The Rights of Churches and Political Involvement
From  The Rutherford Institute

Since the passage of the Sixteenth Amendment of the U. S. Constitution, which authorized Congress to impose a federal income tax, Congress has consistently granted churches and religious organizations special exemptions from paying taxes and for receiving tax-deductible contributions. However, if a church or religious organization wishes to qualify for and maintain this tax-exempt status, it must abide by the restrictions on political and legislative activities established in section 501(c)(3) of the Internal Revenue Code of 1986 (as amended). Section 501(c)(3) includes two stipulations: first, no substantial part of the organizations activities may consist of carrying on propaganda or otherwise attempting to influence legislation, and second, the organization may not participate in political campaigning in opposition to, or on behalf of, any candidate for public office.

In light of how the Internal Revenue Service (IRS) and some courts have interpreted section 501(c)(3) [see discussion below], churches and religious organizations may well consider this law as yet another example of the government’s subordination of the rights of religious persons to “matters of national public policy” or to other rights. Understanding section 501(c)(3), however, is necessary for any church that wishes to positively impact the moral and social fabric of our culture. A church must decide whether it can be a viable and influential force in society within the constraints of section 501(c)(3) or whether it should forego the benefits of tax-exemption in order to participate unreservedly in the legislative and political process.

Legislative activities

Defining A “Substantial” Part
Section 501(c)(3) states that a church or religious organization which engages in “substantial” legislative activities jeopardizes its tax-exempt status. The IRS interprets “legislative activities” as attempts to influence legislation by participating in lobbying for the purpose of proposing, supporting, or opposing federal, state, or local legislation, or advocating the adoption or rejection of legislation.

The IRS states that its determination of whether an organization’s legislative activities constitute a “substantial” part of its overall activities depends on “all the pertinent facts and circumstances in each case.” It gives “consideration...to a variety of factors including the time devoted by the organization to the activity (by both compensated and volunteer workers), assets devoted to the activity (such as office space, machinery, etc.), as well as expenditures.

To make this determination more precise, one federal court proposed a rule of thumb that an expenditure of less than five percent of a tax-exempt organization’s time and effort in attempting to influence legislation does not constitute “substantial legislative activities.” Many tax-exempt organizations now widely regard the five percent rule as a benchmark of permissible legislative activity. Recently, however, the IRS administrative manual noted:

[The five percent rule] provides but limited guidance because the court’s view as to what sort of activities were to be measured is no longer supported by the weight of precedent. Moreover, it is not clear how the court arrived at the five percent figure. Most cases...have tended to avoid any attempt at percentage measurement of activities...The central problem is more often one of characterizing the various activities as attempts to influence legislation. Once this determination is made, substantiality is frequently self-evident.

Therefore the IRS’ approach is to conduct a case-by-case review with no precise standards. Consistent with this approach, another federal court rejected the five percent rule while ruling in favor of the IRS’ revocation of a Christian organization’s tax-exempt status. The court reached its decision by broadly interpreting “substantial” legislative activities to include all indirect attempts to influence legislation through “a campaign to mold public opinion.” To date, this is the only reported court decision which holds that a religious organization’s influence of legislation violates the requirement of section 501(c)(3).

In contrast, several court decisions have specifically held that churches and religious organizations do not violate the restriction on legislative activities when they are motivated by the religious purposes of the organization. These cases, however, interpreted the law as it existed prior to the enactment of the limitations on legislative activities by Congress in 1934.

At one time, the Supreme Court also appeared supportive of legislative involvement by churches and religious organizations when it noted:

Adherents of particular faiths and individual churches frequently take strong positions on public issues...vigorous advocacy of legal or constitutional positions. Of course, churches as much as secular bodies and private citizens have that right.

But in a more recent case, the Court reasoned that since tax exemptions are “a matter of grace that Congress can, of course, disallow as it chooses’...Congress is not required by the First Amendment to subsidize lobbying.” In doing so, the Court apparently viewed First Amendment rights, such as free speech and religious expression, as less important than the government’s tax policy.

In short, only one reported court decision has found a religious organization in violation of section 501(c)(3) by engaging in “substantial” legislative activities. The IRS, however, refuses to abide by any precise standards, such as a percentage rule, to measure when “substantial” legislative activities have occurred. Hence, a church or religious organization seeking to acquire or maintain a tax-exempt status must be aware that there is always some risk that its attempts to influence legislation will prompt the IRS to pursue an audit and perhaps even revoke its tax-exempt status.

While there are no fail-safe ways to guarantee that a church or religious organization can be both involved in the legislative process and remain tax-exempt, one risk adverse approach might be for a church to report pending legislation to church members, without proposing, supporting, or opposing any legislation. Of course, nothing prohibits the IRS from scrutinizing even such activity. The Supreme Court has suggested another option: section 501(c)(3) organizations could engage in substantial legislative activities if they establish a separate entity under section 501(c)(4) which could promote “social welfare” but would not qualify for tax-deductible contributions. Beyond that, a church may well assess that it must speak out without inhibition on pending legislation in order to remain culturally relevant, and therefore, willingly forego its tax-exempt status altogether.

Political Activities

Defining “Political” Participation
Unlike the limitation on influencing legislation, section 501(c)(3) provides an absolute and unconditional prohibition on the involvement of tax-exempt churches and religious organizations in political activities, which means that no quantitative or qualitative analysis is necessary to determine whether “substantial” activity has occurred.

According to the IRS, this prohibition means that a church or religious organization may lose its tax-exempt status if it actively participates or intervenes in a political campaign by making oral statements or publishing or distributing written statements on behalf of or in opposition to a particular candidate. Furthermore, a church or religious organization does not qualify for an exemption if its charter empowers it to “directly or indirectly 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.

Challenges to Exempt Status
To date, only a few religious organizations have lost their tax-exempt status due to political involvement, despite reports that numerous violations have occurred. However, two attorneys who successfully defended the Catholic church in a lawsuit brought by abortion operators and clergymen asserted that given the high cost of litigation, the mere threat of such a challenge may still have a potential chilling effect on a church’s statements and activities.

Recently, several public interest organizations have sought to generate such a chilling effect. For example, in early 1996, Americans United foe Separation of Church and State (“Americans United”), announced that it was engaging in a concerted effort with its members and state chapters to monitor and report to the IRS any involvement in political campaigning by churches and religious organizations during the election year, with particular attention being paid to involvement with conservative political candidates. Although Americans United is not a government entity, its focus on this issue can only heighten the IRS’ interest in the types of activities engaged in by churches and religious organizations.

The following sections provide illustrations of political activities which the IRS tends to scrutinize:

Campaign Involvement
According to the IRS, an organization engages in political activity in violation of section 501(c)(3) when it directly participates in the nomination and promotion of candidates for public office. For example, in 1989, the IRS revoked the tax-exempt status of an organization because it had encouraged “through its advocacy in its publications, [its members] to build a cadre of precinct committeemen in order to further its ultimate objective: the nomination and election of candidates who shared [its] beliefs. The IRS observed that “intervention at this early stage in the elective process is, we believe, sufficient to constitute intervention in a political campaign.”

Based on this illustration, it would appear that this prohibition does not mean that churches and religious organizations cannot generally encourage their individual members to be responsible citizens who vote and take an interest in the political process, or that individual members cannot run for public office or support candidates for public office on their own initiative. The risk of IRS scrutiny increases, however, when these incidents coincide with the church or religious organization’s expression of support for a particular political candidate or agenda.

Candidate Endorsements
Likewise, the IRS views an organization’s formal endorsement of a political candidate as impermissible. In 1992, the IRS publicized a settlement with Jimmy Swaggart Ministries (JSM), in which JSM acknowledged that it had endorsed Pat Robertson’s 1988 presidential candidacy. JSM agreed that it had endorsed Mr. Robertson through statements by Jimmy Swaggart fro the pulpit of his church and in the JSM monthly magazine, and agreed to refrain from further political activities. In conjunction with the settlement, the IRS released a statement clarifying its policy on the political involvement of ministers:

When a minister of a religious organization endorses a candidate for public office at an official function of the organization, or when an official publication of a religious organization contains an endorsement of a candidate for public office by the organization’s minister, the endorsement will be considered an endorsement by the organization since the acts and statements of a religious organization’s ministers at official functions of the organization and its official publications are the principal means by which a religious organization communicates its official views to its members and supporters.

In the same statement, however, the IRS clarified that pastors and other church leaders are free to become personally involved in political campaigns, “so long as those ministers or officials do not in any way utilize the organization’s financial resources, facilities, or personnel, and clearly and unambiguously indicate that the actions taken or statements made are from the individuals and not of the organization.

Criticism of Political Candidates
Churches and religious organizations concerned about their tax-exempt status must be careful of the timing and the extent to which they criticize a political candidate during an election year.

In one case, a federal court ruled that the Christian Echoes organization had intervened in political campaigns by using its publications and broadcasts to attack candidates and incumbents who were considered too liberal. Specifically, the court stated that in 1961, the organization had criticized President Kennedy and urged its followers to elect conservatives such as Senator Thurmond; several years later, the ministry also urged its followers to defeat Senator Fulbright, criticized President Johnson and Senator Humphrey, and at its annual convention, endorse Senator Goldwater as a presidential candidate.

Relying on similar reasoning, the IRS recently revoked the tax-exempt status of Branch Ministries (a religious organization doing business as “The Church at Pierce Creek”) because the organization had placed a partisan political advertisement in USA Today and The Washington Times opposing the presidential candidacy of Bill Clinton four days prior to the 1992 presidential election.

Distribution of Voting Records and Candidate Surveys
A church or religious organization may publish voting records so long as it remains non-partisan and does not indicate a preference towards any particular candidate in an election. In 1980, for instance, the IRS upheld the tax-exempt status of a charitable and educational organization which monitored and reported on judicial and legislative activities and developments in a monthly newsletter distributed to approximately 2,000 persons nationwide. The organization published a summary of the voting records of each member of Congress on selected legislative issues important to it, along with an expression of the organization’s position on these issues. The IRS reasoned that since the newsletter was issued on a monthly basis to a small number of readers, the organization was not targeting a particular geographic area or seeking for the date of publication to coincide with an election campaign. Furthermore, the newsletter did not identify which members of Congress were up for re-election, issue any comment on an individual’s overall qualifications for office, or expressly endorse or reject any candidate for office.

In contrast, The IRS revoked the tax-exempt status of a religious organization in part because of the organization’s “voter survey”. Despite containing a disclaimer of any endorsement, the survey clearly identified Christian candidates by their positions, which served the organization’s objective of publicizing such candidates. The organization also advocated that Christians dominate the political parties so that more Christian candidates would be nominated and elected to political office.

Providing a Public Forum
A 1974 IRS ruling concerning a broadcasting station held that a tax-exempt organization could provide air time to qualified candidates for public office, so long as it made such time equally available to all candidates. The station had expressed that the candidates views were not necessarily those of the station, and that the presentation was a public service to educate its viewers. By way of analogy, a church or religious organization should be able to provide a public forum to political candidates, as long as it carefully avoids any implication of an endorsement. Even more consistent with this ruling would be to make the forum available to all candidates.

IRS Penalties for Engaging in Political Activities
A church or religious organization which engages in political activities may be subject to excise taxes, an injunction, and the revocation of its exemption.

Two tiers of excise taxes are imposed on a section 501(c)(3) organization involved in political activities. The first tier tax is equal to ten percent of the amount of each political expenditure, unless the IRS determines that the expenditure was not willful or flagrant. The second tier tax is a 100 percent excise tax on the amount of the political expenditure if the expenditure is not corrected within the period beginning on the date the expenditure occurs and ending on either the earlier of the date of mailing of a notice of deficiency with respect to the first tier tax or the date on which such a tax is assessed.

The IRS may also enjoin a public charity from making further political expenditures whether or not the 501(c)(3) status is revoked. Finally, the IRS may terminate an organization’s exemption for the current or immediately preceding taxable year if it makes political expenditures that constitute flagrant violations of the prohibition against political activities.

Conclusion
Tax exemptions for churches and religious organizations are a privilege and not a constitutional right. In fact, to acquire and maintain this privilege, churches and religious organizations may have to forsake heretofore protected constitutional rights under the First Amendment.

The cases discussed above demonstrate that a church or religious organization which desires to acquire or maintain a tax-exempt status must always remain vigilant. Therefore, it could decide to avoid any involvement in legislative or political activities. Alternately, it could take a risk-adverse approach, such as reporting pending legislation and political candidates in an objective manner only and issuing disclaimers that it does not endorse any legislation or candidate. No matter what the approach, however, there is no guarantee that the IRS will not conduct an audit. Tax-exempt churches and religious organizations, therefore, must maintain meticulous records of their activities and expenditures in the event of an audit.

On the other hand, Jesus Christ challenged all Christians, and the Church, to be “the salt of the earth” and “the light of the world.” In this age, it requires that the Church address the deteriorating state of the Judeo-Christian moral structure in our society and the continuing rise of the modern secularistic state. It may be difficult, however, to do so without participating in the ongoing political and legislative debate on critical issues affecting the moral climate of our society, such as abortion, education, and parental rights. Hence, a church or religious organization that desires to impact society may question whether the dollars saved as a result of the tax-exempt “privilege” are worth the price of becoming culturally irrelevant.

Such a church or religious organization could establish a separate entity under section 501(c)(4) of the Code, which could promote “social welfare” but would not qualify for tax-deductible contributions. The most direct approach, of course, would be to simply forego efforts to maintain a tax-exempt status, and invest unreservedly in engaging every facet of our society, including the political realm.

To order copies of this booklet, or for information about other booklets on legal issues, write or call:
The Rutherford Institute
P.O. Box 7482
Charlottesville, VA 22906-7482
Tel: (804) 978-3888
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E-Mail: rutherford@fni.com

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