Election-Year Political Activity and the Separation of Church and State

Issues for Section 501(c)(3) Organizations

By Phil Harper and Larry Farmer

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Political campaigns tend to catalyze controversial legislation during an election year. In 1954, at the height of the McCarthy era, Senator Lyndon B. Johnson sought a legislative route to silence some of his anticommunist critics. Encouraged by Johnson, the U.S. Senate passed a major tax code revision by a voice vote. Although Johnson’s revision was targeted specifically at nonprofit groups that were contesting his seat, churches—which also are nonprofit organizations—fell under the new tax code provisions.

Although the ban excluded churches and other IRC section 501(c)(3) organizations from active participation in the political process, years passed without major incident. Then, in 1992, the religious organization Branch Ministries, Inc. (BMI), purchased a newspaper advertisement urging Christians to vote against presidential candidate Bill Clinton, and the IRS initiated an investigation. In January 1995, the IRS revoked BMI’s status as a section 501(c)(3) tax-exempt organization. By contrast, in the 1994 New York gubernatorial campaign, the IRS chose not to initiate an investigation when Governor Cuomo received vocal support from the pulpit of a Harlem church. In the very early days of the 2004 presidential campaign, the Houses of Worship Political Speech Protection Act was proposed as a means to reverse a portion of the 1954 legislation and to return First Amendment speech protection to America’s churches, synagogues, and mosques. That bill (HR2357) failed to pass the House in October 2002.

IRS regulations are clear that, while churches and parachurch organizations are restricted from endorsing or opposing a particular political candidate, they may educate about candidates’ viewpoints. This education can take the form of sermons, forums, debates, or voter guides. Less clear, as evidenced by the contrast between the Clinton and Cuomo scenarios, is the threshold between endorsement and education. The proliferation of legislation affecting the election process has further complicated the issue.

Observing the Letter of the Law

In recent years, the IRS has attempted to clarify what is considered appropriate political activity for exempt organizations. IRS publication 1828 (Rev. 7-2002) provides guidance for tax-exempt and government entities. A digest of this publication as it pertains to church and religious organizations serves as a guide for keeping entities “within the letter of the law.”

Lobbying activity. While campaigning for a candidate is prohibited, some amount of effort to influence legislation is permitted. Efforts to influence legislation come under the heading of lobbying activities. A nonprofit organization, including a church, may not engage in “substantial” lobbying without endangering its tax-exempt status under IRC Section 501(c)(3). Two important questions surface:

  • What is considered legislation? This definition is important because it determines allowable lobbying activities.
  • What is “substantial”?

Congress, state legislatures, and local governing bodies, such as city councils and commissions, take action on legislation. “Legislation,” broadly defined, includes action by a governing body on acts, bills, resolutions, and confirmations of appointed officers. Legislation also includes actions by the public on referenda, ballot initiatives, constitutional amendments, and similar procedures. The term does not include actions of executive, judicial, or administrative bodies.

If a church or religious organization contacts or encourages others (members or nonmembers) to contact legislators or legislative employees in an effort to propose, support, or defeat legislation, the religious entity is deemed to be attempting to influence legislation. On the other hand, activities such as marching in front of the Supreme Court or organizing mass mailings to the SEC are not a violation, because these are judicial and enforcement entities rather than legislative bodies.

The IRS uses two tests in determining whether an organization has engaged in substantial lobbying activity: the substantial-part test and the expenditure test, described below. Churches can use only the substantial-part test, while other religious organizations may elect to use either test. The expenditure test is rather definitive, while the substantial-part test is more subjective.

In applying the substantial-part test, the IRS considers the pertinent facts and circumstances. These include the time spent by paid and volunteer workers and the expenditures devoted by the organization to the lobbying activity.

The penalty for crossing the threshold is severe. If a church or religious organization is deemed to have engaged in excessive lobbying activity under the substantial-part test, the IRS may revoke its exempt status. Revocation results in all of the exempt entity’s income being subject to tax, plus a punitive assessment of a 5% excise tax on the lobbying expenditures in the year of revocation.

While no law or IRS document has ever defined “substantial” in percentage terms, two court cases have done so. In Seasongood v. Comm’r [F.2d 907,912 (6th Cir. 1955)], the court established a 5% safe harbor rule based on total expenditures applied to legislative activities. In World Family Corp. v. Comm’r [81 T.C. 958 (1983)], the court ruled that an exempt organization’s lobbying activities of less than 10% but more than 5% of its total efforts were “insubstantial.” The IRS division head of exempt organizations said: “[T]he law in this area needs to be clarified since anything from 5% to 15% of total expenditures has been permitted for legislative activity.” It appears that legislative activity expenditures exceeding 5% of total expenditures may jeopardize a tax exemption.

Religious organizations, excluding churches, may elect to use the expenditure test under IRC section 501(h) by filing IRS Form 5768, “Election/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to Influence Legislation.” The organization’s exempt status will not be at risk as long as its lobbying expenditures do not exceed an amount specified in IRC section 4911. This limit is based on the size of the organization and may not exceed $1 million (see the Exhibit). The election remains in effect until the organization revokes it.

Under the expenditure test, a religious organization may lose its exempt status if it engages in substantial lobbying activity over a four-year period. Loss of status would result in all of its income for the period becoming taxable. If the organization exceeds its lobbying expenditure limit in any one year, an excise tax of 25% on this excess is levied.

Political campaigning prohibited. All exempt organizations, including churches and religious organizations, are strictly prohibited from supporting or opposing any candidate for elective public office. The proscribed activity includes contributions to campaign funds as well as verbal or written public statements by or on behalf of the organization supporting or opposing a candidate for public office. Revocation of tax-exempt status and the imposition of excise taxes may result when an exempt entity violates this prohibition. Even if only a small portion of propaganda was deemed to constitute political intervention, the organization’s tax-exempt status would be lost; the prohibition is absolute (IRS Letter Ruling, 1999007021).

Voter education activities, such as nonpartisan public forums and nonpartisan voter education guides, are permissible and do not constitute prohibited political campaign activity. Nonpartisan voter registration drives and efforts to encourage voters to go to the polls are permitted activities.

Individual political activities of religious leaders. Ministers and religious leaders have the same rights as other individuals to engage in political activity, as long as they do so as an individual and not as a representative of their exempt organization. This precludes partisan comments in an official publication of the organization or at official organization events. When speaking or writing about political issues or candidates, a religious leader is advised to state that he is speaking as an individual, that his views are personal, and that he is not speaking as a representative of his organization.

IRS Publication 1828, Tax Guide for Churches and Religious Organizations, uses an example that a minister may list his name among those endorsing a political candidate. The publication suggests that the advertisement include a disclaimer such as “Titles and affiliation are given for identification purposes only.” This disclaimer and a statement that the ad is paid for by the candidate’s campaign committee should suffice to make clear that the advertisement is not sponsored by the minister’s church. By contrast, the publication indicates that a candidate endorsement by a pastor in the “My Views” column of the church newsletter would constitute prohibited campaigning. This is the IRS’ position even if the pastor personally paid for the newsletter or for that portion carrying the pastors column.

In another example, Publication 1828 indicates that a minister may endorse a candidate at a campaign in a personal capacity without disclaiming that his views are not those of his employer. It is important to note that in this example the campaign event was not a church function, did not use church assets, and the minister did not state that he was speaking as a representative of his church.

Politicians at churches. Exempt status is not jeopardized when candidates speak at nonpartisan forums held in church facilities, as long as all candidates are invited to speak. No political fundraising is permitted at such events, and representatives of the church must not indicate support for or opposition to any candidate. Churches must ensure that no candidate is favored at such events. Inviting one candidate to a well-attended annual banquet but another to a sparsely attended minor event will not satisfy IRS requirements.

If candidates are asked to answer prepared questions, the questions should be developed by an independent nonpartisan panel. The prepared questions should be of interest to the public and should cover the range of issues a candidate would confront if elected. Each candidate must be given equal opportunity to state her views. No comments should be made by the moderator or by an employee implying the organization’s approval or disapproval of any candidate. Candidates should not be asked to agree with positions of the organization.

An acceptable approach is to have each candidate for an office address the congregation on successive Sundays and with the same length of speaking time. The minister’s introduction of the candidates should neither favor nor disfavor any candidate.

The church is not required to invite all candidates to appear if a candidate speaks in a noncandidate capacity. In such a situation, no mention should be made of the speaker’s candidacy for office and no campaign activity should occur. An example of this is a candidate with a distinguished military career who appears at a function honoring soldiers. The moderator should state the capacity in which the candidate is appearing.

Voter education. Distributing voter education guides that indicate candidates’ positions on various issues is permissible. Descriptions of issues should be neutral and should not be compared to the organization’s positions. The positions of all candidates should be included, either in their own words or stated in a neutral, unbiased, and complete fashion.

Under federal tax law, IRC section 501(c)(3) organizations that are “organized and operated exclusively for religious and charitable … or educational purposes” are exempt from taxation. Exemption under this section gives these groups the right to solicit tax-deductible contributions. These tax advantages have resulted in many organizations claiming exemption for education purposes when the facts indicate that education activities would be a very narrow focus of the organization’s activities.

Treasury Regulations section 1.501(c)(3)-1 differentiates between an “action” organization [which cannot qualify for a 501(c)(3) tax exemption] and an educational organization. An action organization has the following characteristics:

  • 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
  • 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.

When providing voter education material, a nonprofit organization wants to avoid classification as an “action” organization. Most nonprofit organizations would be unable to survive if they lost their 501(c)(3) exemption.

Data provided by the National Center for Charitable Statistics (www.nccs.urban.org), a national clearinghouse of data on the nonprofit sector and a program of the Center on Nonprofits and Philanthropy at the Urban Institute, indicates that between the years 1995 and 2003, the number of IRC section 501(c)(3) organizations increased by more than 40%. Because the restriction on active participation in the political process extends beyond that of religious organizations, organizations and their professional advisors should take note.

Phil Harper, JD, and Larry Farmer, DBA, are accounting professors at Middle Tennessee State University, Murfreesboro, Tenn.




















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