What happens when the tax man comes for the Pope?
With the election of Prevart F. Prevast of Chicago as Pope Leo XIV, America now has its first Pope, and Chicagoans can claim a stake in the Vatican. While Catholics across the globe ponder spiritual matters, tax lawyers are focused on a different question.
Will the IRS look to collect taxes on the Pope’s non-cash benefits?
This isn’t just a trivial concern. According to US tax laws, citizens must report taxes on their worldwide income—regardless of where they reside. This includes various forms of in-kind compensation, such as free housing, meals, or even a company car. For instance, if an American working abroad has their rent covered or is treated to lunch by their employer, the IRS typically deems it taxable income.
So, what about Pope Leo XIV? He currently resides in the Apostolic Palace without paying rent, enjoys gourmet meals prepared by the Vatican’s chef, and rides in a luxurious Popemobile—without any monthly payments. If this were another American citizen receiving tax-exempt benefits overseas, the IRS would likely be eager to get involved.
Sovereignty beats the IRS
However, there’s a twist. Pope Leo XIV isn’t just any citizen. He is the leader of a sovereign state—the Vatican City. This distinction holds significant implications.
According to Section 892 of the Internal Revenue Code and backed by the Vienna Convention on Diplomatic Relations, individuals in high diplomatic positions are generally exempt from US income tax on earnings tied to official duties, even if they are US citizens. The rationale is straightforward: you don’t tax royalty, and in this case, that includes the Pope.
In essence, accommodations, meals, transportation, and ceremonial clothing aren’t benefits from an employer—they’re essential to his role.
Will the IRS likely attempt to tax him, theoretically speaking? Perhaps so. The US is one of the few countries that taxes its citizens living abroad. But can you imagine an audit letter reading something like this? “Your Holiness: Please report the fair market rental value of Vatican accommodations and any additional income from papal blessings or balcony appearances.”
Even if the IRS were to send agents to Vatican City, they would probably be stopped at the gate by Swiss security. And centuries of Canon law could further complicate things.
So, unless Pope Leo XIV starts trading in St. Peter’s Square or launches a Pope NFT line, the IRS might want to reconsider its approach.
This is probably a relief. After all, preparing for an audit of the Pope would likely be quite the ordeal.
The Dollar’s Downward Drift – and what can stop it
President Trump has used tariffs as a cornerstone of his economic policy, and global currency markets are finally picking up on this shift.
Since Trump announced his release date on April 2nd, the US dollar has declined over 8% against its major trading partners.
But why is this happening? Well, Trump’s tariffs, similar to his tax cuts, seem to reinforce outdated economic principles.
Experts warned that tariffs could strengthen the dollar by driving up inflation and interest rates. Yet the market hasn’t responded that way. Investors aren’t bidding up the dollar; they’re more concerned about political uncertainties and the potential for long-term yield fluctuations, which could impact the value of US assets and create challenges for central banks responding to these changes.
This creates a paradox: the longer the Fed maintains low interest rates, the weaker the dollar may become.
Wall Street seems to believe that the Fed’s hesitance isn’t genuinely self-protective. Rather, it’s causing a slow outflow of capital from US markets to European stocks, emerging market bonds, gold, and even cryptocurrency. The exceptional status of trade in America is being reversed—not because the economy is in crisis, but because the currency system feels uncertain.
As Michael Hartnett of Bank of America bluntly noted: “Short the dollar until the Fed is forced to cut.”
When might that occur? Not necessarily when inflation rates drop, but rather when the Fed perceives its financial position as too rigid and seeks to maintain stability in the labor market. Instead of raising rates, a cut will likely be the point at which the dollar could rebound.
Even without Fed rate cuts, tax reductions and regulatory reforms could bolster the dollar if they enhance confidence in the US economy, making it more appealing to global investors.
Until then, the dollar’s weakness serves as a consequence of waiting. In today’s market, clarity is the real currency, and right now, the Fed seems to be contributing to a climate of uncertainty.
