Vol. XXIII - Issue I Jan/Mar 2016
The History of Tax-Exemption in America
By Dr. Greg J. Dixon
Unregistered Baptist Fellowship – Paducah, KY – Oct. 19-21, 2015
The very title of this message is proof that something has gone awry with the religious clause of the First Amendment of the Constitution for the United States of America which says: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof…;”
First you notice that this originally meant to apply only to the federal jurisdiction, Washington, D.C. and its territories, not the states. Next it was to restrict Congress, which was the law making agency for that area of government. Then this right was to be inalienable, which means that it is a natural right, unalterable, unchangeable by law (Congress) “NO law”. Only “We the People” can change it by amendment, through the amending process, not through the Supreme Court, Presidential Executive Orders, or any other alphabet soup agency of government. The next word we see is the subject of this amendment which is “religion”. The original intent of the word “religion” according to the “Annals of Congress,” meant the various denominations within the Christian religion such as Anglican, Presbyterian, Congregational, Methodist, etc. They also considered independent bodies such as Baptists, Quakers, and Catholics etc. to be within the meaning of the word Denomination also. If any other religion was extant at that time, even the Muslim religion, they would still be given freedom in the federal jurisdiction, according to John Adams, of course there were none at that time, so he was safe. So the first part of the Amendment restricted Congress from enacting any laws against “religion.” Now the second part restricts Congress from prohibiting “religion’s” advancement anywhere in the federal jurisdiction. “Or prohibiting the free exercise thereof…” This means that the gospel can be preached anywhere, at any time, at any place. Later each state adopted the same wording in their state constitutions, eliminating where necessary State Religion.
No Religious Test
The other area of the Constitution dealing with religion is within the main text itself at Article VI, Paragraph 3. “…no religious test shall ever be required as a qualification to any office or public trust under the United States.” You will notice that this pertains to the office itself, not to the voting public. Those who go into the voting booth can use any criteria they wish, including the color of the candidate’s hair.
It has been reported, that as Ben Franklin was leaving the Constitutional Convention, a lady approached him and said, ”Mr. Franklin, what have you given us? Franklin replied, “A Republic, if you can keep it.” Thomas Jefferson said, “Eternal Vigilance” is the price of freedom.” Obviously, the American people became caught up with such a time of peace and prosperity after the Revolutionary War that they forgot to be vigilant. Since then there has been a constant erosion of our liberties. One of the first to forget was the Church Denominations, who sold out almost immediately for their “mess of pottage.” The first of them was the Anglican Church. At this time Corporations were in such disdain among the freedom loving American’s that they had to get permission either from the National Congress or state legislatures to form a corporation. Shortly after the founding of our fledgling Nation, the Anglican Church wanted to incorporate in the federal district, so they petitioned Congress, who was all too happy to accommodate, apparently forgetting the First Amendment. But James Madison, the Father of the Constitution and Co-Drafter of the Bill of Rights, who was now President, would have none of this, when it came to his desk to sign, on Feb. 21, 1811 he wrote to the House of Representatives the following words: “Having examined and considered the bill entitled ‘An act incorporating the Protestant Episcopal Church of Alexandria, in the District of Columbia,’ I now return the bill to the House of Representatives…” He went on to explain that the law would be superfluous because of the First Amendment. Madison also vetoed a bill that would have granted land to a Baptist church in Mississippi. Other Baptists wrote to him at the time thanking him for taking that stand! Madison responded to the Baptists with these words, “Among the various Religious Societies in our Country, none have been more vigilant or constant in maintaining that distinction, than the Society which you make a part, that you are as ready to do so, in a case favoring your brethren, as in other cases.”
The fact that a church calling itself a New Testament church would accept tax-exemption is proof in itself that all understanding of the First Amendment and the Religious Liberty clauses of the various states have either been lost or misunderstood.
According to Black’s Law Dictionary 4th edition EXEMPTION is a “Freedom from a general duty or service: immunity from a general burden, tax, or charge.” This means of course that churches either filing for or accepting tax-exemption is asking for a privilege that others in the community cannot have, therefore creating class strife and animosity against the churches by many. They are also admitting that the taxing authority is greater than Christ who is the Lord over the church, hence denying the central doctrine of the church, which is the Lordship of Christ (Matt. 28:18-20; Eph. 5:23). Neither is the church “immune” from taxes. The word “immune” means – “Exempt; protected by inoculation.” The Lord’s church is non-taxable.
Early Baptists Understood this Principal
The following is taken from Baptists and the American Tradition by Robert C Newman, Regular Baptist Press, Des Plaines, Illinois.
“Pressures upon the New England Bible commonwealth forced gradual changes in their peculiar form of church-State union. Civil magistrates continued to enforce both tables of the law, which meant the regulations of the religious as well as the civil life of the populace. The magistrates were considered the ‘nursing fathers to the church,’ and as such, they could pass and enforce legislation for tax support of Congregationalism. They could not alter the church’s beliefs and worship, a hated memory of the old days in England. But taxation for church support and the trial of heretics were within their domain. Not until 1728 did Puritan New England exempt Baptists, Anglicans and Quakers from taxation for support of the Standing Order.” Page 24, paragraph 1.
“Being a strong Baptist and an independent, he (Isaac Backus) took care to ascertain beforehand whether or not the Association would wield any control over his local congregation.” Page 33, paragraph 3.
“Religious taxation was the main issue. Backus was the alert leader in this long controversy. He resorted to newspaper attacks against the proposed Constitution for its failure to eliminate taxation to support congregationalism. He was also opposed to tax exemption for the Baptists.
“Backus was a man of principle. He did not simply contest tax support for the established church, but tax support of any religious body.” Page 32, paragraphs 1 and 2.
In the pamphlet, [Backus] describes punishments, imprisonments and other assorted persecutions directed at various Separates and Separate-Baptists on the part of the New England oligarchy.” Page 36, paragraph 2.
“In 1783 [Backus] wrote A Door Opened for Christian Liberty. In it, he related the persecution of Richard Lee.” Page 36, paragraph 3.
“. . . [Backus] argues that the Head of the Church is Christ and, since there is no earthly head, then to impose one is unbiblical. . . since the above is true, then a government should not govern in religious affairs . . . [Backus] maintained that the ‘end of civil government is the good of the governed.’ Page 37, paragraph 1.
Corporate Churches Cannot Claim to be the Lord’s churches
In the landmark case Hale vs. Henkel, 201 U.S. 43 at 74 (1906), the U.S. Supreme Court stated the following regarding corporations:
“Upon the other hand, the corporation is a creature of the State. It is presumed to be incorporated for the benefit of the public. It receives certain special privileges and franchises, and holds them subject to the laws of the State and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation.”
Continuing with Hale vs. Henkel, 201 U.S. 74-75 (1906) the Court also stated regarding corporations:
“There is a clear distinction in this, particularly between an individual and a corporation, and that the latter has no right to refuse to submit its books and papers for examination at the suit of the State. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation vested with certain privileges and franchises may refuse to show its hand when charged with an abuse of such privileges.” Pastor Sileven Ramsey learned this the hard way when he was the pastor of the Faith Baptist Church in Louisville, NE, in 1982. However for protection, privileges and provisions, all church denominations were incorporated by the mid nineteenth century.
The Supreme Court Destroys the First Amendment
In 1878 (Reynolds v U.S. the Court established for the first time the doctrine that one can believe whatever they wish, but they can’t practice their faith. This is contrary to scripture, the Apostle James said, “Even so faith, if it hath not works, is dead, being alone.” And then in 1963 the Warren Court established the conglomerated “Excessive Entanglement doctrine” in Sherbert v Verner. “In absence of a compelling state interest the government must come up with a means that least burdens religion.” Most of the time this is a joke. These decisions are mere accommodations for the government to tolerate corporate religion, not for churches operating under the original intent of the First Amendment.
The Chronology of Tax Exemption
- In 1864 Congress enacted a 6% tax on the value of real estate bestowed on trusts for charitable or public purposes. This is the first time that such language appeared distinguishing “charitable or public purposes.” Congress repealed this and other such taxes in 1870. This law was the precursor of the tax-exempt status for charitable purposes. However, the first income taxes imposed in 1861 didn’t apply to corporations, so there was no need for a special tax-exempt status for charitable organizations yet.
- In 1872 Congress clarified the earlier Act of 1870 by expanding the meaning of the term “charitable” to include “benevolent” and “religious,” making the gift tax exemption of 1870 to extend to non-profit organizations with religious objectives. The list of eligible organizations now includes associations, trustees, societies, and corporations. Please note that we have the word association and societies as referring to religion mentioned for the first time in the tax code. Congress also allows the income tax begun in 1861 to expire after 1871.
- In 1894 Congress enacts the next income tax, and in Section 32 they included corporations. The fourth paragraph of this section contained the next exempt mechanism which included corporations, companies, or associations organized and conducted solely for “charitable, religious, or educational purposes.” This Act was the first to establish a tax on corporations and the first to set categories for exempt organizations. In 1895 the Supreme Court found this tax unconstitutional in the now famous Pollock v. Farmer’s Loan and Trust Co. case.
- In 1909 Congress enacted a special excise tax on doing business by corporations as a halfway measure while waiting the ratification of the 16th Amendment. Section 38 established a condition on the tax-exempt status by adding, “no part of the net income of which inures to the benefit of any private stockholder or individual” after the word “purposes,” This principle becomes the standard for the future and still remains so today. In that this is a corporate tax, no personal deductions for contributions appears at this time.
- In 1913 the 16th Amendment was purportedly ratified, and Congress enacted the income tax in 1916 which, in one form or another, is still with us today. Besides a tax on personal income, this law also included corporations, joint-stock companies or associations, and every insurance company. But the concept of the tax exempt organization was retained, which included any corporation or association organized and operated exclusively for religious, charitable, scientific, or educational purposes. We now have a fourth category of exempt status – “scientific.” Also the statement above concerning inurement was retained. However, no tax deduction for contributions to these tax-exempt organizations had been established yet.
- In 1917 shortly after the start of WWI, Congress passed the War Revenue Act. This Act began the personal deduction for charitable contributions and included corporations and associations organized and operated exclusively for each of the four purposes mentioned above with the addition of “the prevention of cruelty to children or animals.” Up to 15% of the taxpayer’s taxable net income could be deducted, but only if verified under rules and regulations prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury.
- In 1918 Congress proposed the Revenue Act of 1918 – so named but not passed until 1919 – which included all four of the above mentioned organizations for exemption and specifically added those organizations which existed for the purpose of the prevention of cruelty to children or animals. So the IRS made a rule the year before to include these groups without any authorization from Congress. Today the IRS calls this activity “rules and procedures” and treats them as fixed law with the same power as if authorized by Congress. Is it also not interesting that we now have a law enacted by the Congress of the U.S. that declares children and animals to have the same legal standing. Obviously the theory of evolution is in high gear by now as official public policy. Another interesting thing about this Act is that “associations” are dropped from the language of both provisions, leaving only “corporations.” However this had no practical effect on the exemption process in that the Act defined “associations” as virtually a “corporation”. This is very important. (See Sec. 508 of the IRC). Another change in this Act allowed Trusts to also donate to these tax-exempt organizations at the same 15% limitation.
- In 1921 Congress made several changes to the exemption and deduction provisions of the Act by adding four new categories for the benefit of tax-exempt gifts which were for “literary purposes, community chests, funds, and foundations.” Another change was to allow contributions “for the use of” tax-exempt organizations, rather than only “to” them.
- In 1924 Congress added “educational trusts” to the list of exempt organizations.
- In 1934 an important change was made by establishing an additional qualification for tax-exempt status and contributions to them. “This change made…the deduction for contributions to an organization a substantial part of whose activities is participation in partisan politics or in carrying on propaganda, or otherwise attempting to influence legislation.” The reason for this Revenue Act, according to its proponents in Congress, was to close loopholes which would result in raising an additional $258 million in otherwise “avoided taxes”.
On April 2, 1934 Senator Harrison of Mississippi gave the following reason for adding this condition:
I may say to the Senate that the attention of the Senate committee was called to the fact that there are certain organizations which are receiving contributions in order to influence legislation and carry on propaganda. The committee thought there ought to be an amendment which would stop that.
- In 1935 Congress made an addition to the law which allowed a deduction for charitable contributions by corporations. —>
- In 1936 Section 101(6) was changed to Section 501(c) (3) of the IRC.
- In 1954 an important change was implemented by Congress, which originated in the Senate from the floor rather than in the committee on Finance. On July 2nd, then-Senator Lyndon B. Johnson offered an amendment to Sec. 501(c)(3). L.B.J. believed a private foundation was indirectly contributing to the campaign of one of his political opponents. His amendment added “and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office” directly after the earlier prohibition against influencing legislation. In 1987, the parenthetical phrase “(or in opposition to)” was inserted after “on behalf of.” The effect is clear, the new prohibition against campaigning is stricter than the old one against influencing legislation. The latter prohibits any amount of influence in the political arena, while the former allows a rather uncertain “substantial part”. However they are still using this “substantial part” test today, which shows that they are leaving themselves some wiggle room in the matter of revoking tax-exemptions. Congress also added yet another organization to their stable of State non-taxable entities which now includes “testing for public safety.”
- In 1962 a case that was decided in the Southern District of California (Morey v. Riddell) said that a deduction for contributions to a church should not be denied on the basis that the church “has no distinctive identifying name; that it has no written charter, constitution, by-laws, or operational guide other than the Holy Bible; that it has no permanent headquarters; that it does not maintain comprehensive records; and that its funds are not held in a bank account designated as the church account.” The reason for this is that the church fell within the IRS guide lines as an “unincorporated association” and political activity was not at issue.
- In 1978 IRS director Jerome Kurtz gave a speech in the State of New York in which he gave the 14 point criteria to define a church, and officially established an IRS State Church in America. They are now included in IRS Publication 1828. They are as follows: CHURCH-A distinct legal existence; A recognized creed and form of worship; A formal code of doctrine and discipline; A definite and distinct ecclesiastical government; A distinct religious history; Ordained ministers after completing a prescribed courses of study; A literature of its own; Established places of worship; Regular congregations; Religious services; Sunday schools for the religious instructions of the young; Schools for the preparation of its ministers. A church would have to meet a substantial number of these to receive tax exemptions and not for profit gifts.
- In 1983 Congress passed the Federal Insurance Contributions Act, which required all churches, which are exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code, to pay FICA (Social Security Taxes) on all employees who receive $100 or more in a calendar year. Later Congress amended the Act to allow an exemption to churches that had never paid the tax.
- May 1995 the IRS officially removes the Tax Exempt status of the Indianapolis Baptist Temple. Through discovery in US v IBT we found that the IRS had been keeping a file on public statements and sermons that Pastor Greg J. Dixon had been preaching that had made the news print in Indianapolis since 1971. Following is a partial list of titles that was given for the removal of the exemption by the IRS.
Below are captions from articles taken from the Indianapolis Star and News (partial list):
Baptist High School to stress Bible – 1971
Rev. Dixon fights day care License – 1978
Church Plans tech school – 1978
Pornography target of downtown rally attended by 1000 – 1981
Rev. Dixon opposes lottery Bill – 1983
Churches to fight encroachment – 1983
State tax laws may collide with church – Dixon – 1985
Group to obey Jesus, not government – 1986
Dixon opposes Gov. Orr on schools – 1987
Gays urge panel to include them in anti-bias bill; it was opposed by Rev Greg Dixon – 1990
People need to understand that the above articles come within the IRS guidelines of political activity.
- Tither Denied Deduction Because Church was not 501(c)(3)
Raul Rivera – May 6, 2014 04:03AM
When Mr. Taylor was informed that his tax deductions were denied, he was surprised, having been told by his counsel that a church did not have to have 501(c)(3) status in order for him to get a write-off. He had given $8,647.00 to his church only to discover that these donations were not tax-deductible. Yet, he felt the IRS was wrong to deny his deductions since he had given them to a church, even if the church did not have official 501(c)(3) status. In his argument to the court, he stated that section 508(c)(1)(A) declares that churches are automatically exempt and that they do not have to comply with all of the requirements of section 501(c)(3). Therefore, he should be able to give to his church and still get a tax deduction. The court disagreed.
What it means for churches
The entire basis of Mr. Taylor’s argument was that a church was automatically exempt and therefore not required to meet the requirements of section 501(c)(3). This is an argument that has circulated the Internet and has wrought terrible repercussions. The court made it clear that in order for a person to get a tax deduction for his or her giving to a church, the organization must meet the requirements of section 501(c)(3). The court maintained that nothing in the law “. . . relieves a church from having to meet the requirements of section 501(c)(3).” It further declared that ” . . . contributors must prove the church’s right to an exemption under section 501(c)(3) in order to be entitled to a deduction for their contributions.” Because Mr. Taylor was not able to prove that his church had 501(c)(3) status (JACK LANE TAYLOR, v. COMMISSIONER OF INTERNAL REVENUE), his donations were not tax-deductible.
Imagine having to prove you deserve the deduction
Under current settled law a church that does not have 501(c) (3) status is allowed to receive tithes and offerings and give tax-deductible contribution receipts to its donors. However, the donors must be aware that the guarantee that the IRS will honor the receipt is not 100%. The reason it is not guaranteed is because section 170(c) gives clear details that the organization must operate in a manner that is consistent with section 501(c) (3). This means that in the absence of the church’s official 501(c) (3) status, the donor must bear the burden of proving that his or her donation is tax-deductible by showing that the church meets all of the requirements of section 501(c) (3).
- 1995 – The Church at Pierce Creek had their tax-exemption officially removed for running full page ads in many newspapers nationally in 1992 headlined: CHRISTIANS BEWARE warning them against voting for Bill Clinton for President. The IRS said that they violated their 501 (c) (3) charter by involving themselves in “Partisan Politics”
- 1999 (Jan. 19) – Fed. Dist. Judge Sara E. Barker, by Supreme Ct. guidelines on the First Amendment, ruled that the Indianapolis Baptist Temple could believe but not practice their faith in US v IBT (Gregory A. Dixon, Pastor/Trustee)
- 2000 (Aug. 14) – 7th Circuit Court of Appeals ruled that it made no difference what entity IBT was, it must pay all taxes due upholding the decision of the District Court. Supreme. Court. refused to hear the case.
- Feb. 13, 2001 Federal Marshals raided the Indianapolis Baptist Temple in Indianapolis, Indiana for not filing Form 8274 or paying the tax after the Federal District Court ruled that the church, which she admitted was not incorporated at the time the taxes were assessed by the IRS still owed the taxes. The court also found that the IRS had assessed the taxes to a defunct corporation with a defunct ID number. The 7th Circuit admitted the same but said it made no difference. The Supreme Court refused to hear the case. The church property was turned over to a receiver and sold to satisfy the tax liability of $6 million.
- 1998 Oct. Secret White House Meeting To Eliminate all Uncooperative Churches
Texe Marrs, Director of Power of Prophecy Ministries in Austin, Texas, and Larry Klayman of Judicial Watch in Washington, D.C. have both reported on a secret meeting held at the White House in late October 1998 to eliminate all uncooperative churches in America. There is no doubt that this is somehow connected to the above report coming out of the UN. Marrs wrote his report in the August 2000 Power of Prophecy Newsletter. A partial report may also be read in the July/August 2001 Trumpet mentioned above.
This secret meeting convened at the request of the Clinton administration, and included officials from the UN, the U.S. State Department, Reno Justice, FBI, Customs Service, Treasury and chief White House aides. And not to be left out was the head of the IRS’s Exempt Organizations Division that monitors and controls the finances and operations of the approximately 750,000 churches in America, plus over 10,000 conservative organizations. The purpose of the meeting was to devise a diabolical plan classified as “Top Secret” called “Operation D.” At this meeting the Five Pronged Attack was outlined to accomplish this Satanic mission. It included the Financial Power of the IRS, International Pressures using the Treaty Powers of the UN, the Investigative and Intelligence Forces of the FBI, CIA, and NSA (National Security Agency), the Judicial and Prosecutorial Assets of the US Justice Department and Federal Courts, and Congressional Legislation. It is interesting to many informed observers that all five of these spokes of this wicked plan was used to confiscate the property of the Indianapolis Baptist Temple on February 13, 2001. In fact, the U.S. Justice Department tried to recruit a member of IBT to be an inside informer as to the activities of the church. For a full report, contact Power of Prophecy Ministries, 1708 Patterson Rd, Austin, TX 78733 or www.texemarrs.com.
- 2000 – In US v Indianapolis Baptist Temple – U.S. Attorney Robert Metzger, in oral arguments before the 7th Circuit (May 11, 2000) said that “an uncontrolled church is untenable in society today”, which is really the crux of the case and shows that the issue had nothing to do with taxes, but everything to do with control of the pastors and churches of America.
- Also after admitting that IBT properly disengaged from being a 501(c) (3) organization the 7th Circuit ruled, “…it does not matter what sort of entity IBT is. Whatever it is, it must comply with federal employment tax laws.”
- January 22, 2001 – US v Greater Ministries
- IRS agent Melvin Blough testified in federal court that once a church obtains the status of 501(c)(3) under the IRS code, they are trapped. The only way to be removed from a 501(c)(3) status is if the IRS chooses to remove the status. So if you dissolve the corporation and continue on as ABC church an unincorporated church, you’re still trapped in their web and under their control.
- Conclusion: The Biblical Law Center uses a Declaration of Trust to organize and reorganize churches to take advantage of their First amendment rights and to declare their New Testament Status, that they are not an IRS legal entity.