Economics And Forensics Of Fraud And Abuse By Tax-Exempt Religious Organizations Versus The First Amendment

Abstract

This study focuses on the conflict between First Amendment rights of churches and religious organizations and the need by public authorities to investigate and regulate abuses of tax exemptions. The relative lack of accountability of religious organizations opens the door to a number of abusive schemes and scams. Table 1 shows that the IRS has attempted in recent years to improve its ability to enforce regulations pertaining to tax-exempt organizations. Table 2 shows that the number of Tax Exempt tax returns examined by the IRS has increased by 106% from 2005 to 2009, the number of examinations in 2009 still amounted to only 1.24% of returns filed. Table 3 shows that, at the state level, the number of prosecutions and legal actions taken in 2007 by states was a total of 513, just slightly more than 10 per state. Given the obstacles faced by Federal and state enforcement authorities, self-regulation and self-policing by charitable and tax-exempt organizations are likely to be the only way the faithful will receive additional protection against those who would use religion as a tool to mislead them and misappropriate their gifts.