRS) denies its initial application or revokes a previously granted one,
(2) Imposing income tax on a tax-exempt religious organization when part of its income is deemed
unrelated to its mission and taxable under the Unrelated Business Taxable Income (UBTI) rules,
(3) Court rulings on self-employment tax exemption granted to “ministers” and religious workers
and rulings on taxpayers’ refusal to pay income taxes based on religious beliefs and first amendment
rights such as their refusal to fight in/fund a war, and (4) Imposing a local sales tax on religious
organizations for “sales” deemed unrelated to their mission.

Keywords: Taxation, religious organization, tax exempt, IRS, UBTI