ACA Shares "The American Pope and Citizenship-Based Taxation,” by Bob Goulder | Tax Notes International, June 2, 2025

Tax Notes International, June 2, 2025

"The American Pope and Citizenship-Based Taxation,” by Bob Goulder

"Pope Leo XIV, the first pope to hold U.S. citizenship, raises some novel concerns. The issues relate to the payment of U.S. federal income tax and compliance with U.S. information  reporting requirements. Beyond the saving of souls, the new pope might need to worry about saving his receipts — in the event the IRS audits him."

"Not to conflate the secular with the sacred, but last year President Trump pledged to address the “double taxation” of U.S. citizens residing abroad. The LaHood Bill suddenly takes on new relevance."

"A preliminary question arises over the treatment of his papal salary. We don’t know exactly how much the pope earns, although it’s rumored to be in the vicinity of $400,000 per year.
It’s unclear whether the pontiff has chosen to accept or decline the salary, or to accept and donate the funds to charity. For U.S. tax purposes, a decision to decline salary may not be sufficient to prevent the earnings from being treated as gross income."

"The complexity doesn’t end there. Additional concerns involve the application of section 107 (rental value of parsonages), section 119 (meals and lodging furnished for the convenience of employers), section 170(b) (percentage limitations on charitable deductions), section 911 (the foreign earned income exclusion), and section 6039F (the duty to report gifts from non-U.S. persons). Another batch of issues include compliance with the Foreign Account Tax Compliance Act, the Foreign Bank and Financial Accounts Report regime, and Form 3520 (“Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts”)."

"Regarding these requirements, it matters little that the pope is a nonresident. That’s because he’s a citizen of the lone developed country that relies on citizenship-based taxation. Most of the rest of the world relies on residence-based taxation. As it turns out, Pope Leo XIV has been a nonresident for many years: first during his missionary work in Peru in the 1980s and 1990s; later while serving as the Bishop of Chiclayo, Peru (between 2015 and 2023); and most recently while serving as a cardinal in Vatican City. In fact, the clergyman formerly known as Robert Prevost spent much of his adult life residing outside the United States. He acquired dual citizenship along the way, becoming a naturalized Peruvian citizen in 2015."

"None of that changes the requirement to file a U.S. return and to comply with the foreign bank account report and FATCA regimes. That’s a point that acting IRS Commissioner Michael Faulkender failed to squarely acknowledge when quizzed on the topic during a recent television interview. While appearing on NewsNation, Faulkender was asked whether the new pope would need to pay U.S. income tax, to which he responded (in part) as follows: It’s based upon where the income is generated so, I believe, I don’t know enough about Pope Leo, but I believe he’s going to generate that income in the United States. I don’t know enough about his citizenship to know whether or not there would be a tax on him."

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