Law Professor Advocates Changing IRS Definition of Church & Association of Churches

If adopted, change could affect large Christian ministries.

A professor at the University of Notre Dame Law School, Lloyd Hitoshi Mayer, is advocating that Congress narrow the definition of church associations, a status that allows a nonprofit to avoid filing an informational Form 990 with the Internal Revenue Service (IRS).

Lloyd Hitoshi Mayer / University of Notre Dame staff photo

Over the last decade, an increasing number of Christian nonprofit organizations have applied for and been granted the association of church status by the IRS.

They include some of the nation’s largest Christian ministries, such as Focus on the Family, the Family Research Council, Cru, the Billy Graham Evangelistic Association, and Compassion International. The IRS does not publish a full list of entities that have qualified as associations of churches.

MinistryWatch has taken the position for several years that Christian ministries ought to file a Form 990 with the IRS, and that position is reflected in the scores they receive in the MinistryWatch 1000 Database.

An organization’s Form 990 includes important information, including annual revenue, salaries of key employees, names of board members and large contractors, and the amount of money the organization spends on its core mission.It also highlights how much it spends on administrative expenses and fundraising. This information is valuable to donors wanting to assess the effectiveness of a ministry.

The special status given to churches and association of churches is based on the protections of the First Amendment religion clauses.

Mayer told MinistryWatch the definitional issue came to his attention as the number of existing ministries successfully seeking to have the IRS reclassify them as a church or a convention or association of churches has grown.

He believes the original intent behind the definition of church associations was to protect groups that are associated with a church (like a church school) and are primarily funded by internal sources, not public funding.

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In addition, Mayer and his coauthor, Ellen P. Aprill, believe the IRS definitions of what constitutes a church has become outdated and thus bring a two-sided risk—that religious organizations that should not qualify will end up claiming that status, and that organizations that should qualify will not be able to claim it.

Currently, the IRS uses a 14-factor test to determine whether an entity fits the definition of a church or association of churches. The factors include: a definite and distinct ecclesiastical government, recognized creed and form of worship, distinct religious history, and regular religious services.

Mayer believes the current definition draws too heavily from the Protestant Christian church tradition and doesn’t fit all houses of worship.

His proposed solution is that Congress, not the IRS, adopt a new definition based on a court-developed “associational test” plus an IRS ruling showing how that test applies to fully virtual congregations.

The definition of associations of churches would be limited to organizations that “represent a single denomination,” as Mayer believes Congress originally intended.

Mayer admits that a new stricter definition of an association of churches will affect groups that have a significant number of church members from multiple denominations. He cited the Evangelical Council for Financial Accountability as an example.

“We recommended that Congress, not the IRS, consider this definitional change precisely because it is not clear how many organizations would be at risk of losing this status as a result of our proposed change. If that number is significant, some type of transition relief or even grandfathering may be appropriate,” Mayer added.

Focus on the Family spokesperson Bob Stephens told MinistryWatch in July that a driving force behind its decision to see the church status was “protection” of its donors against an increasingly hostile culture.

“Both California and New York were increasingly asking for more information on our donors on schedule B of the 990.  [W]e wanted to avail ourselves of our legal right to protect ourselves from those who might target us because of those deeply-held convictions,” Stephens said.

When asked about these concerns, Mayer pointed out that Congress required the IRS to keep the  schedule of donors confidential, unlike the rest of the Form 990.

“There have been only a few instances where that schedule has become public, and even then mostly because of errors on the part of the organizations involved, not the IRS,” Mayer said.

“It is unclear, however, to what extent the IRS uses this information to, for example, confirm that the donors are not overstating their charitable contribution deductions or to investigate possible improper transactions involving substantial donors. If the IRS does not use this information at all, then there is a question of whether even the relatively small risk to freedom of association is justified,” he added.

While Congressman Jared Huffman (D-CA-2) along with several of his colleagues in the House of Representatives, sent a letter in July 2024 to the Treasury Secretary and IRS Commissioner drawing attention to the “potential abuse of church status” by nonprofit organizations, Mayer doesn’t know of any current members of Congress interested in revisiting the definitions or reconsidering the special benefits that churches and associations of churches enjoy under federal tax law.

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