IRS in Omaha

IRS Agent: Churches in OTOC May Imperil Tax-Exempt Status

By Mike Reilly

World Herald Staff Writer

Some Omaha churches could lose their exemption from federal income taxes  because of their participation in Omaha Together One Community, an Internal  Revenue Service agent says.

Carl R. Patterson, an Omaha IRS agent who specialized in tax-exempt  organizations said he wants churches to know that "substantial"" contributions  of time and money to OTOC might violate a federal statute.

The statute prohibits churches from engaging in a "substantial" amount of  lobbying. The law has no precise definition of "substantial."

The potential penalty for violation is loss of tax-exempt status. That would  mean that people who donate to churches could not deduct the money from their  personal income taxes.

I'm not saying the churches are definitely in danger. Patterson said "I am  saying this is a potential problem."

Omaha IRS spokesman Ed Daemon said the government rarely revokes a church's  tax exemption.

"It is not the purpose of the IRS to put exempt organizations out of  business" Daemon said "Our purpose is to keep them in compliance."

Patterson declined to say whether the IRS is investigating OTOC churches. He  said he had been monitoring the development of OTOC through news stories.

OTOC leaders said they doubt that the IRS would penalize churches for  participating in OTOC. They said that the financial contributions of individual  churches are too small for the IRS to deem "substantial" and that similar  organizations in other cities have not faced such a problem.

The stated purpose of OTOC is to influence public policy in such areas as  police protection, youth recreation, juvenile detention and health care.

Twenty-two Catholic and Protestant churches have contributed about $90,000 to  OTOC since the organization was formed in January 1992.

OTOC is affiliated with the Industrial Areas Foundation, which has ties to  about 30 community-action organizations nationwide.

Edward Chambers, executive director of the IAF in New York, said the issue  that Patterson has raised had never come up during his 38 years with the  foundation.

"I just don't believe it's a problem," Chambers said.

But Patterson said some church donations to OTOC, which range from $300 to  $5,000 this year, are large enough to question. And he said money is not the  only issue. An IRS investigation also would consider other ways churches support  OTOC, he said.

"We'd look at the number of notices in the church bulletin, the fliers, the  free use of church meeting rooms, office space, equipment and supplies,"  Patterson said. "We'd look at the value of the time and services of the pastors  themselves, too."

Patterson said he did not know whether the issue had been raised by the IRS  in other cities with IAF organizations.

The World-Herald asked the leaders of six OTOC churches about Patterson's  concern.

One of the most active OTOC churches is First United Methodist, 7020 Cass St.  Its associate pastor, the Rev. Don Bredthauer, is a founder and co-chairman of  OTOC.

First United Methodist announced a $5,000 contribution to OTOC at a rally  Sunday. The church was host to an OTOC meeting on health care, Aug. 24 and it  has promoted the organization in bulletins and from the pulpit.

The Rev. Denny Silk, senior pastor at First United Methodist, said he sees  OTOC as a church organization rooted in Bible teachings that urge people to work  together to improve society.

"When we define our ministries, we don't consult attorneys, We consult the  Scriptures," Silk said. "If the IRS takes exception to this, then we will  consult attorneys. But I can't believe that the government will purposely  penalize church people for trying to help the community."

Churches are exempt from federal income taxes under section 501 (C) (3) of  the Internal Revenue Service Code. The code exempts churches and certain other  organizations from taxes as long as "no substantial part of the activities of  which is carrying on propaganda or otherwise attempting to influence  legislation."

The IRS occasionally has questioned the political activities of churches or  church affiliated organizations. Daemon said organizations associated with  television evangelists Jimmy Swaggart and Jerry Falwell have lost tax exemptions  temporarily in the past.

Another widely known case involves the Christian Coalition, which former GOP  presidential candidate Pat Robertson founded in 1989. Democrats have accused the  organization of working extensively for GOP candidates.

The Christian Coalition is considered a non-profit corporation under IRS  section 501(C) (4), which allows more leeway to promote political agendas than  section 501(C) (3), because it intends to try to persuade local governments to  adopt certain policies. Its leaders have said that OTOC will not endorse  candidates for election.

Churches generally prefer the more restrictive 501 (C) (3) status because  people who donate to 501 (C) (3) organizations can deduct their contributions on  their taxes.

Patterson and Daemon said that donations to 501 (C) (4) organizations are not  tax deductible. Both types of organizations are exempt from paying federal  income taxes.

An estimated 1,8000 Omaha area church goers participated in the OTOC rally  Sunday, at which local government officials were urged to work with OTOC to  address its concerns.

At the event, member churches announced $42,650 in contributions to OTOC. Two  non-members also pledged money. St. John Vianney Catholic Church in Millard  pledged $250. The Notre Dame Convent pledged $750.

While there is no specific formulas for defining "substantial" contributions  under 501 (C) (3), Patterson said the IRS would consider, in part, the financial  donations of OTOC churches in the context of their annual budgets.

The six OTOC churches contacted about Patterson's concern, their respective  OTOC contributions this year and annual budgets are:

  • First United Methodist $5,000 of $1 million.
  • St. Leo Catholic Church $5,000 of $1.3 million
  • Our Lady of Guadalupe Catholic Church $2,500 of $250,000
  • St. Pius X Catholic Church, $3,500 of $1.2 million
  • Pearl Memorial United Methodist $1,000 of $100,000
  • Asbury United Methodist $500 of $20,000

Patterson said that $5,000 from a $1 million budget and $2,500 from a  $250,000 budget would "raise my eyebrows." He said he was unsure about $3,500  from a 1.2 million budget.

The following was not part of the article.

Tucson churches affiliated with PCIC:

  • Rincon Congregation
  • Tucson Reformed Church
  • Unitarian Universal
  • Friends & Students of Pima County Adult Education
  • Prince Chapel Ave
  • Catalina United Methodist
  • Christ Church United Methodist
  • Bless Kateri Te Ka Kwitha
  • Anshei Israel
  • Congregation Chaverim
  • Our Saviors Lutheran
  • Santa Cruz Lutheran Church
  • Calvary Lutheran Church
  • First Christian Church
  • Saguaro Christian Church
  • Grace St Pauls Episcopal
  • St Philips in the Hills Episcopal
  • St. Marks Presbyterian
  • Southside Presbyterian
  • Trinity Missionary Baptist
  • Catalina American Baptist
  • Mission San Xavier
  • Most Holy Trinity
  • Our Lady of Fatima
  • Our Lady Queen of All Saints
  • Our Mother of Sorrows
  • Sacred Heart
  • Santa Cruz
  • St Ambrose
  • St Augustine Cathedral
  • St Cyril of Alexandria
  • St Elizabeth Ann Seton
  • St Frances Cabrini
  • St John the Evangelist
  • St Joseph
  • St Margaret
  • St Odilia
  • St Pius X
  • St Thomas More Newman Center
  • Sts Peter and Paul


Phoenix churches affiliated with VIP:

  • Catholic Diocese of Phoenix
  • Council of Religious
  • First Institutional Baptist
  • St Catherine of Sienna
  • St Martin De Poores
  • Arizona Lutheran
  • Blessed Sacrament
  • Christ United Methodist
  • Concordia Lutheran
  • Epworth United Methodist
  • First United Methodist
  • Messiah Lutheran
  • Ss. Simon and Jude Cathedral
  • St Louis the King
  • St Mathew
  • St Vincent De Paul
  • All Saints Newman Center/ASU
  • Dayspring United Methodist
  • Our Lady of Guadalupe
  • Our Lady of Mt. Carmel
  • University Presbyterian
  • First Unitarian Universalist
  • Franciscan Renewal Center
  • Office of Peace and Justice
  • St Francis Xavier
  • Shepherd of the Hills