If you’re a religious non-profit and you don’t file a 990 with the IRS, you’re off the hook. The US government says you are allowed to follow your beliefs and refuse to pay for your female employees’ birth control devices and medications, sterilizations, or “morning after pills.”
If you do file a 990 you have to pay for them, even if you’re a pregnancy care center or a monastery — although the US government will kindly allow you to pretend that you don’t.
And if you’re a non-religious non-profit, or a you’re for-profit company? You pay whether you like it or not.
That’s the current status with the HHS mandate.
What is form 990?
“Form 990 is used by tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations to provide the IRS with the information required by section 6033,” IRS instructions say helpfully.
Guide Star, a charity rating organization, has a better explanation. Intended to prevent charities, trusts, and other organizations from doing things they are not entitled to do, the 12-page 990 form requires filers to list their boards of directors, their donors, their missions, their activities, their employees, their income and expenses, and other information that allows the IRS to see if the organization is really doing what it says it does. Because tax forms are public records, potential donors can look at 990 forms to see how charities spend their money, and so 990s are used to rate charities by how much of their income is spent on overhead vs. the charity’s mission. (Though required by the IRS, donor lists for some non-profits are not available to the public.)
Who doesn’t have to file 990s? Churches, certain church-related organizations, and certain government-related organizations. That’s it.
The certain church-related organizations are those that are considered “integrated auxiliaries of a church” (or, as the current administration likes to say, “house of worship”) — a tax status for only a small fraction of all non-profits affiliated with religions.
To explain what type of church-related organizations qualify, the IRS has compiled a 32-page booklet that lays out rules such as “an IRC section 501(c)(3) organization’s activities must be directed exclusively toward charitable, educational, religious, or other exempt purposes” and “organizations may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status.” The organization must qualify as “a class of organizations that are related to a church or convention or association of churches, but are not such organizations themselves.”
That last is key: It’s what determines whether your soup kitchen qualifies or not. According to the IRS, an “integrated auxiliary organization” must qualify as a charitable organization, must be affiliated with a church, and must receive its funding primarily from the church (not — remember this one –from government or public grants, or from selling good or services to the public).
A Model that Doesn’t Fit Catholics
One guide to church organization tax status explains it this way: historically, most churches operated by forming a congregation, then by having their members do activities in groups (men’s societies, ladies’ societies, mission societies, etc.), most of which were made up of and funded by members and met on the church property. Therefore, this Protestant guide says, this is the basis for 990 exemption.
However, this history is not true of the Catholic Church. While parishes have always hummed with groups like the ones described above, the Catholic Church has also always had very large Church-affiliated groups with only a cursory relationship to a parish (monasteries and convents, universities, hospitals, etc.).
This is where the IRS designation of “church affiliation” gets dicey. According to the IRS, one requirement for an organization to be considered an integrated auxiliary organization if it is operated, supervised, or controlled by a church or group of church-like entities, or if “relevant facts and circumstances show that it is so affiliated.”
These relevant facts and circumstances include: having a charter or constitution that affirms that the organization shares “common religious doctrines, principles, disciplines, or practices” with a church; having at least one representative on the board that can be appointed or removed by a church; having a church’s name in the organization’s name; reporting financially to a church; being designated a ministry by a church; and having to give its assets to a church if it disbands.
Sounds simple enough — but there’s a catch, and it’s that requirement that the organization be funded primarily by the affiliated church/churches. Let’s take a look at a charitable organization that the IRS says does not qualify.
The IRS example is a fictional retirement home affiliated with a church that receives an annual donation from that church to help run it, but the donation is less than half of the home’s income. The home accepts anyone from its surrounding community; advertises to the general public; and maintains its name on area lists of retirement homes. The IRS says that despite being named for the church (ie: “Pine Ridge Methodist Retirement Community”) and despite receiving money from the church or consortium of churches, the home would not be considered an integrated auxiliary organization — even if it were governed entirely by the church’s principles and teachings.
Why? Because of a requirement for what’s called “internal support.” According o the IRS, an integrated auxiliary organization is internally supported when it does not sell any services or products to the public, except on an “incidental basis.” The IRS’s example of an example that meets such guidelines is a weekly newspaper that goes to church members but is available by subscription to anyone. The newspaper can take in nearly all of its advertising revenue from non-members as long as its outside subscription revenue remains incidental, and thus its product (the paper) primarily goes to its own members.
The IRS gives another example of an organization that does not qualify: A hospital. Like the fictional retirement home, the fictional hospital in question is named for a church and fulfills other requirements for being an integrated auxiliary organization, but not the requirement for internal support because it serves anyone and it receives more than half its income from public contributions, Medicare and Medicaid, insurance and patient payments, and grants.
Quick recap: To qualify for exemption from filing form 990, an organization must not receive a sizable a majority of its income from non-members and/or must not serve non-members.
What the Tax Status Means
So for governmental purposes, an integrated auxiliary organization is defined narrowly and is assumed to be one that grows out of a Protestant-style church or group of churches that either serves its own members (such as a group that helps its member widows and orphans) or serves the public but is financed by its own members (such as a church food pantry) or exists to spread its faith (like a mission society).
Anything beyond that, and you have to file a 990 like all non-church-related non-profits. And while the difference in tax status might seem slight (after all, they’re all non-profits) what matters is not the distinction, but how the distinction is used.
If it’s used to ensure that organizations like the fictional retirement home and hospital mentioned above do not misspend funds, and so that donors and potential donors can be sure that their donations are being allocated well, and to ensure that no board members or shareholders are skimming off the top, there is no problem.
But if it’s used to differentiate between which religious charities and non-profits are religious enough have their freedom of religion acknowledge by the US government, there’s a problem.
The original HHS mandate exempted only churches, their ministers, and employees who worked directly for them in some capacity having to do with teaching or inculcating the religion (a church secretary but not a church janitor, for example). Revised rules announced this spring clarified that church-related auxiliary organizations (the kind that don’t have to file 990s) are also exempt.
And that’s it. All other church-related non-profits, which means most of them, can apply to have their insurance companies provide and pay for the coverage instead. Insisting that this unprecedented (and probably illegal) requirement would be “revenue neutral,” HHS officials also insisted that the affected non-profits pretend (wink wink, nod nod) they would not simply be paying for them in a government-mandated shell game.
One does not have to be a stickler for details to see that the covered items and the overhead costs (paperwork, administration, and so on) to pay for them have to come from somewhere, and that somewhere is insurance premiums.
Bye Bye, First Amendment
This will all come to a head on August 1, when the HHS mandate takes effect for religious charities, and those who don’t defy mandate will get to play pretend.
But that’s more than private companies get. Own a business? You can’t say no.
In all these regulations, the key concept seems to be “commerce.” If you engage in “commerce,” your right to practice your religion freedom becomes slight to non-existent.
And as the US government has redefined “engaging in commerce” to mean not buying or selling, as well as buying or selling, that’s pretty much everyone.
Bye bye, First Amendment. It was great while it lasted.