Pope Leo XIV and U.S. Tax Obligations

Members of a Religious Order believe that the election of Pope Leo XIV might inspire Americans to return to the church.

The question arises: must Pope Leo XIV file and pay U.S. taxes despite his commitment to poverty? Leo, notably, is the first American pope, and U.S. citizens are obligated to pay taxes on their worldwide income, regardless of where they live, provided they are not exempt. Even if there’s no tax owed, individuals may still need to file a return with the Internal Revenue Service (IRS). Generally, there’s a clear incentive to file, as many find it beneficial despite the threshold this year being set at $17,000 for single taxpayers over 65, like Leo.

However, for Pope Leo, who hails from Chicago, there are unique circumstances that could potentially exempt him from filing U.S. taxes.

The background is quite interesting: within the Roman Catholic Church, the regulations governing property ownership and income for clergy can vastly differ. Some adhere to a strict vow of poverty, while others may interpret it more loosely.

Members of the Order of St. Augustine, which Leo joined at a young age, follow a particularly stringent form of poverty known as the Silent Vows. This includes relinquishing personal property rights upon joining, formally signing over any belongings to the order.

The Wall Street Journal looked into the vow Leo signed back in 1981.

According to James Halstead, a treasurer for Augustinians in the Midwest, members who earn salaries, perhaps in educational roles, have their income paid directly to the order, which often enjoys tax-exempt status. Thus, members effectively do not recognize taxable income.

If Augustine members receive gifts or other income, they typically surrender it. As Halstead notes, when Leo was elevated to cardinal, he also handed over any generous gifts he received.

Moreover, these members do not personally contribute to Medicare or Social Security; the order covers these taxes on their behalf.

Consequently, Augustinians usually do not file individual U.S. tax returns, and Halstead mentioned there’s no record of Leo having submitted any return. The IRS sanctions this, and more details can be found in IRS Publication 517 geared towards clergy.

It’s important to note that not all poverty pledges offer tax exemptions. There have been instances where the IRS has contested such claims.

Further discussions regarding Leo’s U.S. tax responsibilities consider the likelihood of income. A strict vow of poverty might mean he has no income, hence no obligation to file anything.

With his new role, Leo and his advisors will need to contemplate how to navigate future monetary matters. As an Augustine, Halstead expresses hope that Leo can continue the traditional practices, allowing any compensation or scholarship to directly benefit the order, potentially negating the necessity of filing.

Vatican officials have not responded to inquiries regarding Leo’s salary or tax filings, and a spokesperson from the Treasury refrained from commenting, citing the Taxpayer Privacy Act.

If Leo determines that he does have income necessitating a U.S. return, he might encounter complications typical for Americans living abroad. Foreign documents can be overwhelmingly complex, and navigating regulations aimed at avoiding double taxation is often challenging. During the past election campaign, there were discussions about reforming these regulations, but the recent bill successfully passed through the House Ways and Means Committee.

If he files, Leo might avail himself of the foreign earned income exclusion, a tax relief intended for Americans working overseas. For the tax year 2025, the exclusion limit for an individual filer is set at $130,000, but this requires an active tax filing.

Additionally, Vatican officials should verify whether Leo needs to inform U.S. authorities regarding foreign accounts or assets. The FBAR form is necessary for those with foreign financial accounts exceeding $10,000 annually, and IRS Form 8938 applies to significant foreign financial assets.

Interestingly, it appears that Leo doesn’t need to stress over taxes related to accommodations, meals, travel, or even clothing costs covered by the Vatican, as these are considered employment-related benefits and not taxable income according to Michael Gretz, a former Treasury Secretary and a professor emeritus.

Despite not necessarily having to file a tax return, some tax professionals suggest that it might still be prudent to do so, particularly for someone with limited or non-existent income like the Pope.

One compelling reason is that filing might help prevent tax identity theft, where someone exploits another’s Social Security number for fraudulent refunds. Regularly filing returns complicates attempts by scammers. Leo could also acquire a special Identity Protection PIN to further secure his tax identity.

Matthew Presé, a Chicago CPA who manages tax filings for numerous Catholic priests and religious members, encourages the IRS filing for his clients to maintain their records. He notes it’s especially challenging for any clergy who failed to file for pandemic-related stimulus support.

David Lifson, a CPA at Crowe, advises Americans with international income and highlights the importance of timely filing. When a return is filed with the IRS, statutes of limitation become effective, which unless actively acted upon, usually last three years for typical tax matters.

He adds, “Filing a tax return serves as a means for Leo to honor his citizenship while confirming that he owes little or no taxes.”