“THE constitution does not require the government to exempt churches from federal income taxation or from filing tax and information returns.” The potential implications of this comment, in a report earlier this month by Senator Chuck Grassley of Iowa, are starting to dawn on a large chunk of America's charitable sector, which has until now taken for granted that it is exempt from tax.

Currently, an estimated 1.8m “churches” are exempted from income tax—as they have been since America created its modern income tax system in 1894—and indeed from the many other reporting requirements imposed by the Internal Revenue Service on secular charities, which have to file IRS form 990 each year detailing their finances. The influential Mr Grassley, who has long championed greater transparency and accountability in the charitable sector, has become increasingly convinced that this privilege is being abused to the tune of many millions of dollars.

Although his report was triggered by tales of televangelists running lucrative things such as recording studios and selling oil and gas under cover of the religious exemption, it highlights a serious regulatory failure at the heart of America's charitable sector. The 14-point guide which the IRS uses to judge whether an organisation is exempt is open to broad interpretation. There is inconsistency even among prominent evangelistic organisations. Billy Graham, for example, long ago opted not to classify his empire as a church, and thus files a 990, in part because he wanted to encourage other religious charities to be transparent and accountable.

On the other hand, some of America's biggest charities, such as the Salvation Army and Volunteers of America, which use the bulk of their billions of dollars in revenue to provide social services that might equally be supplied by a secular charity or the public sector, are designated as churches. Thus they need not reveal anything about their finances or their governance, and are largely unaccountable to the public. Senior members of staff, whom they call ministers but who might easily be confused for bureaucrats, can benefit from perks such as the “parsonage allowance”—essentially tax-free money to pay their mortgage.

Before seeking new legislation, Mr Grassley is waiting for religious organisations to respond to his report with proposals to minimise such abuses. Already, a commission has been established by the Evangelical Council for Financial Accountability, which is expected to recommend some significant reforms. Although by raising this issue Mr Grassley is touching what has long been regarded as a “third rail” of American politics, his reward may be a much-needed burst of transparency. Let there be light!