A few weeks ago, President Trump announced that he would advocate for the repeal of the prohibition against certain religious organizations (i.e., those exempt from paying federal income taxes under Section 501(c)(3)) from engaging in political campaigning. His statement was made at the National Prayer Breakfast to a group of religious leaders. However, since the prohibition applies to all Section 501(c)(3) entities (e.g., 501(c)(3) universities and hospitals), it seems likely that any such repeal would also apply to all Section 501(c)(3) entities.
To be clear, the prohibition on political campaigning does not apply to religious organizations or other charities per se. Rather, the ban only applies to those entities that have obtained Section 501(c)(3) status. A 501(c)(3) organization is exempt from federal income tax on what would otherwise be its taxable income (aside from taxable income derived from a trade or business that is unrelated to the organization’s tax-exempt purpose), and donors to a 501(c)(3) organization may, subject to certain limits, claim a federal income tax deduction for contributions made to the 501(c)(3) organization. In other words, under current law, a Section 501(c)(3) organization has chosen to give up its right to engage in political campaigning in exchange for generous federal income tax benefits. The practical impact of the ban (also known as the Johnson Amendment) is that Congress has decided for the past 60 years that the federal government will not subsidize political campaigning by 501(c)(3) organizations.
To qualify for Section 501(c)(3) status, the subject organization cannot:
. . . 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.
That sounds pretty restrictive. However, Rev. Rul. 2007-41 provides examples of what the IRS considers “public statements of position made on behalf of an organization,” and the examples make the prohibition appear to be a lot less restrictive. For example, the following guidance is set forth in Rev. Rul. 2007-41:
Minister C is the minister of Church L, a section 501 (c) (3) organization and Minister C is well known in the community. Three weeks before the election, he attends a press conference at Candidate V’s campaign headquarters and states that Candidate V should be reelected. Minister C does not say he is speaking on behalf of Church L. His endorsement is reported on the front page of the local newspaper and he is identified in the article as the minister of Church L. Because Minister C did not make the endorsement at an official church function, in an official church publication or otherwise use the church’s assets, and did not state that he was speaking as a representative of Church L, his actions do not constitute campaign intervention by Church L.
This seems to limit the prohibited “political campaigning” to endorsements made (1) on church property, (2) at an official church function, and (3) using church assets or when the endorsement is specifically stated to be “on behalf of the church.” Despite this more limited interpretation, however, violations still occur.
A 2006 report compiled by the IRS observes that Section 501(c)(3) organizations, including religious institutions, at times are very politically active. For example, during the 2004 presidential campaign, the IRS reports that many heads of Section 501(c)(3) organizations gave speeches, published politically sensitive statements and even endorsed candidates. In addition, since 2008, various pastors have participated in “Pulpit Freedom Sunday” where they make a political campaign speech from the pulpit, tape it, and then send the videotape to the IRS – with little to no consequences.
Is the repeal of the Johnson Amendment a good or bad idea? It depends on whom you ask. Proponents of the repeal argue that the Johnson Amendment stifles the free speech rights to which 501(c)(3) organizations are entitled and, in the case of religious institutions that are also 501(c)(3) organizations, that it inhibits the instruction that religious leaders are supposed to be providing to the members of their congregation in all aspects (including voting) of the members’ lives. Critics of the repeal believe that such action would turn religious entities and other 501(c)(3) organizations into super PACs with no disclosure requirement regarding donors. I think the more relevant question, however, may be whether the federal government should be subsidizing political campaigns in this way. Stay tuned.