In the fall of 2013, the Commission on Accountability and Policy for Religious Organizations released its report on government regulation of political speech by 501(c)(3) organizations. A copy of the report is available here. The Commission was formed to study abuses by tax-exempt organizations and to recommend solutions. This report focuses on the restriction in Section 501(c)(3) of the Internal Revenue Code that prohibits tax-exempt organizations from participating or intervening in any political campaign. The restriction is designed to prevent tax-exempt funds from being used for political purposes. This issue is of particular importance to churches due to concerns that churches could be punished for making statements about moral or social issues.
Rationale for Changes. The Commission recommends changes to Section 501(c)(3) for the following reasons:
- IRS guidance is vague. IRS guidance states that determining whether or not an organization has violated the restriction “depends upon all of the facts and circumstances of each case.” The guidance lists several factors relevant to the analysis, but it is unclear how much weight each factor carries.
- IRS enforcement has been inconsistent. The IRS rarely investigates organizations for violating the restriction, despite well-publicized and even deliberate violations. When the IRS has conducted investigations, its conclusions have appeared arbitrary.
- Political involvement is an important part of the history and culture of some churches. Preserving the religious liberties of these churches outweighs concerns posed by political activity.
Recommendations. The Commission supports keeping the restriction on political participation and intervention, but modifying it to allow certain types of speech and to mitigate the consequences of violating the restriction. The Commission recommends the following changes:
- Amending Section 501(c)(3) to clarify that “communications that are made in the ordinary course of a 501(c)(3) organization’s regular and customary exempt-purpose activities and that do not involve an expenditure of funds do not constitute participation or intervention in a political campaign (emphasis mine).” A de minimis expenditure of funds would not constitute political participation or intervention.
- Political discourse during a regular Sunday worship service would not violate the restriction. The church’s political expenditures would be de minimis since the service was already scheduled to take place.
- However, if a church organizes a special event for the purpose of speaking about political topics or endorsing candidates and incurs costs to conduct the event, the church would violate the restriction.
- Printing partisan political materials and donating to candidates would also violate the restriction.
- Amending Section 501(c)(3) so that if political participation or intervention is “inadvertent” or is “not substantial or frequent in relation to the organization’s activities as a whole” the organization would retain its tax-exempt status, but pay excise tax on its political expenditures.
- This approach is similar to how the IRS sanctions organizations for excess benefit transactions.
- Churches would not have to fear losing their tax-exempt status due to a mistake interpreting the law or a minor lapse in judgment.
Congress is not bound to follow the Commission’s recommendations, and it remains unclear if Congress will make any changes to 501(c)(3).
This article is provided for general information and should not be relied upon as legal advice for a specific situation. If you are in need of specific advice or legal representation, please do not hesitate to contact us.
©2014 Bea & VandenBerk