Appendix I
Political Activity by Clergymen
Alan P. Dye, Esq.
Washington, D.C.
The IRS treatment of legislative and political activities by clergymen and organizations exempt from tax under Section 501(c)(3) of the Internal Revenue Code of 1954 (the Code) is subject to changing IRS interpretations, and it is dangerous to generalize based upon specific cases. Nevertheless, certain general principles may be relied upon with reasonable certainty. These are summarized below, along with the answers to some frequently asked questions.
Law and Regulations
An organization is exempt from tax under Section 501(c)(3) if it is:
". . . a corporation, . . . fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes,
. . . 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 provided in subsection [h]), and which does not participate in, or intervene in (including the publishing and distributing of statements),
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any political campaign on behalf of any candidate for public office."
It is apparent from the language of the statute that an organization exempt from tax under Section 501(c)(3) may undertake no activity whatever on behalf of or in opposition to any candidate for public office — federal, state, or local. This is an absolute prohibition.
Legislative activities, as contrasted to political activities, are permissible for such an organization. However, the statute specifically prescribes that no substantial part of the activities of such an organization may be devoted to activities intended to influence legislation.
The IRS regulations under Section 501(c)(3) elaborate on the general statutory requirements as follows:
(3) Authorization of legislative or political activities. An organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it:
(i) To devote more than an insubstantial part of its activities to attempting to influence legislation by propaganda or otherwise; or
(ii) Directly or indirectly to 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; or
(iii) To have objectives and to engage in activities which characterize it as an "action" organization as defined in paragraph (c)(3) of this section.
Sections 1.501(c)(3)-1(b)(3)(i) and (ii) of the above regulation merely restate Section 501(c)(3) and its prohibition of political activity and limitations on legislative activity, but subsection (iii) expands the limitations placed upon charitable or educational organizations to preclude Section 501(c)(3) status for so-called "action" organizations, which are defined to include any organization which contacts or urges the public to contact legislators regarding
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legislation or which itself advocates the adoption or rejection of legislation.
The statute does not define the term "substantial" for purposes of determining whether an organization qualifies under Section 501(c)(3). Court cases have held that an organization may devote at least 5 percent of its activities to lobbying without losing its tax-favored status, and that an organization devoting more than 20 percent of their activities to such pursuits are in an area of uncertainty. The IRS has never accepted the applicability of any specific percentage to determine the substantiality of any organization's legislative activity.
In 1976, Code Section 501(h) was enacted to relieve some of this uncertainty. That section sets forth a procedure whereby an organization may elect to expend a specified portion of its budget for legislative activities without any adverse effect upon its tax-exempt status. The amount of such activity is computed on a statutorily prescribed sliding scale. As an example, an organization whose total expenditures on all exempt purposes are less than $500,000 per year may devote up to 20 percent of such expenditures to lobbying without paying any tax, and up to 30 percent without losing its tax-exempt status. Expenditures exceeding 20 percent, but less than 30 percent, are subject to a special tax, but will not adversely affect tax-exempt status.
Under Section 501(h), one-quarter of the allowable expenditure amount may be devoted to so-called "grass-roots lobbying," defined as attempts to influence the general public regarding legislation. Organizations not electing under Section 501(h) are subject to the old rules. In either case, permissible lobbying must be in the public interest.
Section 501(h) may be elected by most organizations qualifying for tax exemption under Section 501(c)(3) of the Internal Revenue Code. However, while the bill was
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being considered by Congress, there were those in the church community who believed that churches are not subject to the prohibitions against lobbying in any respect. These organizations believed that to include churches and integrated auxiliaries of churches in the relief legislation would imply that the government had the right to revoke their tax exemptions if they engaged in legislative activity. Since they do not believe that this is true, the organizations lobbied for a provision excluding them from the benefits of 501(h). The result is that churches, integrated auxiliaries of churches, and members of affiliated groups in which one or more members are churches or integrated auxiliaries of churches are not eligible to elect the provision of Section 501(h). Religious institutions which are not churches or integrated auxiliaries can make this election.
The requirements of the statute may thus be summarized as follows: An organization carrying on public affairs activities may qualify for exemption from tax under Section 501(c)(3) and receive charitable contributions under Section 170(a) if its activities are educational, charitable or religious; if it does not exceed the limitations imposed on lobbying and propaganda expenditures imposed by Section 501(c)(3) and/or Section 501(h); and if it engages in no activity intended to influence the election or defeat of any political candidate.
Federal elections are governed by Title 2 of the U.S. Cod Section 431, et seq., comprising the Federal Election Campaign Act of 1971, as amended. The election laws prohibit contributions or expenditures in connection with any federal campaign by any corporation. Since many churches and charities are incorporated, the prohibition extends to many such organizations. It should be noted that this prohibition extends only to "contributions" and "expenditures." Thus, directly or indirectly, a corporation must spend money in support of or opposition to a candidate before a violation can be found. Activity by a minister outside working hours would not constitute a contribution by his church, though political advocacy on church
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time might. Use of church facilities for a political purpose by a candidate or committee may be the equivalent of a contribution, but merely allowing a visiting politician to deliver a sermon or read Scripture would not.
Discussion
1. Endorsements
a. Can a clergyman or office of a nonprofit tax-exempt organization publicly endorse a candidate for public office?
Neither the federal tax statutes nor the federal election law place impediments upon individuals expressing their election choices. The fact that a clergyman is employed by a tax-exempt organization does not destroy his personal constitutional right to political expression, and such an individual may personally endorse or oppose candidates for office without endangering the tax-exempt status of the organization by which he is employed.
b. Can it be done from the premises or pulpit of the tax-exempt organization?
Yes. There is no instance of which we are aware in which the Internal Revenue Service or the Federal Election Commission has sought to take adverse action against a church solely because its minister endorsed a candidate from the pulpit. However, a clergyman should not make a regular practice of endorsing candidates from the pulpit, lest his personal position be attributed to his church, and on those occasions when he does do so, he should make it clear to his congregation that the endorsement is a personal one and not that of the institution.
c. Can the church or "organization" endorse a candidate?
The federal election law prohibits the expenditure of corporate funds in an attempt to influence an election. If the endorsement does not involve such a corporate expenditure, it would be permissible under the election law.
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However, Section 501(c)(3) of the Internal Revenue Code prohibits any direct or indirect participation in political campaigns by a charitable or religious organization. This prohibition is broader than that of the election law, and extends to more than the mere expenditure of funds. Therefore, a charitable organization (including a church) which endorses a candidate for public office would be participating in a political campaign and would endanger its tax-exempt status.
We are aware of no instances in which the Internal Revenue Service has sought to revoke the tax-exempt status of a church merely because the church has endorsed a political candidate. However, this is probably due to the traditional timidity of the IRS in the face of organized religion, and such a policy could be changed at any time.
d. Can the clergyman or nonprofit organization leader/officer lend his name to political advertisements and have his title listed under his name for identification purposes?
Yes. The IRS has ruled that even private foundations may support voter education drives. T.D. Release K-87, May 11, 1969. In this respect, IRS Revenue Ruling 78-248, states as follows:
"Certain 'voter education' activities conducted in the nonpartisan manner may not constitute prohibited political activity under section 501(c)(3) of the Code. Other so-called 'voter education' activities, however may be proscribed by the statute."
This revenue ruling contains a number of examples of situations illustrative of the rules as applied by the IRS.
In one example, an organization compiled and made generally available to the public voting records of all members of Congress. The publication contained no editorial opinion, and its contents did not imply approval or disapproval of the members' voting records. The IRS held that such activity is not prohibited to a Section 501(c)(3) organization.
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In another situation an organization was found to qualify as a Section 501(c)(3) organization even though it published a "voter's guide" containing the opinions of various candidates for political office on a wide variety of issues. It is important to note that the issues were selected solely on the basis of their importance and interest to the electorate as a whole. Candidates' positions were ascertained through answers to a questionnaire sent to all candidates.
Important distinctions may be drawn from a third example in which the same sort of questionnaire was sent to candidates in order to prepare a voters' guide, but the questionnaire was structured in such a way that it evidenced bias on certain issues. The organization was held not to qualify for tax-exempt status.
e. Must voter registration activities be nonpartisan?
Yes.
f. Can the organization spend money for paying registration organizers, or for mailing out registration forms?
Yes, if the registration is nonpartisan.
2. Candidate Appearances
a. Can candidates speak on the premises of a Section 501(c)(3) organization?
The Internal Revenue Service has never to our knowledge attempted to revoke the tax-exempt status of an organization which has allowed political candidates to speak on the premises. It is fairly clear that there is no problem with such practice if all candidates are allowed to speak, rather than merely those endorsed by the leaders of the institution. This is consistent with revenue rulings dealing with broadcasting stations, in which it has been held that providing reasonable air time to all legally qualified candidates for election to public office does not constitute participation in a political campaign. See Rev. Real. 74-574, 1974-2 C.B. 160.
The question is a closer one if only certain candidates are
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allowed to address the group with political speeches. It could, of course, be argued that allowing a candidate to speak involves no expenditure or endorsement by the organization or that purely internal communications do no constitute intervention in a political campaign. Further, as we have noted, we know of no instance in which an organization has lost its tax-exempt status for such activities. Nevertheless, more care and consideration should be given to such an activity than to an activity where all candidates are provided with the opportunity to speak.
Of course, candidates and public officials retain their rights to religious expression. ministers should be safe in introducing a candidate present in the congregation at a service, and candidates may be allowed to deliver sermons and read Scripture.
b. Can a public incumbent office holder speak on the premises or from the pulpit?
Yes, though if such office holders are candidates, the same considerations apply as are discussed above.
c. Can an organization exempt from tax under Section 501(c)(3) operate forums where all candidates for a particular office come and speak?
Though the Internal Revenue Service has apparently never ruled on this exact question, such an activity is consistent with other IRS rulings. See, for instance, Revenue Ruling 74-574, supra, involving appearances by candidates on television stations operated by religious and educational groups. See, also, Revenue Ruling 66-256, 1966-2 C.B. 210, in which an organization was held to qualify for Section 501(c)(3) status where it conducted public forums at which elections and debates on social, political, and international matters are presented.
3. Fund Raising
Can funds be raised at religious services for campaign contributions to candidates, contributions to political parties, or contributions for a legislative battle or moral
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or educational issue campaign?
An organization may qualify for Section 501(c)(3) status so long as it does not devote a substantial portion of its activities to propaganda or legislative activities. Collecting money at a church service does not involve an expenditure of funds which could under any circumstances amount to a substantial expenditure. Therefore, allowing fundraising for lobbying campaigns at church services incurs no significant expense.
In contrast, raising money for a candidate or political party would constitute indirect participation in the political campaign. Since the prohibition on such activities is absolute, such an activity could result in the loss of tax-exempt status.
4. Mailing Lists
Can an organization exempt from tax under Section 501(c)(3) loan or rent its mailing list to an organization carrying on legislative activities or to a candidate or political committee for campaign fund raising?
Both the Federal Election Commission and the Internal Revenue Service would react adversely to a loan of an organization's mailing list for use in a political campaign. Such an activity would constitute a corporate political expenditure to the extent that corporate funds had been used to develop the membership list. It would also constitute participation in a political campaign for purposes of Section 501(c)(3).
The loan of a mailing list to a "legislative" organization must be analyzed using different principles. The election law would not apply since that statute applies only to political activities rather than legislative ones. The loan could be considered a legislative expenditure to the extent of the cost of providing it, but in any event would be considered such an expenditure only to the extent of any additional cost incurred by the corporation. Presumably, such additional costs would be very slight and would only in a very unusual circumstance result in substantial expenditure.
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It is clear that both political candidates and parties and legislative organizations can buy mailing lists from charitable organizations. No problem would exist in any of the above cases if the list were rented at its fair market value (the value at which it is rented to other organizations, if at all) to either a political organization or a legislative organization.
We have attempted to deal in general summary form with problems which commonly arise. The reader should recognize, however, that the tax effect of political or legislative activity on a church or charity depends on the precise facts of the particular case. Each church should consult its own counsel with respect to its specific activities.
Revised April 1990
Table of Contents || Appendix II
