The past year has seen unprecedented government investigation of the Catholic Church in the United States. Kicked off by the seminarian sex abuse cover-up scandal of former-Cardinal Theodore McCarrick last summer, the ecclesiastical atmosphere has since taken on a Watergate-like avalanche quality. The Pennsylvania attorney general (and dozens of state attorneys general since then), the FBI, and others have raided chanceries and subpoenaed bishops and their staff. The U.S. Department of Justice even put the U.S. Conference of Catholic Bishops (a sort of trade association for prelates) on notice to get ready for a mafia RICO investigation. The crisis looms large over the bishops’ semi-annual meeting in Baltimore this week.

A few days ago, the scandal morphed once again, this time into a financial corruption breakdown so great it likely warrants the examination authority of the IRS and threatens the tax-exempt status of the church in America.

Last week, Michelle Boorstein of the Washington Post broke a story detailing the biggest financial scandal in U.S. Catholic history. Bishop Michael Bransfield, emeritus chief of the Diocese of Wheeling-Charleston in West Virginia and well known in Beltway circles as the former longtime rector of the National Shrine of the Immaculate Conception, embezzled millions of dollars from his diocese and spent it on personal items such as luxury travel, top-shelf liquor, real estate, and “gifts” to fellow bishops.

Suffice it to say, this is not a regular way for a nonprofit to operate its affairs under the Internal Revenue Code.

Like any other nonprofit, the Diocese of Wheeling-Charleston must comply with all the rules of the road when it comes to running a corporation on a not-for-profit basis. This includes restricting the expenditures of this operation for the “exempt purpose” for which is was formed. An officer of the corporation — a Catholic bishop has plenary authority over all within his diocese — cannot benefit personally from the funds raised and held by the nonprofit.

In the ordinary non-profit world, there are checks and balances on these things. There are boards which hold officers accountable for their actions. There are auditors hired by boards to assist with this. But things are very different in a Catholic context. As observed in the movie “Godfather III,” there are rules in the church — very old rules. One of those rules is that the bishop is the sole source of authority in his diocese, and answers to no earthly person but the pope himself.

That all broke down in Wheeling-Charleston. According to the Washington Post, Bransfield "spoke of church money as if it were his to spend without restriction, according to the report. 'I own this,' he is quoted as saying on many occasions." That mentality means that His Excellency used his diocese (one of the poorest in terms of per-capita income in the country) as a personal feudal piggy bank.

The IRS has an oversight role here it cannot simply outsource to the good work of the Washington Post investigative team. It needs to send in a crack team from its Tax Exempt Division in Cincinnati, Ohio, (the famous Lois Lerner office) and review those diocesan records from bow to stern.

But it cannot end there. Bishop Bransfield should be personally audited to make sure he didn’t run afoul of either income tax rules (unlikely, since he “grossed up” his salary to account for his embezzlement), or gift tax rules (where tax might very well be owed). In the press accounts, there is a long list of five-figure “gifts” Bransfield personally made to other bishops totaling some $350,000. If any of these gifts exceeded the gift tax limit for that year, he should have been required to file a gift tax return and potentially to pay gift tax. The IRS should make sure he has complied with his patriotic duties in this respect.

In my home diocese of Arlington, Va., donations to the diocese are apparently down. In an attempt to recover some lost donors, the chancery sent out a letter ostensibly from a parishioner (but under diocesan letterhead) saying: “For nearly a year, news about clergy sexual abuse has prompted some to say, ‘don’t give bishops a dime.’ Some think that gifts made ... benefit [Arlington Bishop Michael Burbidge] personally, and reducing or eliminating contributions will prompt the Bishop to enact new policies or make better decisions. The fact is, withholding funds won’t hurt the Bishop … ” The letter goes on to name church ministries which may be affected.

As a Catholic, I’m offended that seminary tuition assistance and food shelters are being used dishonestly as human shields to guilt the faithful into giving money to an opaque and unaccountable diocesan feudal bureaucracy over which my bishop has plenary authority to raid the coffers. And before we say “it can’t happen here,” we just saw this happen in the neighboring diocese of Wheeling-Charleston. The Diocese of Arlington has not told any of us whether Bishop Burbidge or his predecessors used any of the techniques utilized by Bishop Bransfield. They have lost our trust, and they have to earn their way back to being seen as good stewards of our money. Cheap tricks like trotting out ghost-written letters from “fellow laity” and “ Washington Monument Strategy ” guilt trips don’t inspire confidence in this regard.

The bottom line is that if these bishops want to run their dioceses as if they are above the law, the IRS has to remind them that they are stewards of tax-deductible contributions and have fiduciary responsibilities if they want to keep it that way. These bishops, along with all the faithful, certainly strive to be citizens of the City of God. But their fellow bishop and author of that work, St. Augustine of Hippo, would remind them that they also reside in the City of Man. The IRS has quite a say in the latter metropolis.

Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy.