you do not necessarily receive a deduction for it. For instance, if you pay for camp for your son using the "other" line on the donation slip, you do not get a deduction for it, even though it shows up on your statement at the end of the year. Pass through items, or items specifically allocated (meaning their use is subject to strict allocations) are not typically deductible. There was a great Supreme Court Case that was tried on this dealing with LDS missionaries and is really the genesis of the Church changing the way that donations for missionary support were done. Note that when you "pay for your mission" you donate a set amount to the Church each month, but your missionary in no way receives support correlated with that amount.

Incidentally, I never said that the Church paid income tax on it. Receiving a deduction for something and taking something else into income are two separate code sections for purposes of tax exempt entities (and most other entities for that matter, although matching rules do often apply).

One other item of interest (for people who are interested in tax), tax exempt entities can and often times do pay tax on unrelated business income (UBITI or UBIT, when referring to the tax only).