Holy Loopholes: Why It’s Time to Tax Religious Entities and Unaccountable Nonprofits

Holy Loopholes: Why It’s Time to Tax Religious Entities and Unaccountable Nonprofits

“The measure of a society is found in how it treats its weakest members… not how it protects its richest institutions.” — Adapted from Hubert H. Humphrey

The Sacred and the Untaxed

In the United States, more than 1.8 million organizations enjoy tax-exempt status under section 501(c)(3) of the Internal Revenue Code. This includes charities, educational institutions, humanitarian nonprofits, and religious organizations—some of which generate billions in annual revenue.

While many of these organizations provide meaningful services, a growing number operate like corporations—only without the corporate tax bill or oversight. This loophole costs U.S. taxpayers an estimated $80 billion annually in lost federal revenue.

It’s time to ask a hard question:

Should organizations that act like businesses—but brand themselves as nonprofits—continue to receive tax immunity without transparency?

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The Rise of Religious Wealth

Religious institutions across a wide spectrum of faiths enjoy automatic 501(c)(3) status. This includes Christian megachurches, Islamic foundations, Jewish federations, Mormon temples, and even the Church of Scientology. Unlike traditional charities, these organizations are not required to file annual financial disclosures with the IRS, making them uniquely opaque.

• Lakewood Church in Houston grosses an estimated $89 million per year in donations.

• Kenneth Copeland Ministries has been investigated for owning private jets and multiple luxury homes.

• The Church of Scientology, after years of IRS litigation and lobbying, received controversial tax-exempt status in 1993.

• The Church of Jesus Christ of Latter-day Saints (LDS) was revealed in a 2019 whistleblower complaint to be holding over $100 billion in investment funds under a charitable cover.

• Some Islamic charity networks have faced U.S. scrutiny for allegedly funneling funds to extremist-linked entities under humanitarian pretenses.

• Certain Jewish religious charities and property trusts have drawn criticism for acquiring vast tax-free real estate holdings in urban areas like New York without clear public reporting.

These organizations, while diverse in theology, share a common benefit: nonprofit status without transparency. Their exemption from property taxes alone costs local governments billions.

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NGOs: Non-Governmental, Often Non-Accountable

International NGOs often operate in conflict or crisis zones where accountability is difficult. Many perform admirable work, but others have been accused of:

• Fraudulent fundraising

• Excessive executive compensation

• Minimal aid delivery despite large donations

Without transparent audits or performance metrics, donor dollars can too easily be diverted into administrative bloat or misused for political or personal gain.

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The Cost of Holy Immunity

The tax-exempt status of religious organizations and NGOs carries a tangible burden:

• Religious exemptions cost the U.S. an estimated $26 billion annually.

• Some engage in political lobbying, real estate speculation, or product sales—all tax-free.

• In cities like New York and Los Angeles, religious real estate holdings shrink the taxable property base, driving up costs for residents and burdening local infrastructure.

Why should a church-owned commercial building or a religious bookstore avoid taxes while a neighborhood café can’t?

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Evidence of Abuse: When Nonprofits Become Financial Vehicles

There is growing documentation that 501(c)(3)s are sometimes misused for financial crimes:

• Money Laundering: According to AML Watcher, shell charities are often used to hide illicit funds.

• Dark Money in Politics: The Brennan Center shows how politicians have raised millions post-election through anonymous nonprofit channels.

• Terrorist Financing: The SAAR Foundation was raided in a federal investigation for laundering money to extremist organizations.

• Public Corruption: In San Francisco, Collective Impact, a nonprofit, was suspended after misusing public funds to cover a city official’s family expenses.

Even though the IRS prohibits political activity or personal benefit under 501(c)(3) rules, enforcement is rare, and penalties are limited.

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A Modest Proposal: Audit or Pay Flat

Not all nonprofits are corrupt—but wealth and opacity should come with responsibility. Here’s a fair policy proposal:

• Impose a flat 10% federal tax on any 501(c)(3) earning more than $5 million in non-charitable revenue.

• Mandate biennial audits for religious or humanitarian orgs grossing over $10 million.

• Require a public dashboard for executive salaries, program impact, and revenue transparency.

• Noncompliance = loss of tax-exempt status and reclassification as a taxable entity.

This would not burden soup kitchens or shelters—it would bring oversight to the wealthiest tax-privileged institutions.

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Fairness Isn’t Persecution—It’s Protection

Critics may argue that taxing religious institutions violates religious freedom. But this isn’t about beliefs—it’s about finances.

• Worship is protected. Wealth isn’t.

• Legitimate charities already embrace transparency.

• This proposal protects ethical organizations from being tarnished by the unethical few.

Tax exemption should be a civic reward for verifiable public good—not an automatic privilege for any entity claiming moral authority.

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Render Unto Caesar

In an era of skyrocketing inequality, crumbling infrastructure, and public underfunding, we can no longer afford blind trust in untouchable institutions.

Let churches preach. Let nonprofits heal. But let them do it accountably, transparently, and ethically.

It’s time we ended the holy loophole—and made every institution earning millions from public generosity answerable to the people footing the bill.

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References

1. IRS Publication 557 – Tax-Exempt Status for Your Organization

2. U.S. Government Accountability Office – “Tax Exempt Sector: Increasing Transparency” (GAO-14-454)

3. Nonprofit Quarterly – “The $80 Billion Tax Loophole” (2021)

4. National Center for Charitable Statistics – Data on 1.8M active nonprofits

5. Houston Chronicle – “Inside Lakewood Church’s $90 Million Budget” (2017)

6. Trinity Foundation – Investigations into televangelist wealth

7. Brennan Center for Justice – “Politicians Using Nonprofits to Cloak Post-Election Spending” (2023)

8. AML Watcher – “How Charities Are Used for Money Laundering” (2022)

9. Wikipedia – “SAAR Foundation” federal investigation summary

10. San Francisco Chronicle – “Nonprofit Suspended for Questionable Payments” (2024)

11. Harvard Kennedy School – “Tax Expenditures and Religious Institutions”

12. Urban Institute – “Religious Property and Housing Inequality in Urban Centers” (2020)

13. Washington Post – “Mormon Church Amassed $100 Billion Investment Fund” (2019)

14. New York Times – “How Scientology Persuaded the IRS to Call It a Church” (1997)

15. CNN – “Charity Linked to Islamic Group Indicted for Financing Terrorist Organizations” (2004)

16. ProPublica – “New York’s Real Estate Tax Breaks and Jewish Religious Land Holdings” (2021)