The main goal of this paper is to analyze and classify taxation issues litigated in the court system that involve tax-exempt religious organizations. The paper highlights the main arguments presented by religious organizations and government/taxation authorities and the general tendency of court rulings. The paper will not focus on pure non-tax constitutional issues such as separation of church and state and the establishment clause under the first amendment. Rather, the paper will focus on court disputes related to different types of taxes.

The tax issues highlighted in this paper include (but are not limited to) the following:

-       The tax exemption of the religious organization when the IRS denies its initial application or revokes a previously granted one.

-       Imposing income tax on a tax-exempt religious organization when part of its income is deemed unrelated to its mission and taxable under the Unrelated Business Taxable Income (UBTI) rules.

-       The courts’ rulings on self-employment tax exemption granted to “ministers” and religious workers.

-       The courts’ rulings on payroll withholdings when taxpayers (employees or employers) refuse to withhold Social Security and Medicare from salary payment based on religious beliefs and first amendment rights.

-       The courts’ rulings on taxpayers’ refusal to pay part or all their income taxes based on religious beliefs and first amendment rights such as their refusal to fight in or fund a war.

-       Imposing a local sales tax on religious organization’s publications of “sales” deemed unrelated to its mission.