Churches, taxation, and the Johnson Amendment

President Trump recently said he wanted to revoke the Johnson Amendment, under which churches and other religious organizations may gain tax-exempt status as long as they remain apolitical. This arrangement dates only to 1954 and the issue has come up before. I wrote this post about it in 2004, reposted here. 

Some debate has come up recently about legal restrictions on political activities by churches. For example, I linked, without comment, to Paul Greenberg's recent op-ed in which he claimed,

Now a Baptist minister in little ol' Springdale, Ark., has been accused of crossing the line. How did he get into trouble? Well, it seems that over the years a vague and mischievous distinction has been drawn between politics and partisan politics in the law — that is, churches may address political issues but not explicitly endorse a party or its candidate if they want to keep their tax-exempt status.

La Shawn Barber writes that a "group of conservative Christians" is "sending spies into liberal churches to find out if they advocate a particular politician while preaching in the pulpit." And if they do, "the group has said it will report that church to the Internal Revenue Service, which could revoke their tax-exempt status." La Shawn inexplicably seems to think this is a good thing. 

 

Both Greenberg and Barber misunderstand what the real situation is. They both think, erroneously, that the government's granting of tax-exempt status depends on preachers never being involved in partisan politics. 

 

I became deeply involved in Tennessee's political process as part of a formally-organized United Methodist group campaigning to defeat a ballot measure allowing a state-sponsored lottery in 2002 (we failed). I did a lot of research about what the IRS code actually has to say about this issue. So here's the deal. 

 

Partisan politics deals with the election of a particular candidate or slate of candidates for elective office. Issue politics deal with ballot matters, such as the lottery issue in Tennessee, that don't elect a candidate to an office. 

 

A common belief is that the latter are permitted to churches and the former are forbidden. No so. Remember that the only issue here is a church's tax exempt status, and as far as the IRS is concerned, there is no difference between a church's partisan political activities and its issue activities. 

 

The issue, you should be unsurprised to learn, is money, not speech (or not speech per se ). Overtly political organizations are not tax-exempt. Charitable organizations can apply for and receive tax exemption under Section 501(c)(3) of the IRS code. This exemption means the organization or church does not pay a corporate income tax on funds it earns or receives to do the charitable work. Likewise, it is much easier for churches to furnish donors with the certifications the IRS requires them to have in order to deduct their donations from their personal income taxes. 

 

The reason a church's political activities are related to tax code is to prevent a purely political organization from chartering itself as a religious organization, gaining tax exemption, and then doing nothing but campaigning, perhaps dressed up with some religious language now and then. Think about it: if your business could describe itself as a "charitable organization" and so gain tax exemption, why wouldn't it do so? 

 

If it were that simple, the DNC and the RNC and MicroSoft and General Motors would all call themselves churches or charities, file for 501(c)(3) and merrily oppress the working class even more! 
  Section 504 of the IRS code says that exempted organizations can lose their 501(c)(3) status by “carrying on propaganda” or attempting in influence legislation or elections. But the IRS has never described clearly (surprise) how it may decide that a church is doing so. The test seems to be (I say seems because with the IRS little is ever certain) how much money the exempted organization is spending on political activities. If a "substantial part" (the IRS's expression) of the organization's activities "consists of carrying on propaganda, or otherwise attempting, to influence legislation," then tax-exempt-status can be either denied or revoked. 

 

But - and there is always a "but" with the tax code - there is an expenditure ceiling for political activities in effect, below which political propagandizing is quite okay. Good luck trying to determine what the ceiling is. 

 

The point is that while churches do give up some measure of political influence to accept tax exemption, it is not what people think. The IRS doesn't care how political a preacher's sermon is; its concern seems to be how much money the church spends on political activities rather than religious and charitable ones. 

 

And again, the issue is also whether churches are "attempting to influence" legislation or other political matters (by extension).  Problem is, as Servant News explains,

The Internal Revenue Service enforces Code sections at its own discretion—sometimes doing nothing for decades, then slowly beginning to enforce them. From 1956 through the 1960’s, very few churches lost their 501(c)(3) status for any reason. A landmark case occurred in Christian Echoes National Ministry, Inc. v. United States, 470 F.2d 849 (10th Cir. 1972); cert. denied, 414 U.S. 864 (1973). This description comes from the IRS web site (www.irs.gov/pub/irs-tege/topic-p.pdf), an article entitled “Lobbying issues”:

Christian Echoes National Ministry published articles and produced radio and television broadcasts that urged recipients to become involved in politics and to write to their representatives in Congress to urge that they support prayer in public schools and oppose foreign aid. The organization argued that attempts to influence legislation would occur only if legislation were actually pending. The Tenth Circuit concluded that the regulation properly interpreted the statute, and that the organization was engaged in attempting to influence legislation, even if legislation was not pending.

There are Christian ministries that do the same things today, and, for whatever reason, have not had the 501(c)(3) status removed. Nevertheless, this case did establish that obtaining section 501(c)(3) status is a privilege for which churches trade their constitutional rights Quoting from the Court opinion of Christian Echoes v. United States:

In light of the fact that tax exemption is a privilege, a matter of grace rather than right, we hold that the limitations contained in section 501(c)(3) withholding exemption from nonprofit corporations do not deprive Christian Echoes of its constitutionally guaranteed right of freedom of speech.

To show the arbitrariness of enforcement of section 501(c)(3), we include the following from the Charities and Non-Profits article from the IRS web site: www.irs.gov/charities/article/0,,id=96099,00.html, [bolding ours]:

An IRC Section 501(c)(3) organization may not engage in carrying on propaganda, or otherwise attempting, to influence legislation as a substantial part of its activities. Whether an organization has attempted to influence legislation as a substantial part of its activities is determined based upon all relevant facts and circumstances. However, most IRC Section 501(c)(3) organizations may use Form 5768, Election/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to Influence Legislation, to make an election under IRC Section 501(h) to be subject to an objectively measured expenditure test with respect to lobbying activities rather than the less precise “substantial activity” test.

Churches do not have the option to use form 5768 (which is a paperwork nightmare anyway), so they are evaluated by the “less precise ‘substantial activity test’” that is “based upon all relevant facts and circumstances”—in other words, the IRS has no openly available standard that it must follow and can therefore do whatever it wants. There may be a more codified procedure in the future, or there may not be. It may be more or less restrictive. The IRS has free reign, since all 501(c)(3) status churches have already agreed that no substantial part of their activity will be “carrying on propaganda” (propagating information) about anything.

Yeah, that's clear. My overall point, though, is that the IRS is full of auditors, not speech critics, and when its auditors want to determine what a church is "substantially" doing, it will follow the money trail. 

 

There are nonpolitical things that can cause a church to lose its tax exemption. I knew of one church that leased land to a communications company for towers and relay stations. The IRS considered this - rightly - a commercial enterprise. Because the lease payments amounted to a majority of the church's income (it was a small church) the IRS said that the church had become a for-profit business, and yanked the exemption. 

 

My very large church in Virginia operated a bookstore inside the building. It didn't have to pay taxes on the profit because there was no exterior entrance to the bookstore. But if a church runs a bookstore with an exterior entrance, it has to pay taxes on the profit. That's how complex this issue can be. 

 

Church's that want to become deeply involved in politics may do so, but they have to be willing to be taxed just like any political organization. That means the congregants' tithes won't be tax deductible on personal income tax returns, too. Guess how many churches want to be political so much they'll accept a 30-50 percent reduction in offerings? Not mine, buddy.