Most churches will qualify for federal income tax exemption under Section 501(c)(3) of the Internal Revenue Code. However, there is a restriction on certain types of political activity that churches and other non-profit organizations can engage in to retain this status. Any unauthorized activity reported to the Internal Revenue Service can result in revocation of this tax-exempt status.
The following organizations “shall be exempt from taxation” under the Internal Revenue Code:
- “Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation…, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” 26 U.S.C. 501(c)(3).
The portion of the statute in italics is known as the Johnson Amendment which was passed in 1954 to prohibit all 501(c)(3) organizations (including churches) from endorsing or advocating against political candidates. This provision is controversial as its opponents say that it restricts the First Amendment rights of churches and other religious organizations to engage in free speech and exercise religious freedom, but proponents say if it was repealed then churches can make political contributions on a tax-deductible basis where other for-profit organizations could not.
Despite the Johnson Amendment remaining in full force and effect, not all political activity is prohibited. This blog article will explain what the Internal Revenue Service has treated as permitted political activity and non-permitted political activity.
Generally, churches and other tax-exempt organizations are permitted to take positions on political issues that are important to its leadership and the congregation, but the line is not clear where issue advocacy can cross over into prohibited behavior. There are two important considerations that churches should respect to stay within the bounds of the rules. First, it must avoid making influencing legislation a “substantial part” of its activities. Second, issue advocacy must not cross the line into support for or against particular candidates or officeholders.
WHAT CONSTITUTES “SUBSTANTIAL PART” OF AN ORGANIZATION’S ACTIVITIES FOR INFLUENCING LEGISLATION?
“In order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt.” 26 CFR §1.501(c)(3)-1(a)(1).
To satisfy the organizational test, the organization must be organized exclusively for one or more exempt purposes only if its articles of organization “[l]imit the purposes of such organization to one or more exempt purposes” and “[d]o not expressly empower the organization to engage, otherwise than as an insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more exempt purposes.” 26 CFR §1.501(c)(3)-1(b)(1)(i).
However, “[a]n organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it:”
- “To devote more than an insubstantial part of its activities to attempting to influence legislation by propaganda or otherwise.” 26 CFR §1.501(c)(3)-1(b)(3)(i). OR
- “Directly or indirectly to participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office.” 26 CFR §1.501(c)(3)-1(b)(3)(ii). OR
- “To have objectives and to engage in activities which characterize it as an ‘action organization’…”. 26 CFR §1.501(c)(3)-1(b)(3)(iii).
To satisfy the operational test, “[a]n organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.” 26 CFR §1.501(c)(3)-1(c)(1). “An organization is not operated exclusively for one or more exempt purposes if it is an ‘action organization’”. 26 CFR §1.501(c)(3)-1(c)(3)(i).
A church or other tax-exempt group will be considered an ‘action organization’ if it does one or more of the following:
- “[A] substantial part of its activities is attempting to influence legislation by propaganda or otherwise.” An organization will be regarded as attempting to influence legislation if the organization “[c]ontacts, or urges the public to contact, members of a legislative body for the purpose of proposing, supporting, or opposing legislation”; or “[a]dvocates the adoption or rejection of legislation.” 26 CFR §1.501(c)(3)-1(c)(3)(ii). “An organization will not fail to meet the operational test merely because it advocates, as an insubstantial part of its activities, the adoption or rejection of legislation.” Id.
- “[I]t participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office.” 26 CFR §1.501(c)(3)-1(c)(3)(iii). “Activities which constitute participation or intervention in a political campaign on behalf of or in opposition to a candidate include, but are not limited to, the publication or distribution of written or printed statements or the making of oral statements on behalf of or in opposition to such a candidate.” Id.
- “[I]t has the following two characteristics: (a) Its main or primary objective or objectives (as distinguished from its incidental or secondary objectives) may be attained only by legislation or a defeat of proposed legislation; and (b) it advocates, or campaigns for, the attainment of such main or primary objective or objectives as distinguished from engaging in nonpartisan analysis, study, or research and making the results thereof available to the public. In determining whether an organization has such characteristics, all the surrounding facts and circumstances, including the articles and all activities of the organization, are to be considered.” 26 CFR §1.501(c)(3)-1(c)(3)(iv).
If the IRS determines that the church or religious organization does not satisfy the organizational test or operational test and instead dedicates a substantial part of its activities to influencing legislation or other prohibited political activities, then it runs the risk of losing its tax-exempt status.
PERMITTED POLITICAL ACTIVITY AS DETERMINED BY THE IRS
On June 18, 2007, the Internal Revenue Service released Rev. Rul. 2007-41, 2007-25 I.R.B. to clarify permissible political activities that churches, religious organizations and other 501(c)(3) organizations may participate in:
- VOTER EDUCATION, VOTER REGISTRATION AND GET OUT THE VOTE DRIVES (pg. 3) – “Section 501(c)(3) organizations are permitted to conduct certain voter education activities (including the presentation of public forums and the publication of voter education guides) if they are carried out in a non-partisan manner. In addition, section 501(c)(3) organizations may encourage people to participate in the electoral process through voter registration and get-out-the-vote drives, conducted in a non-partisan manner. On the other hand, voter education or registration activities conducted in a biased manner that favors (or opposes) one or more candidates is prohibited.”
- INDIVIDUAL ACTIVITY BY ORGANIZATIONAL LEADERS (pg. 4) – “The political campaign intervention prohibition is not intended to restrict free expression on political matters by leaders of organizations speaking for themselves, as individuals. Nor are leaders prohibited from speaking about important issues of public policy. However, for their organizations to remain tax exempt under section 501(c)(3), leaders cannot make partisan comments in official organization publications or at official functions of the organization.”
- CANDIDATE APPEARANCES (pg.5) – “Depending on the facts and circumstances, an organization may invite political candidates to speak at its events without jeopardizing its tax-exempt status. Political candidates may be invited in their capacity as candidates, or in their individual capacity (not as a candidate). Candidates may also appear without an invitation at organization events that are open to the public. When a candidate is invited to speak at an organization event in his or her capacity as a political candidate, factors in determining whether the organization participated or intervened in a political campaign include the following:”
- “Whether the organization provides an equal opportunity to participate to political candidates seeking the same office;”
- “Whether the organization indicates any support for or opposition to the candidate (including candidate introductions and communications concerning the candidate’s attendance); and”
- “Whether any political fundraising occurs.”
- CANDIDATE APPEARANCES WHERE SPEAKING OR PARTICIPATING AS A NON-CANDIDATE (pg. 6-7) – “Candidates may also appear or speak at organization events in a non-candidate capacity. For instance, a political candidate may be a public figure who is invited to speak because he or she: (a) currently holds, or formerly held, public office; (b) is considered an expert in a non political field; or (c) is a celebrity or has led a distinguished military, legal, or public service career. A candidate may choose to attend an event that is open to the public, such as a
lecture, concert or worship service. The candidate’s presence at an organization-sponsored event does not, by itself, cause the organization to be engaged in political campaign intervention. However, if the candidate is publicly recognized by the organization, or if the candidate is invited to speak, factors in determining whether the candidate’s appearance results in political campaign intervention include the following:”
- “Whether the individual is chosen to speak solely for reasons other than candidacy for public office;”
- “Whether the individual speaks only in a non-candidate capacity;”
- “Whether either the individual or any representative of the organization makes any mention of his or her candidacy or the election;”
- “Whether any campaign activity occurs in connection with the candidate’s attendance;”
- “Whether the organization maintains a nonpartisan atmosphere on the premises or at the event where the candidate is present; and”
- “Whether the organization clearly indicates the capacity in which the candidate is appearing and does not mention the individual’s political candidacy or the upcoming election in the communications announcing the candidate’s attendance at the event.”
- ISSUE ADVOCACY VS. POLITICAL CAMPAIGN INTERVENTION (pg. 8-9) – “Section 501(c)(3) organizations may take positions on public policy issues, including issues that divide candidates in an election for public office. However, section 501(c)(3) organizations must avoid any issue advocacy that functions as political campaign intervention. Even if a statement does not expressly tell an audience to vote for or against a specific candidate, an organization delivering the statement is at risk of violating the political campaign intervention prohibition if there is any message favoring or opposing a candidate. A statement can identify a candidate not only by stating the candidate’s name but also by other means such as showing a picture of the candidate, referring to political party affiliations, or other distinctive features of a candidate’s platform or biography. All the facts and circumstances need to be considered to determine if the advocacy is political campaign intervention. Key factors in determining whether a communication results in political campaign intervention include the following:”
- “Whether the statement identifies one or more candidates for a given public office;”
- “Whether the statement expresses approval or disapproval for one or more candidates’ positions and/or actions;”
- “Whether the statement is delivered close in time to the election;”
- “Whether the statement makes reference to voting or an election;”
- “Whether the issue addressed in the communication has been raised as an issue distinguishing candidates for a given office;”
- “Whether the communication is part of an ongoing series of communications by the organization on the same issue that are made independent of the timing of any election; and”
- “Whether the timing of the communication and identification of the candidate are related to a non-electoral event such as a scheduled vote on specific legislation by an officeholder who also happens to be a candidate for public office.”
- BUSINESS ACTIVITY (pg. 10-11) – “The question of whether an activity constitutes participation or intervention in a political campaign may also arise in the context of a business activity of the organization, such as selling or renting of mailing lists, the leasing of office space, or the acceptance of paid political advertising. In this context, some of the factors to be considered in determining whether the organization has engaged in political campaign intervention include the following:”
- “Whether the good, service or facility is available to candidates in the same election on an equal basis,”
- “Whether the good, service, or facility is available only to candidates and not to the general public,”
- “Whether the fees charged to candidates are at the organization’s customary and usual rates, and”
- “Whether the activity is an ongoing activity of the organization or whether it is
- conducted only for a particular candidate.”
- WEB SITES (pg. 12-13) – “A web site is a form of communication. If an organization posts something on its web site that favors or opposes a candidate for public office, the organization will be treated the same as if it distributed printed material, oral statements or broadcasts that favored or opposed a candidate. An organization has control over whether it establishes a link to another site. When an organization establishes a link to another web site, the organization is responsible for the consequences of establishing and maintaining that link, even if the organization does not have control over the content of the linked site. Because the linked content may change over time, an organization may reduce the risk of political campaign intervention by monitoring the linked content and adjusting the links accordingly. Links to candidate-related material, by themselves, do not necessarily constitute political campaign intervention. All the facts and circumstances must be taken into account when assessing whether a link produces that result. The facts and circumstances to be considered include, but are not limited to, the context for the link on the organization’s web site, whether all candidates are represented, any exempt purpose served by offering the link, and the directness of the links between the organization’s web site and the web page that contains material favoring or opposing a candidate for public office.”
This Revenue Ruling provides 21 specific examples to assist churches and religious organizations in determining if their activities will cross the line. Once again, the IRS will look at the totality of all the facts and circumstances to determine if there was a violation.
EXECUTIVE ORDER DIRECTS THE IRS TO ACT WITH RESTRAINT
On May 4, 2017, President Donald Trump signed Executive Order 13798—Promoting Free Speech and Religious Liberty which was intended “to guide the executive branch in formulating and implementing policies with implications for the religious liberty of persons and organizations in America.” In particular, it provides the following:
- 1. Policy. “It shall be the policy of the executive branch to vigorously enforce Federal law’s robust protections for religious freedom. The Founders envisioned a Nation in which religious voices and views were integral to a vibrant public square, and in which religious people and institutions were free to practice their faith without fear of discrimination or retaliation by the Federal Government. For that reason, the United States Constitution enshrines and protects the fundamental right to religious liberty as Americans’ first freedom. Federal law protects the freedom of Americans and their organizations to exercise religion and participate fully in civic life without undue interference by the Federal Government. The executive branch will honor and enforce those protections.”
- 2. Respecting Religious and Political Speech. “All executive departments and agencies (agencies) shall, to the greatest extent practicable and to the extent permitted by law, respect and protect the freedom of persons and organizations to engage in religious and political speech. In particular, the Secretary of the Treasury shall ensure, to the extent permitted by law, that the Department of the Treasury does not take any adverse action against any individual, house of worship, or other religious organization on the basis that such individual or organization speaks or has spoken about moral or political issues from a religious perspective, where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign on behalf of (or in opposition to) a candidate for public office by the Department of the Treasury. As used in this section, the term “adverse action” means the imposition of any tax or tax penalty; the delay or denial of tax-exempt status; the disallowance of tax deductions for contributions made to entities exempted from taxation under section 501(c)(3) of title 26, United States Code; or any other action that makes unavailable or denies any tax deduction, exemption, credit, or benefit.”
In essence, the Internal Revenue Service is directed to act with restraint against churches and religious organizations in determining a violation and to defer in favor of the tax-exempt organization if it is a close call.
To date, Executive Order 13798 has not been revoked by subsequent presidential administrations.
OUR TAX PROFESSIONALS ARE AVAILABLE TO ASSIST YOU
If the IRS determines that a church or religious organization violated these rules, then the consequences can include the revocation of tax-exempt 501(c)(3) status and imposition of excise tax penalties. A skilled tax lawyer can be of assistance in helping determine ahead of time if the proposed political activity will be a problem before the tax-exempt organization suffers a negative result.
If you have further questions or need legal representation, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.