Using Tax Exempt Status to Control Churches' Speech

When I was in law school in the mid-1980s, I was a teacher's assistant for a professor who was writing a book about taxes and the law. Part of my job was to locate cases brought by various tax authorities that threatened to revoke a church's tax exampt status for speaking politically in violation of the Internal Revenue Code (Title 26) and tax regulations.

For those unfamiliar with the law, churches are considered exempt from federal taxation under the provisions of 26 U.S.C. Sec. 501(c)(3), which specifically states that among the entities exempt from taxation are included:

Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not 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.

I have highlighted a number of phrases in this section to point out that if a church desires to retain its tax exempt status, the church must be operated "exclusively" for religious purposes. If the church makes the mistake of having a "substantial part" of its activities include attempting to influence legislation or engaging in "propaganda", or if the church does anything to "participate or intervene in any political campaign", it risks losing its tax exempt status.

While a substantial body of case law has arisen that attempts to define more closely what types of activities step over this line, the determination as to whether any particular church has actually engaged in proscribed actitivities is largely a "case by case" analysis. The mere risk of stepping over the line and losing the tax exemption is enough to force many churches (especially smaller churches with tight budgets) to take a "don't come anywhere close to crossing the line" approach to discussing matters of public concern.

The effect of the ban prompted the House of Representatives to consider enacting The Houses of Worship Political Speech Protection Act (HR 2357) which would have allowed religious organizations to engage in an "insubstantial" amount of political speech activity without endangering their 501(c)(3) tax-exempt status. According to an article entitled "Bill to free churches coming to House floor" by Joseph A. D'Agostino And John Gizzi:

"Section 501(c)(3) of the Internal Revenue Code has been interpreted by courts to prevent even a single activity which might be regarded as 'participating in, or intervening in' a political campaign on behalf of or in opposition to a candidate for public office," says a description of the bill provided by [Rep. Walter Jones', R-N.C] office. "HR 2357 confirms this country's tradition and respect for the First Amendment by removing the muzzle from churches and houses of worship created by the absolute ban against all speech or activities that may be regarded as 'political.'

"The political ban in Section 501(c)(3) was inserted in 1954 by then-Sen. Lyndon Johnson. This was done with a floor amendment to the Revenue Act of 1954, and absolutely no hearings or congressional record was developed on the need or reasons for the absolute ban."

"Johnson wanted to silence some of his opponents," said Jones in an interview. "It is time to restore the right of political speech to churches and their pastors."

This may simply be my perception, but the threat of withdrawal of the tax-exempt status has seemed to weigh more heavily on churches that aligned themselves with conservative values than churches that aligned themselves with liberal values. It seemed that any involvement in politics by a religious figure on the conservative side like Pat Robertson brought cries that the involvement inappropriately crossed the boundary between separation of church and state, while religious figures like Jesse Jackson were free to run for president without any of the same cries arising. Well, it looks as though the threat of the loss of tax exempt status has reached a more liberal church in Los Angeles, and the church leaders don't like it at all.

According to "Church May Lose Funds Over Sermon" as published in the Free New Mexican:

The Internal Revenue Service has warned a prominent liberal church that it could lose its tax-exempt status because of an anti-war sermon a guest preacher gave on the eve of the 2004 presidential election, according to church officials.

The Rev. George F. Regas did not urge parishioners at All Saints Episcopal Church to support either President Bush or John Kerry, but he was critical of the Iraq war and Bush's tax cuts.

The IRS warned the church in June that its tax-exempt status was in jeopardy because such organizations are prohibited from intervening in political campaigns and elections.

The church's rector, J. Edwin Bacon, told his congregation about the problem Sunday.

"It's important for everyone to understand that the IRS concerns are not supported by the facts," Bacon said.

Bacon later said he chose Sunday to inform the congregation because Nobel Peace Prize winner Archbishop Desmond Tutu was in attendance and because he believes a decision from the IRS is imminent. He called the IRS threat "a direct assault on freedom of speech and freedom of religion."

While I am certainly conservative in my approach to religion, I am not celebrating this action by the IRS. I do not want to see any church, liberal or conservative, being threatened with removal of their tax-exempt status simply for discussing (or even advocating) what they view as the important issues of the day from their religious and moral perspective.

Of course, there is a certain amount of irony in the fact that a liberal church should be targeted by the IRS, given that it was primarily liberal religious organizations that opposed the enactment of The Houses of Worship Political Speech Protection Act. Take, for example, the Unitarian Universalists Association's call for its members to oppose the enactment of the legislation:

This bill threatens to destroy the invaluable separation of church and state, transform religious organizations into political machines and create a destructive loophole in our nation’s campaign finance laws.

Likewise, consider the statement by the United Church of Christ which was echoed by the Interfaith Alliance (an organization of churches which includes the Episcopal Church, USA -- the denomination with which All Saints Episcopal Church, Los Angeles, is apparently affiliated):

This bill would open a dramatic loophole in the nation's campaign finance laws. Donations to houses of worship are tax-deductible because the government assumes that their work is contributing to the common good of society, not to a particular political party or a partisan campaign. As such, contributions to churches are tax-deductible, and donations to political candidates and parties are not. HR 235 would create a significant new loophole in our nation's campaign finance laws, with serious ethical and legal implications.

Because of their unique mission, houses of worship should not be allowed to retain their tax exempt status while engaging in political campaign activity.

Given the fact that through the first 150 years of the United States, churches were a place where the moral issues of politics were taken up and discussed, it certainly seems contrary to our political heritage to have churches silenced by threat of tax reprisals. It is my view that the tax code should be revised to allow churches to speak freely about the issues of the day, and I urge Congress to take this action.