Surprisingly to many, there are no regulations of any kind governing the display of flags in Roman Catholic Churches. Neither the Code of Canon law, nor the liturgical books of the Roman rite comment on this practice. As a result, the question of whether and how to display the American flag in a Catholic Church is left up to the judgment of the diocesan bishop, who in turn often delegates this to the discretion of the pastor.
The origin of the display of the American flag in many parishes in the United States appears [to] have its origins in the offering of prayers for those who served during the Second World War (1941-1945). At that time, many bishops and pastors provided a book of remembrance near the American flag, requesting prayers for loved ones -- especially those serving their country in the armed forces -- as a way of keeping before the attention of the faithful the needs of military families. This practice has since been confirmed in many places during the Korean, Viet Nam and Iraqi conflicts.
The Bishops´ Committee on the Liturgy has in the past encouraged pastors not to place the flag within the sanctuary itself, in order to reserve that space for the altar, the ambo, the presidential chair and the tabernacle. Instead, the suggestion has been made that the American flag be placed outside the sanctuary, or in the vestibule of the Church together with a book of prayer requests. It remains, however, for the diocesan bishop to determine regulations in this matter.