What Happens When the Tax Man Cometh for the Pope?
With the election of Cardinal Robert F. Prevost of Chicago as Pope Leo XIV, America has its first-ever Pontiff—and a Chicagoan—in the Vatican. But while Catholics around the world are asking spiritual questions, tax lawyers are asking a different one:
Will the IRS try to collect taxes on the Pope’s in-kind compensation?
It’s not as silly a question as it sounds. Under U.S. tax law, citizens must pay taxes on their worldwide income, no matter where they live. This includes not just wages, but also many forms of in-kind compensation—things like free housing, meals, or even a company car. If you’re an American working overseas and your employer pays your rent or feeds you lunch every day, the IRS typically considers that taxable.
So, what about Pope Leo XIV? After all, he’s now living rent-free in the Apostolic Palace, eating gourmet meals prepared by the Vatican’s chefs, wearing some very fancy vestments, and tooling around in a Popemobile with zero monthly lease. If this were any other American citizen receiving untaxed perks abroad, the IRS would be licking its chops.
Sovereignty Beats the IRS
But here’s the catch: Pope Leo XIV is not just any citizen. He is the head of state of a sovereign foreign nation—the ruler of Vatican City. And that makes all the difference.
Under Section 892 of the Internal Revenue Code, and backed by the Vienna Convention on Diplomatic Relations, foreign heads of state are generally exempt from U.S. taxation on income derived from official duties, even if they hold U.S. citizenship. The logic is simple: you don’t tax a king, a queen, or, in this case, a pope, for doing the job of a sovereign.
In other words, the housing, meals, transportation, and ceremonial garb aren’t fringe benefits from an employer—they’re the provisions of a monarch’s office.
Could the IRS technically try to tax him anyway? In theory, yes. The U.S. is one of the only countries that taxes its citizens abroad. But good luck with enforcement. Just picture the audit letter: “Your Holiness: Please report the fair-market rental value of your Vatican apartment and any side income from indulgences, papal blessings, or balcony appearances.”
Even if the IRS dared to send agents to Vatican City, they’d be stopped at the gates by the Swiss Guard and centuries of canon law.
Swiss Guards in St. Peter’s Square awaiting the announcement of the new Pope. Vatican City, May 8, 2025 (Grzegorz Galazka/Mondadori Portfolio via Getty Images)
So, unless Pope Leo XIV starts day trading from St. Peter’s Square or launches a line of papal NFTs, the IRS will just have to let this one go.
Which is probably a relief—after all, the paperwork alone for a papal audit might take longer than a Council of Trent.
The Dollar’s Downward Drift—and What Could Stop It
President Trump has made tariffs the foundation of his economic agenda—and the global currency markets are finally starting to get the message.
Since Trump’s Liberation Day announcement on April 2, the U.S. dollar has slid more than eight percent against major trading partners.
Why? Because Trump’s tariffs, like his tax cuts, upend the old rules.
The establishment warned that tariffs would strengthen the dollar by raising inflation and interest rates. But markets aren’t behaving that way. Investors aren’t bidding up the dollar—they’re stepping back, wary of political risk, concerned that higher long-term yields could hurt the U.S. economy, and therefore the value of U.S. assets, and the possibility of a central bank that waits too long to respond.
And here’s the paradox: the longer the Fed resists cutting rates, the weaker the dollar could get.
Wall Street sees the Fed’s reluctance not as confidence, but as complacency. It’s triggering a slow leak of capital from U.S. markets into European equities, emerging market bonds, gold, and even crypto. The American exceptionalism trade is unwinding—not because the economy is collapsing, but because the monetary regime is unclear.
As Bank of America’s Michael Hartnett put it bluntly: “Stay short the dollar until the Fed is forced to cut.”
When will that happen? Not when inflation falls—we just had a negative read on CPI and the Fed held rates steady—but when the Fed decides financial conditions are too tight for the labor market to stay firm. A cut—not a hike—might be the moment the dollar rebounds.
Even without a cut from the Fed, tax cuts and regulatory reform could give the dollar a boost if they increase confidence in the U.S. economy and make the U.S. more attractive to global investors.
Until then, the dollar’s weakness is the cost of waiting. In this market, clarity is currency. And right now, the Fed is printing uncertainty.
