What The IRS Could Learn From Mormons

toggle caption Douglas C. Pizac/AP

Many religious traditions stress the importance of charity. But Mormons are remarkable for the amount and the precision with which they give to their church.

The Church of Jesus Christ of Latter-day Saints teaches that each Mormon in good standing should tithe 10 percent of his or her income. The money goes right to church headquarters in Salt Lake City and then is distributed back to congregations around the world.

"That's written in stone, and preached from the pulpit," says Gordon Dahl, an economist at the University of California, San Diego, who is Mormon.

But while the church is very precise about that figure — 10 percent of income — it does not tell its members what income means.

"Which is really interesting to us economists, because we want to know how people define income," says Dahl.

As anyone who has ever done their taxes knows, figuring out what counts as income is harder than it sounds.

The IRS has hundreds of pages of rules about these things, but Dahl wanted to know how people think about money when only God is watching. He thought the IRS could actually learn from how Mormons make these decisions.

Studies have shown that people are more willing to pay taxes if they think taxes are fair. People who think someone else is getting special treatment are more likely to cheat.

Dahl theorized that if you know how people naturally think of income, you can craft the tax laws to better match people's motivations.

But first he had to get Mormons to tell their stories.

Tithing is a very personal act, and Dahl says people were unwilling to talk about how much money they sent in. So Dahl and his colleague Michael Ransom surveyed 1,200 Mormons and presented them with hypothetical questions about giving.

"Suppose your parents gave you $500 for Christmas," he told them. "Would you pay tithing on that money?"

That was a resounding yes among Mormons. Gifts of cash are definitely considered income.

What about a gift of a sofa worth $500? Not so much. Few Mormons said they would tithe on that.

What if you got a cash gift from someone you knew had already paid tithes on the money? The majority of Mormons in the study said they were happy to tithe on it again.

The concept of double tithing doesn't seem to upset Mormons the same way double taxation does. In fact, Dahl found that Mormons were willing to tithe on money that came out of a retirement account — even if they had already tithed 10 percent of it before they invested.

David Shapiro, a financial adviser in Littleton, Colo., says there is often a difference of opinion on these issues within Mormonism. In fact, Shapiro and his wife had different tithing styles when he got married.

He tithed on his gross, pretax income. His wife tithed on her net income — she took out taxes first, then tithed on the rest.

"Her logic was [that the] money I pay to the government isn't money in my pocket," Shapiro says. "So I shouldn't have to pay tithing on that"

Shapiro eventually convinced his wife to pay on the larger amount.

Dahl says he found that Mormons, in general, tended to adopt the more simple and generous definitions of income.

They would pay a full tithe on the profit when they sold a stock. Yet, if they dumped a stock for a loss, they wouldn't use the loss to offset and lower the income they tithed on. Unlike taxpayers, the Mormons in the study weren't big fans of taking deductions so they could send less money to the church.

"They're worried about being petty with God," Dahl says.

I asked a Mormon bishop in Salt Lake City if a few more rules defining income might make tithing easier on Mormons or bring in more money for the church. He said all this soul-searching about what you owe God is kind of the point.