Priests claiming illegitimate religious exemption face tax enforcement

For many, religion and belief in a higher power plays a central role in their worldview, actions, and beliefs. There are numerous protections built-in to the U.S. Constitution, state, and federal law to ensure that these sincere and closely-held beliefs are respected and can be practiced without government interference. For many, the freedom to worship and practice their religion as they choose to is one of the fundamental promises and benefits of being an American citizen.

Unfortunately, some attempt to use religion and others’ respect for fundamental beliefs to cloak their wrongful acts. This can include an individual’s failure to satisfy their tax obligations. However, the IRS has long been on the lookout for those who attempt to avoid their obligations through a religious tax argument. In fact, many arguments regarding religious exemptions to paying tax have already been determined to be frivolous by the tax courts. And if there was any doubt regarding the IRS’ commitment to enforcing the tax laws, consider this recent tax indictment against a 55-year-old California priest.

Florida priest indicated for alleged fraud and tax fraud

Msgr. Hien Minh Nguyen of the diocese of San Jose, California was arrested and charged at the end of April 2015. Msgr. Nguyen is facing nearly 20 counts of criminal charges including 14 counts of fraud on a financial institution and four charges of tax evasion. Prosecutors allege that from approximately 2005 to 2008, Msgr. Nguyen deposited, a minimum, of 14 checks payable to the Vietnamese Catholic Center into his personal bank account. These checks totaled to approximately $19,000. Furthermore, Msgr. Nguyen is accused of failing to disclose about $1.1 million in taxable income between the 2008 and 2011 tax years.

San Jose Bishop Patrick McGrath said that, to his knowledge, this is the first time a priest in this diocese had faced charges of this type. He states that the diocese has cooperated with federal prosecutors and, after learning of the investigation, the diocese launched its own audit. McGrath claims that the diocese audit did not find any irregularities. He further stated that, “[The diocese] feel[s] confident that the controls recommended by our auditors ensure that monies donated to the parish are properly put to use there. We will continue our own scrutiny of the parishes’ finances, and certainly learn more with the outcome of the IRS investigation.”

If he is convicted on all of the charges he faces, Msgr. Nguyen could be sentenced to a prison term of up to 35 years. However, the larger lesson presented here is that the IRS will pursue an enforcement action against anyone – including a priest that appeared to be cleared by an internal audit. If you thought that your standing in the community would protect you from tax prosecution, you have made a very serious and costly error.

The IRS is also on the lookout for other common frivolous religious tax exemption claims

While claims of this type have long been held by the tax courts to be frivolous, this hasn’t stopped a number of taxpayers from claiming that moral or religious grounds under the First Amendment exempt them from paying some or all taxes. The First Amendment to the Constitution states:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

While the amendment certainly does prohibit Congress from establishing a state religion or otherwise legislating how people worship, it does not create a religious right to refusal to pay taxes. Furthermore the amendment does not permit a taxpayer to withhold taxes due and owing on the basis that the taxpayer disagrees with the program or expenditure or believes it to be in conflict with his or her religion.

Consider the 1980 tax case, U.S. v. Peister. In this matter Peister argued that by taking an oath of poverty following his ordainment as a minister, he was exempt from the income tax. The court rejected this argument finding that there was no violation of Peister’s First Amendment rights. In the 1985 case, Wall v. U.S., the court upheld the frivolous return penalty against Wall for taking a war tax deduction on the basis of his bona fide religious objection to war. And if you think that the IRS’ commitment to tax enforcement of this has waned with time in the 2007 case Jenkins v. Commissioner, the $5,000 penalty for a frivolous return was upheld. The court found that the collection of tax revenues for expenditures offending the religious beliefs of individual taxpayers was not in violation the Free Exercise Clause of the First Amendment, the Religious Freedom Restoration Act of 1993, or the Ninth Amendment.

Facing tax charges?

If you are facing serious tax charges due to alleged tax fraud or overly aggressive deductions or exemptions, the Tax Law Offices of David W. Klasing may be able to help. To schedule a reduced-rate consultation with an experienced Tax Attorney and CPA call 800-681-1295 today or contact our firm online.