Taxing Utopia

66 Pages Posted: 18 Dec 2013 Last revised: 1 Aug 2015

See all articles by Samuel D. Brunson

Samuel D. Brunson

Loyola University Chicago School of Law

Date Written: January 7, 2015


Communalism has a long history in the United States. Throughout the nineteenth century, the country was seemingly dotted with utopian groups. Most were Christian groups, trying to follow the New Testament model of a body of believers that held all property in common. While these groups generally fell apart quickly, in response to inside or outside pressures, several large groups survived the turn of the century.

In the early twentieth century, though, these religious communal groups had to contend with something new: an income tax. Communalism did not fit into the individualistic economic system envisioned by the drafters of the income tax. So Congress designed a special tax regime, now codified in section 501(d) of the Internal Revenue Code, which exempts religious communal holding companies from tax, while imputing the holding companies’ income to the members of the group. Section 501(d) provides communitarian groups with flexibility to reflect their unusual economics.

There exist, however, a number of problems with the design and implementation of section 501(d). This Article will survey the three principal problems. The first is scope: under current law, only religious communitarian groups can elect to use the section 501(d) regime. Second is uncertainty and vagueness in the statute. Third is I.R.S. overreach in the enforcement, applying doctrines (such as the public policy doctrine) that do not apply to section 501(d). In this Article, I discuss why and how to remedy these problems, while not opening section 501(d) to abusive tax avoidance.

Keywords: religious or apostolic organizations, communitarian, utopia, section 501(d), corporate income tax, partnership tax, pass-through taxation, federal income taxation, Establishment Clause, quasi-pass-through, employment taxes, SECA, dividends, anti-abuse, polygamy

Suggested Citation

Brunson, Samuel D., Taxing Utopia (January 7, 2015). Available at SSRN: or

Samuel D. Brunson (Contact Author)

Loyola University Chicago School of Law ( email )

25 E. Pearson
Chicago, IL 60611
United States

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