Political Activity and the Separation of Church and State
for Section 501(c)(3) Organizations
Phil Harper and Larry Farmer
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.
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.
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.
the Letter of the Law
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.”
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”?
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.
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.
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.
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.
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.
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.
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
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
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).
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.
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.
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
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.
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
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.
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
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
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
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.
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;
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.
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.
provided by the National Center for Charitable Statistics
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.
Harper, JD, and Larry Farmer, DBA,
are accounting professors at Middle Tennessee State University,