Nothing is certain except death, taxes... and Kanye West

Kanye West has turned more and more religious, with a new album called "Jesus Is King." Perhaps he may have been toying with bankruptcy a few years ago. Never mind. Today, his fashion and music empires seem to be raking in the cash. Kanye may not be on the Forbes billionaires list just yet. However, perhaps his toyed with name change to "Christian Genius Billionaire Kanye West" might change that.

But could the mogul actually form his own church? If he does, are there tax benefits? These are not silly questions. Since the beginning of 2019, Kanye's Sunday pop-up Sunday Service seems rather church-like. True, applying for a trademark might sound rather commercial, but still. His Sunday Service is music-focused, but includes occasional informal prayers.

In that sense, a "Kanye founds a church" headline might not be hyperbole, and the Church of Kanye might not be a crazy idea. Just think of all those tax advantages! For generations churches have been exempt from federal and state income taxes. What's m, all 50 states and the District of Columbia also give them a pass on property taxes.

There's that whole church and state separation at the root of our system. Ever since our founding fathers, it's hands-off churches for federal income taxes, property taxes and more. We get tax deductions when we donate to churches, and that encourages them to grow bigger and wealthier. The Catholic Church in particular has a virtual a treasure trove of assets and holdings worldwide. There are many other very wealthy churches that might surprise you.

In the U.S., churches reap a vast array of tax advantages, including special rules limiting IRS authority to audit a church. But when you come right down to it, what constitutes a legitimate church? That isn't such a simple question to answer. With church status being so desirable, how does the IRS police it?

The term "church" isn't even defined in the tax code, although the IRS does have a tax guide for churches and religious organizations. The IRS looks for:

1. Distinct legal existence;

2. Recognized creed and form of worship;

3. Definite and distinct ecclesiastical government;

4. Formal code of doctrine and discipline;

5. Distinct religious history;

6. Membership not associated with any other church or denomination;

7. Organization of ordained ministers;

8. Ordained ministers selected after completing prescribed study;

9. Literature of its own;

10. Established places of worship;

11. Regular congregations;

12. Regular religious services;

13. Sunday schools for religious instruction of the young; and

14. Schools for preparing its members.

The IRS generally considers all the facts and circumstances in assessing whether an organization qualifies. Once again, that isn't too helpful. Part of this is part of the tax basics for exempt organizations. But unlike other exempt organizations, a church does not even need to apply to the IRS for tax exemption. Just think about that, another sign we want hands off even from IRS applications.

The church can just operate that way without the IRS's explicit blessing. Most churches do ask the IRS for exemption, but they are not actually required to. This is just part of the proof that for a tax-exempt organization, church status is truly the gold standard. That is one reason the Church of Scientology fought against the IRS for so very long.

After many years of sparring with the IRS over whether Scientology was a church, Scientology brought numerous lawsuits, and eventually the IRS ruled that Scientology was a church. As a tax lawyer for 40 years, I've seen IRS scrutiny on churches wax and wane, but especially with Scientology. It was only after many years of litigation and administrative harangues that the IRS abruptly ruled Scientology was a church after all in 1993.

The New York Times at the time claimed that the IRS had reversed 30 years of precedent to grant Scientology Section 501(c)(3) status. To this day, the IRS decision remains controversial, as does Scientology. Some say the IRS gave up and issued the coveted church ruling in a kind of detente. Some of the debate about what qualifies is over basic issues common to other non-profits.

Tax lawyers know one of these issues as "private inurement," something that can spell disqualification of church tax benefits. In fact, private inurement can disqualify any charitable organization. Churches and nonprofits usually do not have complex corporate structures, but the interaction of taxes and religion is strange.

Take the so-called parsonage allowance, a tax break allowed by Section 107 of the tax code, dating to the 1920s. The parsonage allowance says that an ordained member of the clergy can live tax-free in a home owned by his or her religious organization. It has been controversial in recent years, with many tax cases litigating what qualifies.

Sometimes, the IRS goes after churches and promoters harshly. An example is the Church of Compassionate Service is discussed in U.S. v. Hartshorn, 751 F.3d 1194 (10th Cir. 2014). There, the IRS got an injunction to silence Head Minister Kevin Hartshorn. Mr. Hartshorn had 50 ministers under his wing, telling them not to pay the IRS. When the IRS had enough it went to court to enjoin the Head Minister from preaching his no-tax mantra. Mr. Hartshorn lost in federal district court, appealed, and lost again when the 10th Circuit Court of Appeals ruled for the IRS.

Thus, Mr. Harshorn failed to shake the injunction. Mr. Hartshorn's claims about free speech didn't help him either. Even if his church was legit, the court said, Hartshorn's plan wasn't. What's more, the court found that Hartshorn's knew his "you-don't-have-to-pay-taxes" mantra was false. Even if he didn't, he should have known.

As for Kanye, if he wants to go down the road of funding and supporting his own brand of church, I'm betting it wouldn't be that hard for his tax people to put it together. Stay tuned. 