Thursday, November 8, 2012

The Accountability Gap

Here are a few facts:
  • In 2010, total charitable giving in the US was over $290 Billion.
  • Of that amount, an estimated $29 Billion, or 10%, went to churches.
  • The IRS requires virtually all charities to file a "Form 990" (or variant thereof) on an annual basis.  The filing provides disclosures about an organization’s revenue sources and how its funds were spent.  Further, each organization is required to make their Form 990 available to the public.  There is one notable exception: churches (which encompasses houses of worship broadly) are not required to provide this information.
  • The IRS also places limits on political activities of charitable organizations.  However, the IRS has all but shut down its enforcement of these requirements for churches. 

How does one interpret these facts?  The rules put in place by the IRS are there to ensure nonprofits are transparent and accountable to donors.  Since donations to these organizations are also deductible for the purposes of donors’ taxes, the requirements are also in place to protect taxpayers (who indirectly subsidize the organizations).  Despite the important role the rules play, it has been decided that churches don’t need such accountability.  This is, of course, likely due to concerns that the requirements would create the appearance that the IRS is meddling in religion.  Regardless of whether the concerns or the response to them is reasonable, this does mean there is a notable accountability gap, covering at least 10% of charitable giving.  Many religious denominations have tried to fill the gap by placing their own requirements on recordkeeping of individual churches under their auspices, but certainly not all.  For now, then, we are left with little data on which to evaluate the relative financial efficiency of different churches.

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